3.12.2009

Euro Gains Likely Corrective, Trend Remains Bearish Against US Dollar (Euro Open)

The Euro consolidated NY session gains in overnight trading, with EURUSD oscillating in a wide range above the 1.28 level. The pair ended the last trading day above near-term resistance, opening the door for a move to 1.33. German Industrial Production is set to fall to 17-year lows in European hours, underscoring fundamental weakness that suggests the upswing is corrective in the context of a larger downtrend.

Key Overnight Developments

• Australian Unemployment Rate Hits 4-year High at 5.2%
• Euro Consolidates, British Pound Extends Gains vs. US Dollar

Critical Levels



The Euro consolidated NY session gains in overnight trading, oscillating in a wide range above the 1.28 level. The British Pound extended bullish momentum, testing as high as 1.3921. The US Dollar Index has broken below support at intersection of 2008 high and rising trend line based from 12/18/08 low, opening the door for significant bullish corrections in EURUSD and GBPUSD.

Asia Session Highlights



Australia’s Unemployment Rate rose more than economists expected, printing at a 4-year high of 5.2% in February from 4.8% in the preceding month. While the economy gained 1.8k jobs (versus expectations of a -20k loss), the improvement came courtesy of a 55.6k rise in part-time employment. Meanwhile, full time positions fell -55.8k, completely erasing the previous month’s 37.7k gain. On balance, the net shift from full-time to part-time employment means fewer working hours and thereby implies downward pressure on wages and consumption, the largest component of overall economic growth. An index of leading indicators compiled by the Westpac Banking Corp suggested the economy will shrink at an annual pace of -1.2% in the six months to June while the National Australia Bank said they expect the output will shrink 1% through 2009.

Euro Session: What to Expect



German Industrial Production is set to shrink for the fourth consecutive month in January, bringing the annual pace of decline to a 17-year low of -15.5%. The down print comes courtesy of tumbling overseas demand: manufacturing is Germany’s top export sector and Factory Orders fell a staggering -37.9% in the year to January. Earlier this week, Germany’s Current Account posted a much narrower surplus than was forecast (4.2 billion euro versus 9.2 billion expected) as exports fell -4.4%. Weak overseas sales are likely to push firms to continue to cut capacity, sending the unemployment rate above 9% for the first time in over 2 years by the end of 2009. This will continue to weigh on consumption and overall growth even as the economy descends into its deepest post-war recession.

The implications for the Euro are twofold. On the trade side, stagnant exports in Germany and throughout the Euro Zone have pushed trading terms 67.3% lower through 2008 all the while the US trade gap has considerably narrowed, with December seeing the smallest monthly shortfall in nearly 5 years. From a long-term perspective, this implies a net outflow of money from the regional bloc and into the States, making for structural downward pressure on the EURUSD exchange rate. On the broader economic growth side, continued turmoil may mean that the ECB will follow other top central banks into quantitative easing. Bank president Trichet signaled the latest 50 basis point reduction to a record low of 1.50% marks a likely shift to a neutral bias but added that policymakers would study “additional non-standard measures”. Going down this road would expose the Euro to the same danger that now faces the Fed and BOE: manually boosting the money supply could prove inflationary and weigh on the currency if the central bank does not drain the excess liquidity with rate hikes fast enough when the recovery is in sight. The risks are to the downside considering policymakers’ recognition of a rebound tends to lag behind its actual beginning. On balance, the fundamental picture suggests that although today’s euro rally has likely opened the door to a meaningful near-term upswing, the move is a correction in the context of a larger down trend. Additional clarity on where the ECB is headed from here may come as the March Monthly Report is released at 09:00 GMT.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Gains Likely Corrective, Trend Remains Bearish Against US Dollar (Euro Open)
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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.

Currencies

Currencies
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.
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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!