USD - Dollar Falls on Increased Risk Appetite
The Dollar finished Thursday's trading session lower against a number of its currency pairs after U.S. Treasury Secretary Timothy Geithner said he was open to expanding the use of the International Monetary Fund's (IMF) special drawing rights. As of yesterday's close, the USD fell against the EUR, pushing the currency pair to 135.69. The greenback experienced similar behavior against the CHF as the pair fell from 1.1299 to 1.1227 by day's end.
A disappointing Treasury note auction reversed an early rally in U.S. stocks, but investors ultimately shrugged off that disappointment and focused on the strong economic data. The government reported that New Home Sales in the U.S. unexpectedly rose in February from a record low, as plummeting prices and cheaper mortgage rates lured some buyers, while U.S. orders for long-lasting manufactured goods also unexpectedly rebounded in the same month.
However, demand for New Homes has been limited by the highest jobless rate in a quarter-century and shrinking household wealth, indicating housing may not rebound quickly even as steps to cut borrowing costs and reduce mortgage defaults take hold. Therefore, investors in the coming weeks may unwind their Dollar positions, as they realize that the U.S. economy has a long road ahead for economic recovery.
Investors may look for the unusual price volatility to continue in the EUR/USD as the pair attempts to stabilize and find new support and resistance lines. Large price jumps such as these are not common place and present terrific opportunities to take advantage of the price swings for large profitable gains. In the short-term, the Dollar may continue to fall against the EUR, as traders look to take-up riskier assets.
EUR - EUR Appreciates Despite Negative Figures
After a relatively negative news day in the Euro-Zone, the EUR still managed to appreciate against most of its currency counterparts. The EUR gained nearly 100 points versus the Dollar, and closed at 1.3569. Against the CHF it mainly fluctuated within a small range, as the pair closed at 1.5231. The EUR climbed against the Pound by an impressive 120 points to close at 0.9301. The European currency also made some impressive gains against the Yen, to close Wednesday's session 85 points higher at 132.67.
The major economic event that came out of the Euro-Zone yesterday was the German Ifo Business Climate data release. German business confidence fell to the lowest level in more than 26 years in March, adding to signs that the recession is deepening in the Euro-Zone's biggest economy. Analysts expect the negative data release to add additional pressure on the European Central Bank (ECB) to make another interest rate cut in the near future. This may affect the EUR in the long-term, but in the short-term forex traders are taking advantage of the EUR to make gains on the high yield of the currency.
Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the GfK German Consumer Climate at 7:00 GMT. Analysts are forecasting this figure to slightly decrease from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may continue to bolster the EUR in the short-term. Traders are also advised to follow the Retail Sales figures coming out of Britain at 9:30 GMT, and the Unemployment Claims figures coming out of the U.S. at 12:30 GMT as these results may set the EUR's main currency crosses going into next week.
JPY - Yen Continues its Slide against the EUR
The Yen completed yesterday's trading session with mixed results versus its major currency pairs. The JPY was broadly unchanged versus the USD on Wednesday and finished the trading session at the 97.77 level. The JPY also saw bearishness against the EUR as the pair jumped by a notable 85 points to close at 132.67. Over the past month the pair has risen over 2,200 points as investors lost confidence in the Japanese currency. The JPY did make some impressive gains yesterday, however, against the GBP to close up nearly 90 points at 142.63. On a larger note, this only marks a slight reversal in the 2 currencies, as the JPY fell dramatically against the GBP in this week's trading.
Japan's export collapse may push sentiment among the nation's largest manufacturers to the lowest level in more than 30 years in March, triggering more investment cuts and job losses. Export declines have set new records each month since November, as U.S. and European consumers have retrenched. The collapse in U.S. sales forced Toyota to cut thousands of jobs and slash domestic production by half this quarter. The automaker may not raise output until after the 3rd quarter of this year. Today, forex traders are advised to follow data releases coming out of Japan, the U.S., the Euro-Zone and Britain as these results are likely to set the short-term strength of the JPY.
