4.21.2009

Recession Fears Reignite Safe Haven Buying

Drops in U.S. equity markets rattled investors as both the Dollar and the Yen benefited from traders unwilling to take on further risks. The price of Crude Oil also plunged due to further signs the U.S. economy has yet to turn the corner.



USD - Drop in Equities Leads to a Higher Dollar

The Dollar continued its bullish run yesterday, appreciating for the 6th day in a row against the EUR as the pair reached a one-month low. Driving the Dollar's gains were losses in U.S. equity markets which were sparked by renewed banking fears and worries of a delayed U.S. economic recovery. At the end of the day Monday, the EUR was at $1.2907 from 1.3008. The British Pound was at $1.4482 from 1.4470

The greenback appreciated during most of the day's trading, but the gains accelerated after first quarter earnings reported from Bank of America sparked renewed tension in the banking sector. Heavy losses were seen in U.S. equity markets as the Dow Jones Industrial Average fell 3.56%. This prompted traders to move from positions of higher yielding currencies to more safe-haven bets such as the U.S. Dollar and the Japanese Yen.

The losses seen in the Dollar as the Fed unveiled its quantitative easing program have been erased as the Dollar experiences another bullish run under a period of less risk taking. Higher equity losses have reduced trader's appetite for riskier currencies, lending strength to the Dollar. This trend could see its first reversal today as Treasury Secretary Geithner is scheduled to speak at 2:00pm GMT. Testimony from Geithner often leads to periods of high volatility in the forex market. The EUR/USD could strengthen above the 1.3000 mark again later today after his speech.

EUR - EUR Continues to Decline Against the Pound and Dollar

The EUR continues to weaken amid further loses in equity markets and reduced risk levels in the currency market. The EUR/USD has now shed all of its gains since the U.S. Federal Reserve began its program of quantitative easing 1-month ago. Some market analysts believe the depreciation of the EUR coincides with the strengthening of the corporate bond market that also occurred three weeks ago. For the past three weeks the EUR has shed 4% against the Dollar and 2% against the GBP.

This losing trend for the EUR versus the Pound could continue today as key economic data is due to be released from both the Euro-Zone and Britain. German ZEW Economic Sentiment is forecasted to make a large improvement from the previous reading while important inflation data will be eyed from England. Yearly CPI is measured against the target rate of inflation set by the Bank of England (BoE). The BoE appears to be ahead of the curve in setting monetary policy. The inflation numbers may come in line and help to strengthen the Pound today, perhaps to the 0.8825 level.

JPY - Less Risk Taking Helps the Yen Rise Across the Board

The Japanese Yen was a big benefactor from yesterday's flight to safety as the JPY made considerable gains against its major crosses. Declines in U.S. equities had traders scrambling to readjust their positions as market participants sold higher yielding currencies for the safety of the Japanese Yen. This sank the USD/JPY to 97.78 from 99.30. The GBP/JPY fell to 141.64 from 146.69. The EUR/JPY also dropped to 126.21 from 129.29.

Two scenarios could play out in the trading of the Yen today. If declines in equity markets continue for the second day in a row, these may again lower trader's appetite for riskier currencies and boost the Yen. However, yesterday's gains may be short lived due to the release of the Japanese Trade Balance. This economic indicator may show worse than expected results as the Japanese export industry has been severely hurt during the economic recession. Past indicators have shown export numbers dropping dramatically. This has the potential to weaken the Yen in the short term horizon.

Oil - Oil Plunges on Renewed Economic Concerns

The price of Crude Oil plunged today on fears of a deepening economic recession in the U.S. The dramatic sell-off occurred after the release of first quarter earnings from Bank of America. The day ended with the price of Crude Oil trading at $48.64. This was 7% lower than today's opening price.

The sell-off was very characteristic of traders fleeing riskier investments for those that are considered safe havens. Currencies such as the Dollar, the Japanese Yen, and commodities such as Gold and Silver experienced sharp appreciation yesterday. Such a sharp drop in price may have left Crude Oil in an oversold position. The $50 mark may leave some room for profits in Oil trading.

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Euro Unlikely to Find Support Despite Improving ZEW Survey (Euro Open)

The Euro is unlikely to be supported despite expectations that the ZEW Survey of investor confidence will issue the first positive reading since July 2007 as recent data suggests the metric’s forward-looking nature makes it a contrarian indicator at major tops and bottoms in the exchange rate. Meanwhile, continued weakness in inflation data will add to selling pressure as German PPI falls to a 5-year low.

