4.10.2009

Dollar Rises Despite Increased Risk Taking

The greenback continues its correction as better unemployment numbers and rising import prices helped to strengthen the Dollar yesterday. Liquidity may be thin during today's trading due many European firms closed for holiday. However, this may only increase price volatility, creating the potential for traders to take advantage of other's missed opportunities.



USD - The Greenback Heads for Its Weekly Gains

The U.S Dollar advanced against the EUR and the Yen on Thursday as better than expected U.S. weekly jobless claims helped spark a rally in the market, rekindling appetite for riskier assets. A batch of economic data including a dip in jobless claims and a rise in import prices, have improved sentiment for the greenback. In afternoon trading, the USD was 0.8% higher versus the yen at 100.46, while against the EUR the U.S currency rose to 2-week high to $1.3110.

The Dollar also surged after Wells Fargo & Co., the second-biggest U.S. home lender, reported a first quarter profit that beat the most optimistic Wall Street estimates, which point to an easing in the financial crisis. The greenback has risen 2.8% against the European currency this week, the most since the period ended Jan. 9. The improved trade deficit dynamic was Dollar positive, as the U.S. trade deficit in February unexpectedly narrowed to the lowest level in 9 years analysts have said. The narrowing U.S. trade deficit may further support the Dollar as the U.S. spends fewer greenbacks in international markets to buy foreign products.

Currency movements may be volatile in Asian and European trading today as the Easter holiday in the region reduces liquidity amid thin trading volume, exaggerating market moves. This can give volatility traders good reason to enter the market today as the Dollar could extend its positive momentum into the holiday weekend. The EUR/USD could trade as low as the 1.0350 support level today.

EUR - EUR Falls on Speculation the ECB Will Lower Its Benchmark

The European currency lost 0.4% versus the USD, down to $1.3112 and eased 0.1% to 131.94 Yen yesterday, on concerns the Euro-Zone economy would skid more deeply into recession in the coming months. The market has been watching for signs the European Central Bank (ECB) will take unconventional steps to improve credit availability after similar moves by the Federal Reserve and other major central banks.

European Central Bank President Jean-Claude Trichet said the central bank still had some leeway to cut its main Interest Rate from its record low of 1.25% and that benchmark rate below 1% is still open for debate. The central bank would lay out plans for possible unconventional monetary policy measures at its next meeting on May 7. However, Trichet would not give any further details.

Meanwhile, the British pound had also sunk to $1.4663, compared to $1.4704 late Wednesday. Earlier Thursday, the GBP was little changed against the Dollar after the Bank of England left its key lending Rate unchanged at an all time low Thursday and said it would continue buying government bonds and other assets. Policy makers were widely expected to stay on the sidelines after an aggressive series of Rate cuts slashed the bank's benchmark from 5% to 0.5% since October.

JPY - Yen Drifts on Market's Slow Activity

The Yen drifted against the Dollar on Thursday, holding on to gains made the previous day as currency market remained quiet, unwilling to build positions ahead of earnings reports by major U.S. banks next week. The Yen was flat against the USD at 99.85 yen after rising about 0.8% on Wednesday. The Japanese currency fell as low as 101.45 on Monday to strike a 6-month peak. The Yen was also unchanged against the EUR, settling at 132.50.

Data on Thursday showed Japan's machinery orders, a leading indicator of corporate spending, unexpectedly rose in February, a rare positive sign as the country suffers its worst recession since World War Two. Traders said expectations of the stimulus package helped the Yen's rebound against the Dollar and the EUR but investors may refrain from pushing it higher past the 101 level.

OIL - Oil Breaks $52 a Barrel

Crude Oil prices rose nearly 5.8% on Thursday, fueled by a rally on Wall Street and data showing that the number of workers filing new claims for unemployment benefits fell last week. Adding support to Crude, the UK consultancy Oil Movements said on Thursday that Organization of Petroleum Exporting Countries (OPEC) production will fall 280,000 barrels per day (BPD) in the four weeks ending April 25th. OPEC has agreed to slash 4.2 million BPD of crude output since September to counter falling prices and match slumping world demand.

Oil prices had also climbed Wednesday on weekly Energy Information Administration data showing a smaller-than-expected suppl in U.S. crude inventories and a big slump in distillate stocks. The market reacted violently as optimism in equity markets about the U.S. economy carried over into Crude. The U.S. Economic data that showed crude-oil supplies increased 1.65 million barrels to 361.1 million last week, the highest since July 1993.

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US Dollar Sees Net Gains Against Major Currencies Despite Surging Stock Prices (Euro Open)

The US Dollar moved higher in overnight trading despite a second consecutive day of gains across Asian stock exchanges. Price action is likely to be muted in European hours with and little event risk on the economic calendar and thinning liquidity ahead of the Good Friday holiday.

