USD - Dollars Tumbles on Increasing Money Supply
The has continued its weekly demise this week , as it reached close to a two month low against the EUR on Thursday. The greenback also saw significant downtrends against the GBP and the JPY as well. The Federal Reserve's decision to expand the supply of Dollars by buying government debt, which was announced 2 days ago, is continuing to severely damage the U.S currency. Yesterday the USD lost a staggering 200 pips against the EUR to close at 1.3659. Against the JPY, the Dollar dropped a staggering 150 pips or 1.5% to close at 94.55. The Dollar's losses against the Pound were notable, as the greenback lost nearly 300 pips on Thursday to close at the 1.4489 level.
In general it can be said that the Federal Reserve's decision has had two different effects, both weakening the Dollar. Firstly, the Fed's actions were received quite enthusiastically among analysts across the world, which had an instant reaction among investors that now have more confidence that the U.S will manage to pull out of the current recession. Thus, as was proven recently, good news for the U.S economy signifies even better news for the rest of the western world, as these countries rely greatly on U.S consumption. The second effect is, as was described above, is a process in which the supply of Dollars increases, and thus makes the USD more available and cheaper in the long-term.
The other important factor that added to the Dollar's misfortune yesterday was the release of U.S Unemployment Claims data. Despite being slightly better-than-expected figures of 646,000 individuals filed for unemployment insurance during the past week, as opposed to the expected 652,000 individuals, these figures are still very disappointing. The next publications of this indicator could be the leading measurement of the U.S. economy's condition, and prospects for recovery. Traders are advised to follow it very carefully when it is published at 12:30 GMT next Thursday.
Looking ahead to today, the only significant event on the U.S calendar is the speech of the Federal Reserve Chairman Ben Bernanke, which is expected to take place at 16:00 GMT. After the reaction to Bernanke's announcement from 2 days ago, traders cannot afford to overlook his speech today, as it could impact the market dramatically once again. The result of the speech may incite a modest correction to the last days' trends in USD weakness.
EUR - EUR Soars vs. the Dollar
The EUR continued its bullish rally yesterday. The EUR saw its most dominant uptrend against the USD, as the EUR/USD reached over the 1.37 level, to eventually close up 200 pips at the 1.3659 level. Against the JPY, however, it finished yesterday's trading session virtually unchanged at 129.15, as the Yen continues to uphold its value. The EUR did gain over 50 pips vs. the British Pound to close at 0.9423, as the EUR/GBP pair heads for parity yet again.
It appears that the European Central Bank's (ECB) reluctance to match the Federal Reserve plan to rescue the Euro-Zone economy by buying government's debt is one of the main factors that have led to the European currency towards such high ranks against the leading currencies. However, it is widely accepted that the ECB won't be able to sustain the public demand for a rescue plan, and will soon launch a plan of its own. The plan will probably be more modest than the American one, but could have similar effects on the European currency.
A significant economic rescue plan for the Euro-Zone economy may lead to the current bullish trend in the EUR reaching its end much sooner than expected. Traders should stay extremely alert in the coming days and weeks, as an opportunity to profit from a reversal in the EUR's fortunes, spurred by the case that the ECB will indeed announce its desire to implement a rescue plan might be a rare opportunity to catch a trend in its first steps. Therefore, forex traders may be able to make large profits by employing this trading strategy.
As for today, a batch of data is expected from the Euro-Zone. The most significant indicators will be the German Producer Price Index at 07:00 GMT, which is expected to drop by 0.2% as opposed to the previous month. The European Industrial Production figures at 10:00 GMT is expected to drop by 3.8% from the last publication. If forecasts will indeed come true, traders might witness a relatively bearish trading day for the EUR. However, it is advised to follow economic news coming from the U.S., as this may change the course of trends today.
JPY - Yen Climbs Against the Dollar
The Yen soared against the Dollar yesterday, mainly as a result of the weakening USD, and not as a result of high demand for JPY. The Dollar's weakness was largely owed to the Federal Reserve's decision to keep Interest Rates near 0 at 0.25%, and announcing a mass buying of debt, by dramatically increasing the Dollar supply. The Yen's strength is also owed to the Bank of Japan's (BoJ) extremely pessimistic line by stating that Japan's economic conditions have deteriorated significantly, and are likely to keep worsening. In other times, such a saying would have generated a massive bearish trend for the JPY, but as of late, it appears that all the currencies will appreciate against the Dollar without any relevance to their local economic conditions. In the long-term, if the BoJ will continue with its desire to see a weak JPY, the Yen is very likely to depreciate over time, and traders should take this under consideration.