Key Overnight Developments

• RBA’s Governor Stevens Says Australia is In Recession
• External Forces Bled Into Australian Economy, RBA Minutes Suggest
• Australian Dollar Marches Ahead After Violent Drop

Critical Levels



Asia’s trading saw the Euro confine itself to a tight range against the U.S. Dollar after a wild American session drove the pair aggresively southward. Volatility struck the British Pound as it plummeted by as much as 69 pips in a single 10 minute period against the greenback. Ultimately the pair recovered to trade near the day’s starting point.

Asia Session Highlights



In a speech given by Reserve Bank of Australia Governor Glenn Stevens, the Governor stated that Australia’s economy was indeed suffering from a recession. Citing increased Chinese output in the coming months, Stevens suggested that his country’s situation would rebound strongly. “There remains good ground to think that we will continue to weather the storm better than most,” he stated. Stevens’ remarks evoke a them habitually emphasized by the RBA – that the mechanism allowing the fluid transition of money from the central bank to its end users works best in Australia.

Minutes of the Reserve Bank of Australia’s Apr. 7 meeting showed that the institution cut rates due to weaker-than-anticipated domestic demand and labor data. Governor Glen Stevens and company felt that the deterioration of the jobs market would substantially lessen pressure on prices. External developments led to a “very sharp contraction in the global economy,” the minutes show. Additionally, a “weaker labour market was seen as increasing the likelihood of a decline in inflation over the medium term.”

The Australian Dollar recovered some of its losses during Asia’s session. After dipping my as much as 17 pips the currency reversed course to a high of 0.7012.

New Zealand’s Visitor Arrivals for March fell by -0.5% after a strong Kiwi rose as much as 13% and made it more costly for foreigners to travel to the South-Pacific country.

Euro Session: What to Expect



German Producer Prices are expected to shrink for the fifth consecutive month in March to bring the annual pace of wholesale inflation to just 0.1%, the lowest in 5 years. The reading implies continued downward pressure on consumer prices (the headline inflation gauge) – both in Germany and Euro Zone as a whole – as producers pass on lower manufacturing costs via cheaper finished goods. Germany’s annualized CPI has already fallen to a 17-year low at 0.5% while that of the broader Euro region slowed to 0.6%, the lowest since the introduction of the single currency. Rapidly cooling price growth adds another layer of anxiety for traders and policymakers alike: although ECB President Jean-Claude Trichet and at least one of his acolytes have already done a fair share of talking down market expectations for May’s interest rate announcement, the reality of the situation continues to leave room for substantial volatility. The ECB’s preference for a “measured approach” to monetary stimulus amid deepening recession and in spite of a credible deflationary threat is drawing increasing accusations of inadequacy, a trend that is sure to be amplified by rising unemployment levels as the crisis wears on. Trichet’s visibly defensive rhetoric is not helping matters, legitimizing calls to free national monetary capabilities from the ECB’s lackadaisical posture and thereby threatening the very existence of currency union itself. The central bank delayed the day of reckoning by promising a final decision on quantitative easing when rates are announced in May – if that summit sees more waffling, the Euro could succumb to a significant acceleration in selling pressure as traders price in a longer path to recovery as well as the political implications of inaction.

Separately, the ZEW Survey of investor confidence is expected to rise to 2.0 in April from -3.5 in the preceding month, the first reading in positive territory since July 2007. That said, the reading is unlikely to give much boost to the single currency: the ZEW reflects the forward-looking perspective of the survey respondents has led the Euro exchange rate by a significant margin. The trend in the Expectations component is inverts major tops and bottoms in the exchange rate. Specifically, the ZEW began to trend lower in the beginning of 2006 and bottomed out in July of last year; the same end-points mark the beginning of the last major uptrend in EURUSD that saw the pair test record highs above 1.60. If the same dynamic is to continue to hold, traders can expect the latest bout of Euro weakness to bottom as the ZEW tops out, a scenario unlikely to materialize at least this year.

In the UK, the Consumer Price Index is set to show annual inflation slowed 2.9% in the year to March, the lowest in two years. NIESR, a think tank, has said the economy shrank 1.5% in the first quarter and could “continue to decline for up to another year,” signaling continued downward pressure on the pace of price growth in the months ahead. That said, an upside surprise is not out of the question if the metric follows a similar pattern to February’s release: consumer prices unexpectedly rose as the depreciation in the British Pound made foreign-made products more expensive for UK consumers. Indeed, sterling slipped -3.4% against a trade-weighted basket of top currencies through March and a hefty -20.2% from the year before.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Unlikely to Find Support Despite Improving ZEW Survey (Euro Open)
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Forex Trading - Support And Resistance

The concepts of support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis and they are often regarded as one of the most important concepts in Forex trading. These terms are used by traders to refer to price levels on charts that tend to act as barriers from preventing the price of an asset from getting pushed in a certain direction. At first the explanation and idea behind identifying these levels seems easy, but as you'll find out, support and resistance can come in various forms and it is much more difficult to master than it first appears.



