4.23.2009

Traders Anticipate Heavy News Day in Forex

With an abnormal number of news events coming from Britain, the Euro-Zone and the United States today, forex traders have been in a frenzy to place their bets before the trading day gets underway. Trading during these news events, which typically carry a lot of market volatility, is a fast way to double your forex trading balance; the wise trader knows this. Special attention should be paid to the slew of manufacturing data coming from France and Germany between 7:00 and 9:00 GMT, as well as the U.S. Unemployment Claims report at 14:00 GMT. Will you take advantage of the impending volatility, or sit on the sidelines and miss out?



USD - Dollar Goes Volatile on U.S. Banking Worries

The Dollar experienced a very volatile day of trading on Wednesday as a number of different factors helped determine the closing rate of the Dollar versus its main currency crosses. The main factor that helped determine the greenback's strength in yesterday's trading was the banking worries led by Morgan Stanley and Wells Fargo. This came about despite the Dow Jones rallying earlier in the day. This came to people's dismay as Morgan Stanley produced positive figures in the previous quarter and the U.S. housing market posted some impressive figures on Wednesday.

The Dollar rose by a massive 160 points versus the British Pound, as investors dropped the GBP and put their money into equities rather than gamble on the Pound Sterling. The pair ended down at the 144.60 level. Against the JPY the USD slid by 50 points to 97.62, as traders responded positively to the recommendation by major banks of the positive Japanese financial sector, and that the worst of the economic decline in Japan may be over. The Dollar fell by 40 points to 1.2992 versus the EUR, as Europe's financial sector edged higher yesterday. This marks an end to the EUR's losing streak against the USD.

Looking ahead to today, we may see a strong Dollar as Britain and Europe react negatively to the late negative financial news that came out of the U.S. yesterday, as toxic debt and banking liabilities from the banking sector reach the forefront again. Britain and the Euro-Zone have been very susceptible to negative financial news coming out of the U.S. since the start of the financial crisis. There are a number of economic data releases that may help determine the Dollar's value later today. The 2 most important of these are U.S. Unemployment Claims at 12:30 GMT and Existing Home Sales at 14:00 GMT. If the economy continues showing bearish figures, the USD may respond in kind.

EUR - Pound Slumps as Financials Climb

The Pound dropped as Britain and European Banks climbed in yesterday's trading session. The FTSE, DAX and CAC 40's gains were led by the top financial institutions. The most notable increases were held by the major British and European banks, including HSBC, Barclays, Lloyds, and Deutsche Bank. This was partially owed to helpful words from U.S. Treasury Secretary Timothy Geithner. However, on the negative side for the Pound was the gloomy budget released by Britain's Chancellor of the Exchequer Alistair Darling. This comes about as he revealed that income taxes will increase, government spending will swell, and Britain's debt will climb.

As a result of the slump in the British economy, and traders opting to drop the Pound for the equities market, the Pound made terrible losses in Wednesday's trading. The British currency fell by a massive 230 points versus the Japanese currency to close at 141.26. Against the EUR, the Pound plummeted by 150 points as the EUR/GBP started to move higher again resulting from the Euro-Zone economy showing some positive economic advances. The GBP/USD pair finished lower by over 230 points at 141.21, as traders fear the mounting debt of the British economy and prefer the safe-haven U.S. Dollar.

Today, the Pound is likely to continue to deteriorate as Britain reacts to the banking worries from the U.S. The most significant data release from Britain later today will be the CBI Industrial Order Expectations at 10:00 GMT. The British currency is also likely to react to the other spattering of news events coming out of the Euro-Zone and the U.S. These include various manufacturing data from France and Germany, and U.S. Existing Home Sales later in the afternoon. The Pound's currency crosses are also likely to be determined by unexpected speeches by U.S. Treasury Secretary Timothy Geithner and British Prime Minister Gordon Brown later today.

JPY - Yen Climbs against Majors

The Yen rose against most of its major currency pairs in yesterday's trading, as the JPY's safe-haven status returns to the forefront. The Yen's gain against the Dollar in late trading is largely owed to fears that the stress tests for U.S. banks from the Obama administration are likely to reveal great losses in the U.S. banking sector. The USD/JPY currency pair finished lower by 50 points at 97.62. The JPY also made some impressive gains against the Pound to close up by over 230 points at 141.21. This comes about before a report showing that the British economy shrank for the 3rd successive quarter. However, the Yen fell by 10 points against the EUR to close at 126.91.

