USD - Trader's Flight to Safety Benefits the Dollar
The Dollar continues to show considerable strength over its currency rivals as financial worries have returned to the market. The 1st quarter earnings season has arrived and drops in equity markets are fueling renewed risk concerns which weigh on the currency market, strengthening risk-averse currencies such as the US Dollar. It is apparent that the desire for riskier, higher yielding currencies has waned given the decreased risk appetite in the forex market. As risk sentiment falls, the Dollar may be the primary beneficiary.
One event seen as triggering the flight to safety was the announcement that the International Monetary Fund (IMF) is increasing its forecast for bad debt held by global financial firms to an astonishing $4 trillion. This announcement has been driving the trading of the USD the past few days as there has been a lack of economic data during the first part of the week.
However, big fundamental indicators will be released today that could swing the markets against the Dollar. At 12:30pm GMT both the U.S. Trade Balance and weekly unemployment claims are due out. A deficit of $36.7 billion is forecasted for the month of month of February. Traders may look for this reading to be worse than the forecasted value as the month of Feb may have been one of the most trying months in U.S. economic history. Also, the US Unemployment Claims figures could be worse as well. U.S. unemployment is currently at a 25-year high and job losses have yet to show a sign of slowing. Traders may be able to profit by the market's pessimism. Being short on the Dollar may be the right move with the release of these two economic indicators today.
EUR - EUR Weakens As Risk Aversion Continues
The EUR has been declining this week against its major pairs with no sign of the selling to cease. The depreciation of the EUR appears to be largely due to perceived higher risk in the market this week after consecutive losses in equity markets. Profit taking has also been seen from the previous week's trading sessions. The EUR appreciated 5.5% against the JPY last week as traders ramped up their aggressive positions in light of reduced risk aversion. However, those gains have largely dissipated as greater risk is once again the topic in financial markets.
Risk aversion may continue to be present in the market, so long as equities continue to slide. The approaching earnings season has traders weary of placing too much of their capital in riskier currencies, such as the EUR. Rightfully so, there is quite a bit of uncertainty out there. One catalyst for the EUR may be a potential bankruptcy of the American car manufacturer, General Motors.
Some economists are predicting a further slide in the EUR. A fundamental analysis shows that the European Central Bank may be running out of options to fight the economic recession in the Euro-Zone economy. An absence of further capabilities by the ECB could set the European economy behind its peers for a sustained recovery.
JPY - Japanese Yen Ends Up as Beneficiary in Foreign Exchange Trading
The Japanese yen rose for another day against its counterparts as the currency has been more sensitive than the Dollar to shifts in investors' willingness to take on risk. The Japanese currency's gains are outpacing other currencies during financial turmoil and its losses usually marked when sentiment improves.
As expected, the Bank of Japan's (BOJ) policy board on Tuesday took additional measures to help the flagging economy, expanding collateral that can be used for loans. In addition to the low interest rate loans it now offers, the bank could also start purchasing corporate bonds and providing loan guarantees, the report said.
The latest measures will put more emphasis on midsize firms, which have fallen outside the scope of the assistance. The BOJ warned, however, that economic conditions will continue to deteriorate. On Friday, Japan is expected to unveil a fresh economic stimulus package, valued at more than 2% of the country's Gross Domestic Product (GDP).
Crude Oil - Oil Prices Decline Amid Economic Contraction
Crude Oil prices are likely to decline even further, as the world's top energy forecasters are likely in the coming days to reduce again their projections for world Oil consumption this year. The 3 top forecasters; the International Energy Agency (IEA), the Organization of the Petroleum Exporting Countries and the U.S. Energy Information Administration (EIA) will publish new oil supply and demand estimates between April 10 and 15.
Their forecasts are followed closely by investors in Oil markets, which have seen prices tumble to around $50 per barrel this week from highs of almost $150 in July last year. World Oil demand is falling for the first time in a generation as the deep global downturn closes factories and brings unemployment to the world's largest economies. Yet, many analysts believe that Crude prices may recover later this year since U.S economic data suggest gasoline demand is rising as pump prices have halved over the last 9 months.
Article Source - U.S Dollar Uptrend Continues
Key Overnight Developments
• Australian Unemployment Rate Spiked to 6-Year High, 5.7%
• Japanese Machine Orders Surprisingly Rose in February
The Euro traded in a tight daily range of 50 pips against the U.S. Dollar throughout Asian trading. Overall the pair remained flat when compared to yesterday’s session. Pound traders saw little or no new strategic entry points for longer-run trades as limited volatility confined the day’s range to 56 pips against the Dollar.