Key Overnight Developments

• Commodity Currencies Follow Stock Markets Higher
• Euro, British Pound Extend Losses Against US Dollar

Critical Levels



The Euro extended losses in overnight trading, slipping as much as -0.6% against the US Dollar. The British Pound followed suit, giving up as much as -0.4% to the greenback.

Asia Session Highlights



With no market-moving data on the economic calendar, overnight trading saw forex markets extend directional moves from New York hours. The commodity bloc managed to add to intraday gains while the rest of the majors continued to sink against the US Dollar. The net result amounted to a net gain for the greenback, a notable departure from recent trading dynamics considering Asian stock exchanges followed Wall St higher, rallying for the second consecutive day to add 0.9%. Risky assets surged after Wells Fargo reported a record quarterly profit, boosting investor confidence. While it is premature to say that a new inter-market paradigm is upon us – indeed, the odd price action may simply be due to thin liquidity ahead of the Good Friday holiday – it is certainly something to be monitored in the days ahead to see if dismal fundamentals across Europe will mean the Euro, Pound, and Franc no longer look attractive when risk-taking rises.

Euro Session: What to Expect



Fresh signs of deepening Euro Zone recession will be on offer in the forthcoming session: French Industrial Production is set to fall a hefty -14.8% in the year to February, the most in at least 28 years, on dwindling global demand; meanwhile, the Consumer Price Index is set to show that inflation slowed to an annual pace of just 0.4% in March, the lowest in nearly a decade.

On balance, price action is likely to be muted with the US markets closed for the Good Friday holiday and little event risk on the European economic calendar. Technical positioning sees the US Dollar setting up to challenge the major currencies after losing as much as 7.8% on average since early March.

Written by Ilya Spivak, Currency Analyst
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Traders Are Taking Greater Risk Despite Deteriorating Fundamentals

It has been over six months since the financial markets last suffered a seizure that was born of panic selling or a collapse in liquidity; but does this mean the waters are once again safe for risk taking? Considering the timid recovery in equity markets and high yielding currencies through the past few months, it would seem so.

• Traders Are Taking Greater Risk Despite Deteriorating Fundamentals
• The Financial Sector Makes Progress, But Crisis Not Over Yet
• Is The Market Finding Unwarranted Strength In The G20’s Promises?

It has been over six months since the financial markets last suffered a seizure that was born of panic selling or a collapse in liquidity; but does this mean the waters are once again safe for risk taking? Considering the timid recovery in equity markets and high yielding currencies through the past few months, it would seem so. Indeed, in the absence of immediate risk, foregone returns become too much for traders to bear. Looking at the broader gauges for investor sentiment, dormant threats haven’t held back the clear desire to reinvest in the speculative market. A recover in equities has been paced by the benchmark Dow’s 25 percent advance from its early March lows. The index is now pushing two month highs. Elsewhere, junk bond spreads are the lowest they have been since November, the CRB Commodity Index is attempting to break three months highs and credit default risk – the crux of market fears through the crisis – has making a steady recover to levels not seen this anytime this year. For the currency market, the carry strategy seems to have finally found a balance between risk reward that has allowed for speculative headway. Though yield differentials are pushing near-historical lows (and are expected to tighten even further), the extended period of calm has ellicted strength from the more prominent carry pairs – perhaps spurred by the hope of early entry on capital gains through the exchange rate. Despite all this however, caution will remain an indelible element of broader market sentiment for as long as economic recessions bear down on growth and the circulation of capital through the markets is curbed by the potential for another seismic event.

Gauging the balance of risk and reward that would draw investors back into the market is difficult; but given enough time, stable markets will stoke any traders appetite for return. This is the best way to sum up the steady recovery we have been seeing in so many different risk-loving assets. It isn’t that the potential for returns has been amplified or fundamental risk has largely disappeared; but rather, relative calm has opened the door to diversification away from Treasuries, money markets and other relatively low-risk instruments (that are themselves over-extended). On the other hand, considering the health of the credit markets and the outlook for global activity; it is clear that the natural course for investment is for a steady decline in a natural bear market. Recession is still a common label throughout the global market space; and forecasts are predicting conditions to worsen before they begin to improve. The more realistic forecast for traders would not be for a recovery to develop in the next few months or quarters; but rather the absence of economic accelerants that can lead to ‘feedback effects’ or tip a recession into a prolonged depression. These are the threats that theG20 objectives are attempting to head off – though confidence derived from their statement will quickly evaporate without clear evidence that major economies are treating the recession as a global one.

Written by John Kicklighter, Currency Strategist
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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.
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!