What is Support?

A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely to continue dropping until it finds another support level. Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level.



What is Resistance?

A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, by an amount exceeding some noise, it is likely that it will continue rising until it finds another resistance level. Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.



Testing the Levels

One thing you should remember is that levels of support and resistance are not always accurate figures. You will often see a support or resistance level that seems to be broken, but soon you will realize that the market was only testing it. On candlestick charts those tests are marked with shadows as you can see on the picture below. It seemed as if the market will pass the resistance level, but later it was obvious that it was just a test. There is no easy way of knowing if the resistance or support will be broken through.

Support Equals Resistance

Another principle of technical analysis stipulates that support can turn into resistance and vice versa. Once the price breaks below a support level, the broken support level can turn into resistance. The break of support signals that the forces of supply have overcome the forces of demand. Therefore, if the price returns to this level, there is likely to be an increase in supply, and hence resistance.

The other turn of the coin is resistance turning into support. As the price advances above resistance, it signals changes in supply and demand. The breakout above resistance proves that the forces of demand have overwhelmed the forces of supply. If the price returns to this level, there is likely to be an increase in demand and support will be found.

Trading Range

Trading ranges can play an important role in determining support and resistance as turning points or as continuation patterns. A trading range is a period of time when prices move within a relatively tight range. This signals that the forces of supply and demand are evenly balanced. When the price breaks out of the trading range, above or below, it signals that a winner has emerged. A break above is a victory for the bulls (demand) and a break below is a victory for the bears (supply).

Support and Resistance Zones

Because technical analysis is not an exact science, it is useful to create support and resistance zones. Each security has its own characteristics, and analysis should reflect the intricacies of the security. Sometimes, exact support and resistance levels are best, and, sometimes, zones work better. Generally, the tighter the range, the more exact the level. If the trading range spans less than 2 months and the price range is relatively tight, then more exact support and resistance levels are best suited. If a trading range spans many months and the price range is relatively large, then it is best to use support and resistance zones. These are only meant as general guidelines, and each trading range should be judged on its own merits.

Trend Lines

Trend lines are probably the most common form of technical analysis that is used today, but they are also one of the least-used. A trend line is formed when you can draw a diagonal line between two or more price pivot points. They are commonly used to judge entry and exit investment timing when trading securities.

A trend line is a bounding line for the price movement of a security. A support trend line is formed when a securities price decreases and then rebounds at a pivot point that aligns with at least two previous support pivot points. Similarly a resistance trend line is formed when a securities price increases and then rebounds at a pivot point that aligns with at least two previous resistance pivot points.

If they are drawn accurately, trend lines can be a very useful and precise technical analysis method. Unfortunately, most of the Forex traders don’t draw them correctly or try to draw a line in a way that the lines correspond to the market, instead of making it the other way around.

The support or resistance of an identified level, whether discovered with a trend line or through any other method, is deemed to be stronger the more times that the price has historically been unable to move beyond it. Many technical traders will use their identified support and resistance levels to choose strategic entry or exit prices because these areas often represent the prices that are the most influential to an asset's direction. Most traders are confident at these levels in the underlying value of the asset so the volume generally increases more than usual, making it much more difficult for traders to continue driving the price higher or lower.



Round Numbers

Another common characteristic of support or resistance is that an asset's price may have a difficult time moving beyond a round price level. Most inexperienced traders tend to buy or sell assets when the price is at a whole number because they are more likely to feel that a stock is fairly valued at such levels. Most target prices or stop orders set by either retail investors or large investment banks are placed at round price levels. Because so many orders are placed at the same level, these round numbers tend to act as strong price barriers. If all the clients of an investment bank put in sell orders at a suggested target of , it would take an extreme number of purchases to absorb these sales and, therefore, a level of resistance would be created.

Conclusion

Determining future levels of support can drastically improve the returns of a short-term investing strategy because it gives traders an accurate picture of what price levels should prop up the price of a given security in the event of a correction. Conversely, foreseeing a level of resistance can be advantageous because this is a price level that could potentially harm a long position because it signifies an area where investors have a high willingness to sell the security. As mentioned above, there are several different methods to choose when looking to identify support or resistance, but regardless of the method, the interpretation remains the same - it prevents the price of an underlying from moving in a certain direction.
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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!