Asia Session Highlights
Japanese Machine Orders surprisingly rose in February, by 1.4%, after the dour month of economic data led forecasters to call for a decline in the figure of -7.0%. February’s figure is the strongest of such since September, when orders grew by 5.5% in the single month. Generally, such a rise in a leading indicator like this would insinuate that the overall economic picture may be starting to improve as the demand for capital intensive goods begins to rise. Such a positive outlook may not necessarily be the rational thing to feel. Much of the underlying activity in the performance of the figure came from an 86.7% rise in the orders for textile machinery. Looking back at history, we’ve noticed that February is an unusually impressive month in terms of the demand for textile machinery; last February this portion of the metric rose 448%. One explanation for such increases during the month is that Japanese clothing manufacturers begin to prepare and produce for the warmer weather 2-3 months prior to the actual realization of the warmth. Demand for non-ferrous metals were the second strongest in the month. Such metals include copper, which had the largest 3-month price rise since 1985 in 09Q1. In essence, much of the rise in the demand for these non-ferrous metals has been price-based and not volume-based. As such, we cannot infer that the surprise move by machine orders is indicative of a sooner-than-expected recovery in the Japanese economy.
Australian labor data performed much weaker than that which had been anticipated by the median forecast of economists surveyed. Indeed, the unemployment rate spiked to a 6-year high of 5.7% in March after expectations called for a hike of only 0.2 percentage points from 5.2%. March also saw 34.7K overall jobs lost with 40K full-time ones being eliminated. Over the last 6 months, the number of these full-time slots has plummeted by 115.2K; a substantial portion considering a labor force of only 11 million. The figures come just 8 days after Deputy Prime Minister, then acting as Prime Minister while Kevin Rudd was in Britain for the G20 conference, Julia Gillard, stated that the rate of unemployed would likely favor the 7.0% mark in the coming months.
Inflation expectations among Australians notched up from March’s decade low by 0.2 percentage points, to 2.4% in April. Of the laborers surveyed in the four occupational classes, only the clerks and salespersons category expected inflation to rise. This may be due to the notion that those working in this category will be those who benefit the least from Australia’s previous two stimulus packages. The dual-plans, which may become a trio in May, seek to give cash grants primarily to families. Since salespersons are more likely to be younger and hence less likely to have a family, they may feel that inflation will disproportionately affect them in greater numbers.
Euro Session: What to Expect
The interest rate announcement from the Bank of England headlines the economic calendar in European hours. While expectations widely call for policy rates to remain unchanged at the record-low 0.50%, price action may turn volatile regardless if Mervyn King and company signal an expansion to standing quantitative easing measures. So far, the bank has committed to buying 75 billion pounds in medium- and long-term government bonds. The growth and inflation outlooks are certainly supportive of a looser monetary stance: reputable think tank NIESR reported that the economy shrank -1.5% through the first quarter and could continue to contract for up to one more year; meanwhile, the Producer Price Index is set to fall to 2.1% in the year to March, the lowest since August 2007, pointing to downward pressure on consumer prices (the headline inflation gauge) in the pipeline as manufacturers pass on lower production costs via cheaper finished goods. Separately, the Trade Balance deficit is expected to narrow to 3.45 billion pounds in February from 3.58 billion in the prior month. This seems plausible if lackluster consumer demand weighs enough on imports to outpace the drop in outbound shipments, the latter fueled by the impact of the global downturn on foreigners’ purchases of UK wares. Indeed, consumer confidence has been hovering near record lows since January.
Turning to the continent, the final revision of Germany’s Consumer Price Index is set to confirm initial estimates calling for headline inflation to slow to 0.5% in the year to March, the lowest in nearly a decade. Despite tumbling prices and deepening recession across the Euro region, the European Central Bank cut interest rates less than economists expected last week, although bank president Trichet did say that rates had not reached “the lowest limit” and revealed that “the Governing Council intends to decide on further non-standard measures at our next monetary policy meeting”.
Switzerland’s annual Unemployment Rate is set to tick higher for the fifth consecutive month, rising to 3.3% in the year to March. The reading points to further downward pressure on economic growth: private consumption accounts for about 57% of total output and job losses will surely weigh on disposable incomes and trim spending. The government has forecast the economy will shrink -2.2% this year, the most since 1975.
Written by Ilya Spivak, Currency Analyst
Article Source - All Eyes Point Toward Bank of England Language In Hours Before Meeting (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.
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!