USD - Dollar Moves on Stock Market Gains
The Dollar recorded an extremely volatile session yesterday as the American stock market made massive gains on Thursday. The Dow Jones climbed an impressive 240 points, or 3.5%.This was owed to a number of diverse factors, such as General Electric revealing that losing its AAA rating won't hurt the company, General Motors stating that it won't need government loans this month, and better-than-expected retail sales figures helped push-up stocks too. This led the Dollar to make big moves against its major currency crosses. Against some currencies it made gains, and against others, like the EUR, it recorded heavy losses.
The Dollar dropped 100 points against the EUR to close down at 1.2924 in yesterday's trading, as investors decided to take some riskier assets. The Dollar also made losses against the Pound. This is more likely to be a correction in the pair, as the Pound has lost a lot of ground against the greenback as of late. The British currency gained 50 points against the USD to close at 1.3918. The Dollar, however, recorded a 150 point gain vs. the Yen as it closed at 97.63.
Other news owing to the bullish U.S. stock market and the fall in the Dollar's value against the EUR yesterday was Bank of America, JP Morgan, and Citigroup reporting impressive figures, leading to more risk taking yesterday. If the trend continues, this will mark a turning point in the current recession. In turn, this would mean a lot for the forex market. Thus, investors would abandon the current safe-haven Dollar en masse and return to currencies such as the GBP and EUR. However, to be safe, the global economic situation should only be judged on a daily basis.
Today, we have some important economic data releases coming out of the U.S. before the weekend kicks in. There are the U.S. Trade Balance figures at 12:30 GMT and the Preliminary University of Michigan (UoM) Consumer Sentiment report at 13:55 GMT. Better-than-expected figures may push the EUR/USD rate up to the 1.3000 level by Friday's close. It is also advisable for traders to pay close attention to whether the Euro-Zone will reveal whether or not they will make rate cuts close to 0% in the coming months.
EUR - EUR Gains against Major Currencies
The EUR made notable gains against all of its major currency pairs in Thursday's trading. This comes about as the stock markets of the Euro-Zone made similar gains, much inspired by the rally on Wall Street. There was also a leap in confidence yesterday, as President of the European Central Bank (ECB), Jean-Claude Trichet, revealed that he will be very aggressive at tackling the economic crisis, more than many analysts had originally forecasted.
Trichet revealed that he plans on cutting the overnight lending rate to 0.5%. In the short-term, this has resulted in an increase in demand for the European currency. This recent news is likely to lead to much volatility in the coming weeks between the EUR and its main currency pairs and crosses.
The EUR gained 40 points against the British Pound in yesterday's trading to close at 0.9284. It nearly gained 300 points vs. the JPY to close at 126.24. This result is also owed to the stock market rally in Japan and the poor Japanese GDP figures, showing that Japan's economy shrunk by 3.2% in the 4th quarter of 2008, the worst figures since 1974. Against the Dollar, the EUR rose 100 points to 1.2924, as investors took up riskier assets.
Looking ahead to today, there is some important news coming out of the Euro-Zone. The German Wholesale Price Index (WPI) will be released at 7:00 GMT, and the Retail Sales figures are set to be released at 10:00 GMT. If these figures match expectations, the EUR is likely to build on yesterday's gains against its major currency pairs. There may be other factor's affecting the EUR's strength later today, such as investors profiting from current market conditions ahead of the weekend.
JPY - JPY Slides on Poor GDP Data and Stock Market Rally
The JPY slid in Thursday's trading owing to 2 factors. First, the recent publication of Japan's poor GDP figures showing that her economy shrunk by 3.2% in the 4th quarter of 2008, the sharpest fall since 1974. The second factor that led to the very weak Yen yesterday was the stock market rally in Japan, inspired by Wall Street. The Nikkei rose by over 300 points, or 4%, as investors dropped the safe-haven Yen. Shares such as Sony, Canon, and Japan's banking sector made notable gains. This was the push that Japan needed to show that there may be light at the end of the tunnel. Maybe we are seeing a turnaround in economic fortunes for Japan?
The JPY made large losses against its major currency crosses. Against the Dollar, the Japanese currency fell by 150 points to close at 97.63. The JPY dropped a massive 300 points vs. the EUR, as there was renewed confidence yesterday due to the Euro-Zone's fiscal policy, and the move away from less risky assets. The Pound also gained against the JPY by 250 points to finish yesterday's trading session at 135.93, reversing losses that the Pound made in recent days. Revised Industrial Production and Household Confidence figures may determine the JPY's strength in early trading today. However, as the day goes on, the Yen will be impacted more and more by developments coming out of the U.S. and the Euro-Zone.
