USD Trades Lower on Market Optimism

There were more signs that the U.S. economy was improving, as a string of positive data was released yesterday from the U.S. the most significant was the Chicago PMI, which printed higher-than- expected figures in the month of August. This indicator is a primary gauge of manufacturing sector, acting as the main driver of the U.S. economy. On top of this good news, a rise in demand for U.S. goods from abroad is also likely to help boost the U.S. economy in the coming months.

USD - Chicago PMI Data Pushes the USD Lower

Evidence is increasing that the worst of the global recession is passed. Business activity in the U.S., the world's biggest economy, rose more than economists forecast in August, the Institute for Supply Management-Chicago Inc. said Monday. The Chicago PMI report is further indication that the U.S. economy is starting to improve; the data eased risk aversion among investors analysts said, with positive data negative for the Dollar and Yen.

The USD fell against a basket of currencies due to the decline in U.S. equities, as fears that the recent rally has overheated. This decline was led by the 7% fall in China's stock market index. As a result, the Dollar was hurt as traders fled to currencies such as the GBP and EUR. The greenback fell by about 50 pips to the 1.4336 level vs. the European currency. Against the British Pound, the Dollar slid by over 50 pips to 1.6283. The USD did make some gains, as the USD/JPY cross rose by 30 pips to the 92.95 level. Note, this is the first time in 3 days that the USD closed higher against the JPY.

Looking ahead to today, there is some pivotal news that is set to be released from the U.S. economy. The ISM Manufacturing PMI and Pending Homes Sales figures are set to be published simultaneously at 14:00 GMT. These results are even more important than usual due to the recent turmoil in equity markets and commodity markets, therefore all eyes are on the Dollar as the U.S. economic situation is set to improve further. It is advised that traders open their USD positions now, as this trading day is set to become very volatile in the coming hours. Furthermore, today's results are set to drive the forex market for the rest of this week.

EUR - EUR Rises as Inflation Eyes Positive Territory

The EUR's experience with negative inflation may be coming to an end very soon, as yesterday's figures showed a smaller-than-forecast yearly fall in prices in the Euro-Zone in August. The CPI Flash Estimate showed that prices were only -0.2% lower than August 2008. However, in July the figure was -0.7%. The deflation in the Euro-Zone has been owed to a drop in consumer goods prices, especially the price of Oil.
Monday's figures indicate that inflation may be positive again by the end of this month.

The European currency rose against most of its major currency crosses in yesterday's trading. Starting with the GBP, it rose only 5 pips to the 0.8802 level. This comes as the pair has started to see more bearishness recently. Yesterday's behavior within the pair may be largely owed to the lack of volume in some GBP pair, due to the bank holiday in Britain. With regards to the EUR/USD pair, the European currency rose 50 pips to the 1.4336 level. The GBP/JPY cross jumped by 100 pips to the 151.50 level.

Today, the news coming from the Euro-Zone is also set to be a driving force in helping determine the EUR's main crosses, as mid-week trading approaches. There is the German Retail Sales at 06:00 GMT and the Unemployment Rate at 09:00 GMT. Data form Britain is also set to help determine the strength of both the EUR and GBP today, such as the Mortgage Approvals and Manufacturing PMI figures. So if you want to make some high returns today, open large positions in EUR and GBP as soon as possible.

JPY - Yen Falls on All Fronts

The Yen slipped on Monday, as a slump in global equities led by the U.S. and China reignited fears about Japan's fragile economy. It seems the recent lift from the landslide election victory of the Democratic Party in Japan's election (DPJ) failed to help the Japanese currency yesterday. The Japanese currency fell against the USD by 30 pips. It also fell vs. the GBP and EUR.

It seems in the longer term, however, the important election of the DPJ may help the JPY if it sticks with its election promise to increase consumer spending, which in turn will push Japan back to positive inflation. Additionally, the Yen could also gain if the DPJ sticks to its other pre-election promises, such as reversing the current purchasing of U.S. Dollar based debt.

OIL - Oil Plummets Amid Global Equity Slump

Crude Oil prices plummeted by nearly $3 to $69.86, which is the biggest drop in 2 weeks. This comes about as a 7% dive in china's main stock index led to a bearish global equity market yesterday. This was initially sparked by concerns about a slowdown in lending that is likely to negatively impact the global economic recovery in China, which is the second largest energy consumer.

Crude's dive was also owed to fears that Japan's economy is destabilizing, as housing and other important data showed that Japan's economy is still very volatile. Therefore, this is important as Japan is the world's second largest Crude Oil consumer. Traders are advised to follow the next OPEC meeting on September 9th, which will be crucial in determining future Crude prices.

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What is Forex?

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.

The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

Forex Turnover

Forex Turnover
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
The purpose of Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, Yen, etc., and the need for trading in such currencies. Since you aren’t buying anything physical this kind of trading can be confusing. When buying a currency think of it as buying a part in that particular country’s economy because the currency rate reflects the economical situation of the country when compared to others.


List of most popular currencies on the Forex market

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Why to trade on Forex?

1. There is no commission fee for trading at Forex.
2. There is no intermediary, you can trade directly at Forex.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
6. Free demo accounts, analysis and charts.
7. Small accounts that allow everyone to try out his luck.

Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.

Good luck to everyone!