USD - USD Moves Up against Rivals
After ending last week slightly higher versus most of its currency counterparts, the USD began this week's trading with a continuation of its recent uptrend, appreciating against every currency rival except the JPY. Dropping below the 1.3000 level against the EUR this morning, and near 1.4700 against the Pound, the Dollar's strength appears to be on schedule for further upward movement against these majors.
The only pair to beat out the USD this morning has been the Japanese Yen, considering many traders are beginning to hedge their bets on the value of the Dollar as the number one safe-haven investment. This may come as a result of the perception that the Dollar may see weakness in the future as investors pull out of the forex market and back into the stock market due to increased risk appetite and uncertainty in various equity markets. As the future decisions of the European Central Bank (ECB) appear to be foggy, traders are not expecting much correction to take place in the EUR/USD's recent downward movement and are instead going short on the EUR where possible.
Last week, traders saw a flurry of economic news affecting the American economy and practically zero news emanating from Europe. This week appears to be the exact opposite. A blizzard of economic events is expected from the Euro-Zone and very little is scheduled to be released from the United States. Forex traders should definitely pay closer attention to the EUR and GBP markets this week as they will be in the driver's seat of the market for the days ahead.
EUR - EUR's Movement Negative, but Busy News Week May Prove Fruitful
The EUR apparently can't catch a break these days. With a steady depreciation against the majors, the EUR looks like last week's loser, and may continue to hold that title throughout this week as well. Dropping below important price barriers against the USD and JPY, but holding steady against the GBP, the EUR's value may be due to recent analysis of the European Central Bank (ECB) than anything else.
Delivering a speech in which uncertainty seemed to be the major headline, ECB President Jean-Claude Trichet apparently only made matters worse for the 16-nation currency. This indecisiveness no doubt comes from the fundamental differences in solutions perceived to be necessary for the economic conditions of the diverse countries which make up the European Monetary Union (EMU). With a multitude of ethnic, linguistic, and cultural backgrounds, each member country brings with it a unique perspective on this recent crisis as well as a different interpretation on what is required to fix this downturn for the interests of each individual country. Disunity reigns supreme in Europe, and the U.S. and Japanese currencies are the beneficiaries.
On the upside for the EUR this week is the slew of data emanating from the Euro-Zone regional economy. With an abnormally busy news week, the Euro-Zone may, for the first time in months, outshine the Dollar and take control of the forex market this week. Traders will absolutely want to tune in to the economic indicators emanating from Europe and the U.K. throughout the week. Most importantly are the two confidence reports, the ZEW Sentiment and German Ifo Business Climate reports, due out Wednesday and Friday respectively.
JPY - Gains on Wall Street and an Indecisive ECB Leads JPY Higher
The Japanese Yen appears to be on the receiving end of large buying session as traders pounce into the Asian currency to hedge against less certain investments like the EUR, GBP and even the U.S. Dollar. Dropping below key support levels against the EUR and GBP, the JPY appears to be on a fresh bullish run which could have much more room to grow if markets continue like they have the past few days.
Slicing through the 145.80 price level against the Pound, and below 129.00 against the EUR, the Yen's recent strength may have much to do with the recent uncertainty in monetary policy decisions within the European Central Bank (ECB) and the rising uptrend in the U.S. stock markets. As usual, this week will not be seeing much economic news coming from the island economy, but with so much attention focused on Wall Street and a stale-mated ECB lately, Japan may not need to take the reins to steer its own market to new heights. Traders should be keeping an eye on the European markets this week as its news will no doubt be the guiding force behind this week's market.
OIL - Global Demand for Oil May Continue Falling; Will its Price Follow?
After last Friday's jump in oil prices, the cost of buying a barrel of Light Sweet Crude has apparently begun to fall after reports showed that the U.S. economy is still forecasting a contraction. With the world's top oil consumer declaring that it's demand for Crude Oil is going to continue falling, and with current production levels being estimated as too high to support prices, traders may be seeing the start of a new downward trend in the price of Crude Oil this week.
Starting last Friday between $51 and $52 per barrel, the price of Crude Oil subsequently jumped to as high as $53 by mid-day. However, during today's early trading hours, the price of Crude Oil has apparently begun to decline and is currently trading at $51.50. With a few analysts claiming that oil remains slightly over-valued, we could see a sell-off in black gold through late-afternoon today.
Article Source - Europe Takes the Wheel of the Forex Market this Week
Key Overnight Developments
• Australian Producer Prices Unexpectedly Fell in the First Quarter
• UK House Prices Rose for Third Straight Month in April, Says Rightmove
• ECB’s Bini Smaghi Says 1% Is a “Credible” Floor for Interest Rates
The Euro extended losses in overnight trading, testing as low as 1.2967 to the US Dollar. The British Pound followed suit, slipping as much as -0.7% against the greenback.
Asia Session Highlights
UK House Prices rose for the third consecutive month in April according to Rightmove, an online listing of for-sale properties. Still, it seems premature to conclude that the data is indicative of a robust, sustainable rebound in demand for big-ticket purchases, a development that would be reflective of buyers’ expectations that the economy will improve in the near future. Indeed, the latest data has seen consumer confidence return to record lows while NIESR, a think tank, said the economy shrank 1.5% in the first quarter and could “continue to decline for up to another year.” Prices declined -7.3% from a year ago, a smaller decline than last month’s -9.0% but a significant one nonetheless.
Australia’s Producer Price Index unexpectedly fell in the first quarter, bringing the annual pace of wholesale inflation to 15-month low at 4.0%. The reading points to downward pressure on consumer prices (the headline inflation gauge) as companies pass on lower production costs via cheaper finished goods, giving the Reserve Bank of Australia scope for to cut interest rates again as the economic downturn deepens. Although the central bank has signaled the easing cycle is over, Westpac Banking Corp’s chief economist Bill Evans said last week the decision to hold off lowering rates now is likely a tactical one given the confidence boost typically seen after such actions: “We expect the bank will see the need to have ample capacity to be cutting rates through the second half of 2009…The economic case for cutting rates is undeniable.” The Westpac Leading Index fell -5.1% in the year to February, the worst since 1982, convincing Evans that “the Australian economy will enter a recession.”
The ECB’s Bini Smaghi sounded notably hawkish in a speech today, warning against loosening monetary policy “too much” and saying that 1% floor for benchmark interest rates is “credible”. Smaghi added that he sees no risk of deflation – rather, he sees inflation expectations rising, not falling. The ECB member’s comments ought to be taken with a grain of salt, however, as he himself has noted as recently as this month that “[forex] markets are prone to episodes of overshooting and undershooting…public intervention in the form of public statements…may thus be warranted.” Last week, ECB President Jean-Claude Trichet also defended the a “measured approach”, saying this was key to restoring market confidence.
Euro Session: What to Expect
With no data on the economic calendar, risk trends are likely to dominate price action in European trading hours. The global equities rally that began on March 10th has taken the MSCI World Stock Index to resistance at the top of a falling channel that has contained prices since mid-October of last year. That metric is now -90.4% inversely correlated with the US Dollar Index, an average value of USD against six top currencies, suggesting that any reversal in risk appetite across global stock exchanges will boost the greenback further.
Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Advances Against Euro, British Pound as Stocks Meet Resistance (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!