Oil - Crude Oil Prices Soar $4 Higher
The price of Crude Oil for April delivery soared a dramatic $4 a barrel in Thursday's trading to $46.60. This comes about as ministers from the Organization for Petroleum Exporting Countries (OPEC) are set to meet this coming Sunday. Officials in Saudi Arabia and Libya revealed that there may be a decision on further production cuts at their next meeting. However, ministers from OPEC failed to go into detail. There is concern, however, about the destabilizing economic situation on Oil prices.
Throughout this week, Oil prices have continued to be volatile as the upcoming meeting for OPEC in Vienna approaches. On Wednesday, for example, Crude prices dropped dramatically, after a higher-than-forecasted storage of Oil that was published in the Crude Oil Inventories report in the U.S. It seems that these losses have now been overcome. We will have to wait until Sunday's meeting for the surprises that OPEC's oil ministers have for us.
Article Source - G20 Summit on Economy Kicks-Off Today
Key Overnight Developments
• New Zealand Retail Sales Fall -1.1% in January, Led by Autos
• Euro, British Consolidate Gains in Overnight Trading
• China Says More Stimulus Ready, Questions Safety of US Assets
The Euro consolidated gains in overnight trading, oscillating around the 1.29 level. The British Pound followed suit, trading sideways in a well-defined 50-pip range above 1.39.
Asia Session Highlights
New Zealand Retail Sales shrank more than economists forecast, falling -1.1% in January to disappoint calls for a more modest -0.1% decline. Motor vehicle sales saw the largest decline, slipping -11.0% from the previous month. In annualized terms, receipts fell -3.96% from -2.81% in the year to December. Coupled with a -17.6% drop in house sales in the year to February, today’s metric suggests a deep aversion to commit to big-ticket purchases. This is arguably the most accurate gauge of consumer sentiment, reflecting uncertainty about future income and a lack of access to lending. Indeed, private sector credit has been shrinking at an annual pace of 4.12% since peaking October 2008 while the unemployment rate has risen to a 5-year high at 5.6%. Private spending is the largest component of overall GDP and the persistence of barriers to sustained improvement in visible (as opposed to stated, as in survey data) consumer confidence suggests deepening recession lies ahead.
China’s Premier Wen Jiabao announced the government was prepared to add to existing fiscal stimulus (worth $915 billion) should it prove insufficient to support the economy through the global economic downturn. Wen told observers that a “full arsenal” of additional measures was ready to be deployed “at anytime” and assured that policymakers had “reserved adequate ammunition” to do so. Wen went on to bluntly question the security of US investments, saying American lawmakers need to “ensure the safety of assets”, musing that “We have lent a huge amount of money to the United States… of course we are concerned about the safety of our assets. To be honest, I am a little bit worried.” Speaking about the exchange rate, Wen said that now country can “pressure” China to appreciate or depreciate its currency.
Euro Session: What to Expect
Euro Zone Retail Sales are expected to show the annual pace of decline accelerated to -2.3% in January from -1.5% in the previous month, issuing the eighth consecutive month in negative territory. Weak spending seems reasonable considering the jobless rate has risen to 8.2%, the highest in over 2 years. The European Commission expects the unemployment to rise to 9.3% through 2009 and 10.2% in 2010, implying long-standing downward pressure on spending and thereby economic growth.
Futures markets now price in the likelihood that the European Central Bank will respond to the deepening downturn by taking interest rates to 0.75% by the end of April. Although ECB president Trichet has suggested that policymakers are studying “additional non-standard measures”, the bank is treading slower on the path to quantitative easing than the US or the UK where the policy is already in place. On balance, it remains to be seen if this becomes a source of strength or weakness for the Euro. If the global recovery begins sooner rather than later and pulls the regional bloc along for the ride through a rebound in export demand, the single currency will face a smaller risk from rapid re-inflation and become attractive against major counterparts as a store of value. Alternatively, if the crisis is protracted, political pressure to circumvent the ECB and do something at the national level will intensify, threatening the structural integrity of the currency union itself.
In Switzerland, Producer and Import Prices are set to fall to -1.2% in the year to February, the lowest since September 2002. Threatened with the prospect of deflation, the Swiss National Bank announced the most aggressive stimulus of any major central bank: policy makers cut interest rates to 0.25%, announced quantitative easing, and said they were prepared to intervene in forex markets to prevent appreciation of the Swiss Franc. With the policy equivalent of everything but the kitchen sink now officially thrown at prices, today’s data is likely to be overlooked as moot until further evidence emerges in the months ahead.
