4.22.2009

Dollar and Yen Continue to Rise on High Risk Aversion

Traders moving assets to safer, lower yielding currencies appear to be playing a factor in the correction of the major crosses. The USD and the JPY have been the primary beneficiaries of this trading strategy. Comments by Treasury Secretary Geithner also have been swaying the Dollar. Further testimony by Geithner today could push the Dollar higher once again.



USD - Greenback Advanced vs. the EUR on Crisis Concerns

The Dollar rose to a 5-week high against the EUR as concern the global financial crisis will worsen. This fear boosted demand for the U.S. currency. Renewed worries over the financial turmoil are making investors risk-averse again. In the market's current direction, the Dollar and the Yen are likely to be favored by the investors, analysts said. The USD traded at $1.2899 per EUR as of 9:13 a.m. in Tokyo from $1.2921 in New York yesterday.

The U.S. currency declined however more than 1% versus the Australian and New Zealand dollar and CHF on reduced concerns about bank balance sheets. This may prompt investors to shift funds to higher-yielding assets. The Dollar has lost more than 10% in the past 2-months against the AUD and NZD on signs the global economic slump may be weakening.

The USD also weakened after Treasury Secretary Geithner said that the vast majority of U.S. banks still have sufficient capital, thus reducing the greenback's risk haven appeal. The market is awaiting the outcome of the U.S. authorities' stress tests on banks. The U.S. Treasury Secretary said most U.S. banks had enough capital to keep lending but a pile of bad debts are fostering doubts about their health and slowing a recovery. The Federal Reserve plans to release its test results on May 4. The tests are being used to determine whether the companies have enough capital to cover losses over the next 2 years should the recession worsen.

EUR - EUR Rebounds on Positive German Sentiment

The EUR advanced for the first time in 4 days against the Yen after a report showed German investor confidence in April increased to its highest level in almost 2 years. The European currency has also climbed slightly against the U.S Dollar after the ZEW index rose to 13, from minus 3.5 in March. The currency rose 0.3% to 126.84 Yen, and to $1.2957, from $1.2921 yesterday, and after reaching $1.2990 earlier.

The currency market is highly volatile at the moment, reversing steep moves from one day to the next, and the EUR gained on Tuesday as an improvement in German investor confidence lifted stock markets and helped pull commodity currencies higher. However the EUR gains might be limited and needs to be treated with caution. The Euro currency continues to suffer from risk aversion and expectations of a major change in European Central Bank (ECB) monetary policy, largely imposed on the central bank by deteriorating internal and external conditions.

Any gains in the EUR will likely be limited and the currency may trade as low as $1.24 by the end of the month. This is due to the uncertainty over what unconventional policy steps the European Central Bank may adopt next month. The central bank is expected to cut Interest Rates below their current 1.25%. Analysts also expect the ECB to have to resort to flooding the banking system with money to promote lending and growth, though what method the ECB might use remains in doubt.

JPY - Yen Bullish Day on Strong Export Numbers

The Japanese currency rose against 15 out of 16 most-traded currencies after Japan's Ministry of Finance said custom-cleared exports declined 45.6% in March from a year earlier, following a record drop of 49.4% in February. The trade balance data seem to suggest that Japan's economic slump may also ease somewhat in the last quarter.
The Yen climbed against the Dollar and the EUR after a government report showed exports fell at a slower pace; spurring speculation the worst of the nation's recession may be over. The JPY climbed to 98.29 per USD from 98.73 yesterday. Against the EUR, Japan's currency advanced to 127.09 from 127.81.

OIL - Oil Continues to Trade on Under Stress

Crude Oil prices finished largely unchanged after an industry report showed U.S. stockpiles fell, raising optimism that fuel demand has increased as the economic crisis abated. The gains came as U.S. stock markets rose roughly 1% after industrial bellwether United Technologies posted results that beat Wall Street expectations and bank shares rebounded. The price of Crude plunged as low as $46.70, only to rebound as the gains in U.S. stock markets occurred. Oil prices have been tracking moves in equities closely in recent months as traders look for signs of a recovery from the economic slowdown that has curbed global demand for Oil for the first time in a quarter century.

Crude prices have been trading in a range between $46 and $55 for the past month, after rallying steadily since February from $33 a barrel, helped by hopes of economic recovery and OPEC's compliance with agreed supply cuts. The producer group has already cut member output quotas by 4.2 million barrels per day since September.

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British Pound in Play with Unemployment to Hit 11-Year High as Recession Deepens (Euro Open)

The British Pound may see volatility in European trading hours with the unemployment rate set to rise to 4.6% in March, the highest in 11 years. Minutes from the last Bank of England policy meeting are also on tap for release. Overnight data saw Japan’s Trade Balance shrink 99% in the year to March while Australia’s CPI fell more than expected in the first quarter.

Key Overnight Developments

• Japan's Trade Balance Shrank 99% in Year to March as Exports Tumbled
• Australian Inflation Falls to Slowest in 18 Months as Recession Deepens

Critical Levels



The Euro extended losses in overnight trading, slipping as much as -0.3% against the US Dollar. The British Pound followed suit, testing as low as 1.4610 to the greenback.

Asia Session Highlights



Japan’s Trade Balance yielded a narrower monthly deficit than economists expected, printing at 97.1 trillion yen in March versus expectations of a -250.7 trillion shortfall. Still, the reading is far from encouraging, revealing trading terms tumbled by a whopping 99% from a year before. The pattern is a familiar one: dwindling overseas sales have pushed firms to scale back capacity, boosting unemployment and weighing on consumer spending to keep downward pressure on overall growth and sink Japan into the worst economic downturn since the Second World War. Indeed, exports shrank -45.6% in the year to March, a reading within a hair of last month’s record-setting -49.4% annual decline. As we suggested in our Weekly Trading Forecast, the release had little immediate impact on Yen price action because the forces behind the dour data have been priced into the exchange rate for some months now, with the Japanese unit supported by a reinvigorated link to equity markets.

In Australia, the Consumer Price Index showed the annual pace of inflation fell to 2.5% in the year to the first quarter, the slowest in 18 months. A report released earlier this week showed that Producer Prices unexpectedly fell during the same period, alluding to continue downward pressure on consumer inflation in the months ahead. 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 interest 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.” Indeed, RBA Governor Glenn Stevens confirmed yesterday that the Australian economy was in recession but expressed confidence that his country will weather the downturn “better than most” citing increased Chinese demand for the antipodean country’s goods in the coming months.

Euro Session: What to Expect



Minutes from the April 9th policy meeting of the Bank of England headline the economic calendar in European hours. The rate decision itself was generally uneventful: policymakers kept rates unchanged at 0.5% and committed to continue quantitative easing (QE), all as expected. Still, as noted by DailyFX Strategist Terri Belkas, the release could spark volatility if it is revealed that policymakers are considering expanding or making significant changes to the existing 75 billion pound QE program. Further, the environment surrounding the release could prove to be a catalyst for downward pressure on the Pound: expectations call for Jobless Claims to rise 116k in March, the 14th consecutive monthly increase, to bring the Claimant Count (unemployment rate) to an 11-year high at 4.6%. If the minutes from the BOE meeting prove to be as bland as the original rate announcement, traders may punish the pound for insufficient urgency in the central bank’s policy response amid deepening recession.

Written by Ilya Spivak, Currency Analyst
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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!