Crude Oil - Oil Prices Strong Despite U.S Crude Oil Inventory Rises
Oil prices remained strong yesterday, as they only slid 12 cents, even though U.S. Crude Oil Inventories rose by a higher-than-forecasted 3.3 million barrels. The International Energy Agency (IEA) said that the inventories rose to 356.6 million barrels, which is 15.6% above price levels from one year ago, the highest level since 1993. If it wasn't for the inventories data, Crude prices may have risen by several percent, as the U.S. released some impressive economic data. However, the New Home Sales and Core Durable Goods data helped prevent Crude prices from slipping on Wednesday.
It is important to take into account that Crude Oil prices have risen through the past 2 weeks, as the U.S. government plans to buy up toxic assets from banks. Additionally, the U.S. has continued to release a string of positive economic data. This has been compounded by a weaker Dollar that has also caused investors to flee to commodities such as Crude Oil. Furthermore, if the U.S. continues to publish more positive economic news, and if the American government continues to be aggressive in tackling the current financial crisis, then Crude prices may hit $60 Dollar by the middle of April.
Article Source - EUR/USD Volatility the Order of the Day
Key Overnight Developments
• New Zealand Current Account Deficit Widens to Record Level in Q4
• Australian Economy Shrinking At Pace Unseen Since 2001, Says Conference Board
The Euro traded sideways in a choppy 60-pip range above 1.3550 in the overnight session. The British Pound inched higher, adding as much as 0.5% against the US dollar to test above the 1.46 level.
Asia Session Highlights
New Zealand’s Current Account deficit widened more than economists expected, showing a shortfall of –NZ$4.03 billion in the fourth quarter. In annual terms, the deficit widened to a record –NZ16.07 billion in the year to December. The deficit now amounts to 8.9% of the economy’s total output, the largest among industrialized countries, and is expected to remain higher than New Zealand’s counterparts at least through 2010. Standard & Poors has said that it may cut the country’s sovereign credit rating on concerns that it won’t be able to adequately fund the shortfall. If this proves to be the case, it will imply a net outflow of money out of the country and threaten the value of the currency. Adding to the dour outlook, the International Monetary Fund said today that it expects New Zealand’s economy to shrink 2% through 2009, noting “households are constrained by high debt levels, falling house and equity prices, and uncertain employment prospects.”
Australia’s Conference Board Leading Index fell for the fifth consecutive month in January, printing at -0.6%. The reading is intended to forecast how the economy will perform in the next three to six months. The component measuring new building approvals led the decline, reflecting the deepening global recession and credit shortage that has steered consumers away from big-ticket purchases. In a statement accompanying the release, the Conference Board noted that “the leading index is now falling at rates not seen since 2000-01,” adding to evidence that Australia will sip into recession this year. A leading index published by Westpac Banking Corp echoed the same sentiment last week, falling to levels “consistent with contracting economic activity.” Australia’s GDP unexpectedly shrank -0.5% in the fourth quarter, the first negative print in 8 years, with a recession confirmed should the economy contract again in the three months to March. Minutes from the last policy meeting of the Reserve Bank of Australia said the central bank has “flexibility” to cut interest rates further, with overnight index swaps pricing in 25-50 basis points in easing over the next 12 months.
Euro Session: What to Expect
UK Retail Sales headline the economic calendar in European hours, with expectations calling for a -0.4% drop through February, the first negative reading since September, to bring the annual growth rate down to 2.5% from 3.6% in the preceding month. Rising unemployment is likely to weigh on disposable incomes, pressuring spending lower. Private consumption is the largest component of overall economic growth, so weakness here bodes ill for Britain’s ability to climb out of the current downturn. Indeed, the IMF has predicted that this time around the UK will see the worst recession among the G7 nations. A final revision of fourth-quarter GDP figures later this week is set to show that the economy shrank -1.5% in the three months to December 2008, the most in nearly three decades.
Although consumer prices rose in February, the uptick is unlikely to be reflective of a rebound in economic activity. Rather, the rise probably owes to currency depreciation, making foreign-made products more expensive for British consumers. Indeed, the British Pound slipped -0.8% against the currencies of its top import partners in February and a hefty -29.5% through 2008.