Written by Ilya Spivak, Currency Analyst
Article Source - Euro Holds at 1.29, EZ Retail Sales to Fall for Eighth Month in January (Euro Open)
Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions are usually closed before the market close of the trading day. This can occur in any marketplace but is most common in the foreign exchange market and stock market. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. However, with the advent of electronic trading and margin trading, day trading has become increasingly popular among casual, at home traders. Day traders utilize high amounts of leverage and short-term trading strategies to capitalize on small price movements in highly liquid stocks or currencies. They serve two critical functions in the marketplace - keeping the markets running efficiently via arbitrage and providing much of the markets' liquidity.
Although collectively called day trading, there are many styles within day trading. A day trader is actively searching for potential trading setups (that is, any stock or other financial instruments that, in the judgment of the day trader, is in a tension state, ready to accelerate in price in either direction, that when traded well has a potential for a substantial profit). The number of trades you can make per day are almost unlimited, as are the profits and losses.
Some day traders focus on very short-term trading within the trading day, in which a trade may last just a few minutes. Day traders may buy and sell many times in a trading day and may receive trading fee discounts from their broker for this trading volume.
Some day traders focus only on price momentum, others on technical patterns, and still others on an unlimited number of strategies they feel can be profitable. Some day traders exit positions before the market closes to avoid any and all unmanageable risks - negative price gaps (differences between the previous day's close and the next day's open bull price) at the open - overnight price movements against the position held. Other traders believe they should let the profits run, so it is acceptable to stay with a position after the market closes.
Day traders sometimes borrow money to trade. This is called margin trading. Since margin interests are typically only charged on overnight balances, the trader pays no fees for the margin benefit, although they still run the risk of a Margin call.
Profit and Risks
Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses. Some day traders manage to earn millions per year solely by day trading.
Because of the high profits (and losses) that day trading makes possible, these traders are sometimes portrayed as "bandits" or "gamblers" by other investors. Some individuals, however, make a consistent living from day trading.
Nevertheless day trading can be very risky, especially if any of the following is present while trading:
- trading a loser's game/system rather than a game that's at least winnable,
- trading with poor discipline (ignoring your own strategy, tactics, rules),
- inadequate risk capital with the accompanying stress of having to "survive",
- incompetent money management (i.e. executing trades poorly).
The common use of buying on margin (using borrowed funds) amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margins for day traders. Where overnight margins required to hold a stock position are normally 50% of the stock's value, many brokers allow pattern day trader accounts to use levels as low as 25% for intraday purchases. This means a day trader with the legal minimum $25,000 in his or her account can buy $100,000 worth of stock during the day, as long as half of those positions are exited before the market close. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than his or her original investment, or even larger than his or her total assets.
The profit potential of day trading is perhaps one of the most debated (and misunderstood) topics on Wall Street. Countless internet scams have capitalized on this confusion by promising enormous returns in a short period. Meanwhile, the media continues to promote this type of trading as a get-rich-quick scheme that always works. The truth lies somewhere in the middle. There are those who engage in this type of trading without sufficient knowledge (or some even admittedly for a gambler's high). However, there are day traders who are able to make a successful living. Many professional money managers and financial advisors shy away from day trading, arguing that in most cases the reward does not justify the risk. They often cite that no day trader is world renown, whereas icons like Warren Buffett and Peter Lynch are a testament to the success that can be attained by more traditional forms of investing. Conversely, those who do day trade insist there is profit to be made. They say the success rate is inherently lower as a result of the higher complexity and necessary risk of day trading, combined with all the related scams. Overall, the street remains divided on the issue. At the very least they agree that day trading is not for everyone and involves significant risks. Moreover, it demands an in-depth understanding of how the markets work and various strategies for profiting in the short term.
Day Trading For A Living
There are two primary divisions of professional day traders: those who work alone and/or those who work for a larger institution. Most day traders who trade for a living work for a large institution. The fact is these people have access to things individual traders could only dream of: a direct line to a dealing desk, large amounts of capital and leverage, expensive analytical software and much more. These traders are typically the ones looking for easy profits that can be made from arbitrage opportunities and news events. The resources to which they have access allow them to capitalize on these less risky day trades before individual traders can react. Individual traders often manage other people's money or simply trade with their own. Few of them have access to a dealing desk; however, they often have strong ties to a brokerage (due to the large amounts of commission spending) and access to other resources. However, the limited scope of these resources prevents them from competing directly with institutional day traders, instead, they are forced to take more risks. Individual traders typically day trade using technical analysis and swing trades, combined with some leverage, to generate adequate profits on such small price movements in highly liquid stocks.