The JPY saw mixed results against the major currencies in yesterdays trading. The JPY rose against the USD by a dramatic 150 pips or 1.5%, as the USD/JPY cross reached as low as the 93.53 level, before finishing at the 94.55. The Yen lost 60 pips against the GBP to close at 137.01, reversing some of the GBP's losses against the Japanese currency. The EUR/JPY currency cross finished Thursday's trading session virtually unchanged to close at 129.15, as both currencies made significant gains against the greenback. As for today, Japanese banks will be closed in observance of Vernal Equinox Day. Traders are advised to follow the economic news coming from the leading regions, such as the U.S., Euro-Zone and Britain.
Crude Oil - Crude Oil Hits the $52 Level
Crude Oil rose to over $52 yesterday, before closing at $51.39, an increase of 150 pips or 3%. This marks a massive weakly gain for Crude Oil of about 13%. This is largely owed to signals of a possible economic recovery from the U.S. It appears that OPEC's unusual high level of discipline, is one of the other reasons for the high value of Crude Oil. OPEC managed to keep up to their estimations of the right amount of barrels produced per day, and as a result managed to halt the ongoing erosion in Oil prices.
High Crude prices are also owed to the significant drop in the Dollar. Thus Crude Oil is valued in Dollars, and as such, any downtrend of the USD is likely to generate a bullish trend for Oil. As for today, traders are advised to follow economic data, especially from the U.S, and even more importantly, follow the USD's movements against the leading currencies, in order to predict Oil's trend for today. If the Dollar will continue to slide, Crude Oil might reach $55 a barrel before the week ends.
Article Source - Bernanke Speech to Impact Dollar
Key Overnight Developments
• Euro Stalls, British Pound Lower Against US Dollar in Overnight Trading
• Asian Stocks, US Index Futures Lower Ahead of European Market Open
The Euro consolidated NY-session gains in overnight trading, oscillating around the 1.3650 level. The British Pound inched lower, losing its grip on the 1.45 mark to shed as much as -0.5% against the US Dollar.
Asia Session Highlights
With no market-moving data on the economic calendar, traders saw forex price action consolidating in overnight trading. The New York session was marked by a sharp US Dollar selloff starting at the open of American bond markets as traders reacted to the first leg of the Fed’s purchase of $300 billion in Treasuries to bring down medium- to long-term borrowing costs. Asian stock exchanges pulled back after seeing the biggest weekly gain since August 2007, with the MSCI Asia Pacific Index slipping -0.9% on profit-taking. US equity index futures are down close to 1%.
Euro Session: What to Expect
Germany’s Producer Prices are set to shrink -0.2% in February, bringing the annual pace of wholesale inflation to a 14-month low at 1.3%. Although the release would typically suggest further downward pressure on consumer prices as manufacturers pass on lower production costs through cheaper finished goods, we saw annual German inflation rebound to 1.0% in February from a 5-year low at 0.9% in the preceding month. The broader Euro Zone consumer price index also inched higher to 1.2% in the year to February, issuing the fist uptick since price growth peaked at 4% in July 2008.
Indicators measuring business and consumer sentiment extended months of losses to set new all-time lows in the same period, so it seems unlikely that this inflation will be of the benign variety that comes with renewing vigor in economic activity. Rather, currency depreciation may be the reason headline inflation is creeping higher. On average, the Euro has fallen -15.6% through February against the currencies of the regional bloc’s top five import partners since peaking in mid-July, raising the cost of foreign-made goods for consumers on the continent. The implications of this trend could be quite ominous considering the pace of price growth is rising even as the economy sinks deeper into recession, limiting the ability of the European Central Bank stimulate growth through monetary policy for fear of letting price growth skyrocket. Where some countries are worried about deflation (falling prices), it seems the Euro Zone could see stagflation (rising prices and falling output) as a real threat in the near term.
Written by Ilya Spivak, Currency Analyst
Article Source - Forex Markets Stall to Digest US Dollar Selloff in Asian Trading (Euro Open)
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.
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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.
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Why to trade on Forex?
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Good luck to everyone!