4.18.2009

Risk Appetite Put Off Its Pace As Growth And Earnings Forecasts Factor In

It is only a matter of time before the rebound in investor sentiment is measured against the current (and expected future) state of fundamentals. With corporate earnings crossing the wires and first quarter GDP numbers soon to be released, those trading safety for the prospect of yield will soon see whether their balance of risk and reward can truly hold up.

• Risk Appetite Put Off Its Pace As Growth And Earnings Forecasts Factor In
• Fed Moves The Results Of Its Stress Tests To Next Month
• Will Earnings Reports That Are Deep In The Red Encourage Investor Confidence?

It is only a matter of time before the rebound in investor sentiment is measured against the current (and expected future) state of fundamentals. With corporate earnings crossing the wires and first quarter GDP numbers soon to be released, those trading safety for the prospect of yield will soon see whether their balance of risk and reward can truly hold up. Taking stock of optimism through the activity of the market’s most speculative asset classes, we can still see momentum behind a bullish crowd. Despite the significant and ongoing event risk for the equity market, the S&P 500 has pushed ahead to a new, two-month high; while the VIX volatility index pulled back to its lowest level since September. Looking up to the banks-level of investing, we can see the same buoyancy through thawing credit and deflating risk premiums. Credit default swaps are the cheapest they have been since before the October market collapse. Even junk bond spreads have eased nearly 15 percent off their record highs just a month ago. However, there are signs that this rebound is running short on momentum and is looking for fundamental fuel to sustain a true recovery. Such evidence is most apparent in the currency market. The Carry Trade Index advance has stumbled, while both the US dollar and Japanese yen (the two primary safe haven currencies) cut off unfavorable breakouts. Looking behind price action, risk continues to ease with FX market volatility the most stable it has been since the beginning of October. Alternatively, the returns continue to deflate along with economic activity.

Though there has not been a sharp reversal in the markets, there has been an irrefutable deceleration in the broad-based rally. The resurgence in optimism since the beginning of March has, to this point, largely sustained itself on a deflation in perceived risk. Market sentiment and trends are essentially based on an equilibrium of risk versus reward. It stood to reason that after months of congestion and in the absence of another financial crisis, side-lined capital would eventually find its way back into risk-sensitive assets. However, the scales have yet to permanently shift in favor of yield seeking. Looking at the other side of the equation, we still see a severe lack of return on those securities that sport the necessary liquidity to define broad financial trends. And, considering both current data and forecasts are pointing to further retrenchment in yields and returns, there is little reason to believe investors will be rewarded for their speculative investments any time soon. This may be a realization that translates into price action over the next few weeks as major corporations release their quarterly earnings reports. So far, there have been a few notable reports that have beat expectations; but it is important to recognize that they are still firmly set in the red. This concept will be particularly significant with the US Bank’s quarterly numbers. With the Fed pushing back the results of its stress test until May 4th; speculation will develop through income, write downs and plans to pay back TARP loans. What’s more, we will also start to see returns on a global scale as GDP numbers start to print.

Written by John Kicklighter, Currency Strategist
Article Source - Risk Appetite Put Off Its Pace As Growth And Earnings Forecasts Factor In
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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!