Written by Ilya Spivak, Currency Analyst
Article Source - British Pound in Play with UK Retail Sales to Shrink For First in Four Months (Euro Open)
Last week, dollar traders and the broader market were surprised to see the Fed officially announce its intentions to buy Treasuries and double its purchases of mortgaged backed securities. This week, concern over the health of the US currency is far greater. Not only is the US economy ailing and its fiscal deficits ballooning; but now there are concerns that the world may eventually vote to replace the dollar as the world’s reserve currency with a basket or what China has called a ‘super-sovereign reserve currency.’ As the world’s largest holder of US Treasuries, their concerns are taken seriously; but this is an issue that has been made even more pressing by the fact that Russia and UN among others have voiced similar opinions. US President Obama, Treasury Secretary Geithner and the Fed’s Bernanke have all brushed off concerns over the dollar’s health and suitability; but this is no doubt going to be a topic brought up at next week’s G-20 meeting. Considering the group’s history of inaction however, the likelihood that such a drastic shift will be adopted is low.
A Closer Look At Financial And Consumer Conditions
Investor sentiment has improved rather rapidly over the past week; but the overall health of the financial markets is still in the doldrums. As the risk of protectionism rises and calls from economic leaders to other economic leaders to do more grow louder, the global nature of the financial and economic crisis has manifested itself. Recently, the US has taken its major counterparts to task for not increasing their efforts to brace their own economies; to which many respondents have suggested America is digging itself into a hole. Regardless of which side is correct, it is starting to look more and more like the US, China and UK are expected to take the lead for reviving the world.
As debate over the dollar’s role as a safe haven and reserve currency, the limits to US bailout efforts and the feasibility of sentiment in the financial markets rage on; the world’s largest economy is still dealing with what is likely its worst recession since the Great Depression and probably one of the worst contractions in the industrialized world. Over the past week, second tier data has started to hint at stabilization. Both factory orders and housing sales have shown significant improvements; but this comes within the worst trends on recent record. Until employment, consumer spending, mortgage approvals and construction improve, the trend is still down.
The Financial And Capital Markets
Capital markets have extended their biggest rally in months (and for some asset classes it has been the biggest rebound in years). Such an incredible rally has obvious led many market participants to question whether this is the sign of a genuine recovery that so many have been waiting for. However, when searching out a true source for investor confidence, there are few leads that promise to snuff out risk and revive expected returns. A frank assessment of the global economy leads us to a severe recession that is likely to grow worse before it improves. Hope for returns through increased fixed investment, rise in production (by way of demand), and an influx of capital into the markets is fleeting at this point. The most poignant factor for the health of the capital markets is investor confidence. Even if growth recovers and business revenues pick up; the bear market to this point has wiped out significant levels of capital and changed market dynamics permanently.
A Closer Look At Market Conditions
It is a common saying that there are rallies in a bear market. This is the adage to keep in the back of our minds as both the equity and commodity markets extend their aggressive rebounds. The surge in stocks has been particularly bold; so it stands to reason to be especially cautious. The S&P 500 is working on its best monthly performance since 1991 despite expectations for the US recession to deepen and obvious problems with global policy makers establishing a coordinated plan to turning the recession and financial crisis around. A rebound in commodities is more encouraging as its speculative interest is lower; but it still does not confirm a true recovery.
Though it is still uneven, risk trends are showing additional signs of improvement. Over the past week, there was a sharp drop in credit default swaps that can be attributed to the Fed’s announcement that it was doubling is purchases of mortgage-derived securities, additional details on the US plan for a joint public/private fund to purchase toxic assets by Treasury Secretary Geithner and the progress for a clearing house to be established for the otherwise frozen CDS market. However, these are all plans that could take some time to actually implement and take effect. In the meantime, recessions are worsening, global bickering is ongoing and credit-related institutions are failing.
Written by John Kicklighter, Currency Strategist
Article Source - Dollar Stalled By Threat to Its Reserve Currency Status
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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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?
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Good luck to everyone!