Day trading demands access to some of the most complex financial services and instruments in the marketplace. Day traders require:
1. Access to the Trading Desk
This is usually reserved for traders working for larger institutions or those who manage large amounts of money. The dealing desk provides these traders with instantaneous order executions, which can become important, especially when sharp price movements occur. For example, when an acquisition is announced, day traders looking at merger arbitrage can get their orders in before the rest of the market, taking advantage of the price differential.
2. Multiple News Sources
In the move "Wall Street" Gordon Gekko says that 'information is the most important commodity when trading’. News provides the majority of opportunities day traders capitalize on, so it is imperative to be the first to know when something big happens. The typical trading room contains access to the Dow Jones Newswire, televisions showing CNBC and other news agencies, as well as software that constantly analyzes various other news sources for important stories.
3. Analytical Software
Trading software is an expensive necessity for most day traders. Those who rely on technical indicators or swing trades rely more on software than news.
Combined these tools provide traders with an edge over the rest of the marketplace. It is easy to see why, without them, so many inexperienced traders lose money.
The following are several basic strategies by which day traders attempt to make profits. Besides these, some day traders also use contrarian (reverse) strategies (more commonly seen in algorithmic trading) to trade specifically against irrational behavior from day traders using these approaches.
Some of these approaches require shorting stocks instead of buying them normally: the trader borrows stock from his broker and sells the borrowed stock, hoping that the price will fall and he will be able to purchase the shares at a lower price. There are several technical problems with short sales - the broker may not have shares to lend in a specific issue, some short sales can only be made if the stock price or bid has just risen (known as an "uptick"), and the broker can call for the return of its shares at any time. Some of these restrictions (in particular the uptick rule) don't apply to trades of stocks that are actually shares of an exchange-traded fund (ETF).
1. Trend Following
Trend following, a strategy used in all trading time-frames, assumes that financial instruments which have been rising steadily will continue to rise, and vice versa with falling. The trend follower buys an instrument which has been risin,g or short-sells a falling one, in the expectation that the trend will continue.
2. Contrarian Investing
Contrarian investing is a market timing strategy used in all trading time-frames. It assumes that financial instruments which have been rising steadily will reverse and start to fall, and vice versa with falling. The contrarian trader buys an instrument which has been falling, or short-sells a rising one, in the expectation that the trend will change.
3. Range Trading
Range trading is a trading style in which stocks are watched that have either been rising off a support price or falling off a resistance price. That is, every time the stock hits a high, it falls back to the low, and vice versa. Such a stock is said to be "trading in a range", which is the opposite of trending. The range trader therefore buys the stock at or near the low price, and sells (and possibly short sells) at the high. A related approach to range trading is looking for moves outside of an established range, called a breakout (price moves up) or a breakdown (price moves down), and assume that once the range has been broken prices will continue in that direction for some time.
Scalping was originally referred to as spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread are exploited. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds. Scalping highly liquid instruments for off the floor day traders involves taking quick profits while minimizing risk (loss exposure). It applies technical analysis concepts such as over/under-bought, support and resistance zones as well as trend line, trading channel to enter the market at key points and take quick profits from small moves. The basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands.
5. Rebate Trading
Rebate Trading is an equity trading style that uses ECN rebates as a primary source of profit and revenue, considering the payment structure of ECN paying per share. Traders maximize their returns by trading low priced, high volume stocks. This enables them to trade more shares and have more liquidity with a set amount of capital.
6. News Playing
News playing is primarily the realm of the day trader. The basic strategy is to buy a stock which has just announced good news, or short sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits (or losses). Determining whether news is "good" or "bad" must be determined by the price action of the stock, because the market reaction may not match the tone of the news itself. The most common cause for this is when rumors or estimates of the event (like those issued by market and industry analysts) were already circulated before the official release, and prices have already moved in anticipation---the news is already priced in the stock.
Although day trading has become somewhat of a controversial phenomenon, its prevalence is undeniable. Day traders, both institutional and individual, play an important role in the marketplace by keeping the markets efficient and liquid. Some argue that individuals should stay away from day trading, while others argue that it is a viable means to profit. And although it is becoming increasingly popular among inexperienced traders, it should be left primarily to those with the skills and resources needed to succeed.
What is Forex?
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 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.
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!