The Yen seems to be trading on unsteady ground as uncertainty in the financial world reappears on center stage. Just as things seemed to be improving, the Obama administration has set new hurdles for U.S. banks, which is likely to reveal further losses. However, this is likely to show pessimism in the second largest economy. When it comes to the forex market, however, the Yen is likely to benefit from its safe-haven status. This will in-turn go against the Japanese government and Bank of Japan (BoJ) as they desire a weak Yen in order to increase exports and recover from the current financial crisis relatively faster.

Crude Oil - Crude Oil Prices Stable near $48.50

The price of Crude Oil slipped slightly as U.S. Crude Oil Inventories rose higher than expected. The price of the black gold slid by 30 points to $48.43 a barrel. Crude Oil didn't slide as much as people thought it would following the release of this important data, as stock markets across the globe made some gains, thus spurring equities and commodities upwards. Crude Oil seems to have reached its equilibrium as prices have not slipped below the $48 mark in more than 3 weeks.

In order to see a vast improvement in Crude prices in the coming weeks, we will need to see a string of positive economic data releases from the world's leading economies. Truth be said though, a full-fledged global economic recovery is unlikely to occur before the middle of 2010. However, in the short-medium there is some leeway for the price of oil to hit $60 a barrel, provided demand can support this price.

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Euro Weakness Against US Dollar to be Amplified as External Balance Sours (Euro Open)

Euro selling against the US Dollar may be amplified in the forthcoming session with February’s Euro Zone Current Account report expected to show a -18.8 billion euro decline in trading terms from a year before while the analogous US metric has been trending sharply higher.

Key Overnight Developments

• Australian Annual New Vehicle Sales Fall Most in 9 Years
• Euro Range-Bound, British Pound Lower Against US Dollar

Critical Levels



The Euro traded sideways overnight, oscillating above intraday support at 1.2986. The British Pound trended lower, slipping -0.2% against the greenback. Technical positioning favors a bearish outlook on both EURUSD and GBPUSD.

Asia Session Highlights



The economic calendar was notably tame in Asian trading hours. Australian New Motor Vehicle Sales fell for the third consecutive month to bring the annual pace of decline to -22.6% in the year to March, the biggest drop in nearly 9 years. The result reflects Australian consumers’ continued hesitation to commit to big-ticket purchases amid a deepening economic downturn that has pushed the unemployment rate to a 5-year high of 5.7%, weighing on disposable incomes and prompting cautionary saving. New Zealand’s consumption climate does not look much better: Credit Card Spending fell -5.0% in the year to March, the most since records began in December 1994.

The US Dollar was effectively unchanged heading into the opening bell in Europe as stock markets searched for direction in Asian trading. Financials put downward pressure on key indices on fears of disappointing earnings reports but automakers and consumer-related stocks offset losses.

Euro Session: What to Expect



February’s Euro Zone Current Account report is expected to show a -10.7 billion euro deficit, a narrower shortfall than the previous month’s -12.7 billion result. Setting aside month-to-month volatility, the expected result would amount to a -18.8 billion euro annual drop in trading terms as compared to a -6.5 billion decline in the year to January. Meanwhile, the analogous metric in the US has been trending sharply higher with the deficit narrowing at an annual pace of 20.5% in 2008. A widening external gap in the Euro area coupled with a contracting one across the Atlantic implies a net outflow of capital from the currency bloc and into the States, extending our medium-term expectations of EURUSD downside into the long-term outlook.

Switzerland’s Trade Balance report is likely to show the surplus is likely narrow in March as exports continue to trend lower. Outbound shipments shrank -1.2% in the year to February, the most since December 2004, as deepening recession grips Switzerland’s major trade partners, weighing on overseas demand. A bit of room for an upside surprise exists, however: the Swiss Franc fell -0.8% through March, which could both make Swiss goods more affordable to foreigners while making imports relatively more expensive for domestic buyers. In any case, the overall bias has favored the downside since exports snapped a 5-year uptrend in November.

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!