4.29.2009

Market's Focus on the Federal Reserve Rate Decision

Investors are looking to U.S. GDP data and the Federal Reserve to be released on Wednesday for further signs of recovery in the world's biggest economy. The Federal Reserve ends its 2 day meeting on Wednesday and while rates are already near zero, analysts will be looking for any extension of quantitative easing and for any comments supporting a theory of green shoots of recovery appearing in the U.S economy. The Fed is due to issue a statement around 1815 GMT.



USD - USD Consolidating towards Heavy Volatility

After Monday's sharp gains against the EUR, the U.S. Dollar experienced a steady depreciation against the 16-nation currency throughout Tuesday, declining back towards 1.3200 after seeing a weekly low of 1.2966. The USD also saw depreciation against almost all currency pairs, except the JPY.

Interesting to take note of is a few general trends in pairs, such as the GBP/USD and USD/CHF, which seem to be trading in a tightening range, indicating that there is an anxious anticipation for tomorrow's interest rate decision from the US Federal Reserve Board. With a decision on the US Federal Funds Rate expected tomorrow at 18:15 GMT, traders may witness some sharp volatility in these pairs directly after the announcement. With the exceedingly positive figure seen in the CB Consumer Confidence report yesterday, mixed with some other general indicators which also point up, is there a possibility that the Fed would consider increasing interest rates?

Today will indeed be an interesting day to keep tabs on the movement of the greenback. Considering the Advanced GDP report is due, along with Crude Oil Inventories, which has had a moderate impact lately, the USD is due for heavy volatility. Traders will definitely need to program reminders into their schedule telling them to login to their platforms today and capture some of the sharp movements that many are expecting.

EUR - EUR and GBP Riding Favorable Winds

So much positive economic data has been emerging in recent weeks that risk appetite seems to have made a moderate recovery. As a result, the EUR has posted steady gains over the past 24 hours. Building back up towards 1.3200 against the USD and 1.2700 against the JPY, the 16-nation currency appears to be on the receiving end of portfolio diversification and Euro-Zone confidence.

With a number of indicators showing a drastic increase in consumer confidence throughout the Euro-Zone's largest economies, it comes as no surprise that the EUR is trending upwards against all of its currency rivals. However, as there appears to be hardly any news coming from Europe today, the EUR may be put on the back-burner as the US economy leads the pack in economic indicators. The U.S. Federal Funds Rate decision will be released tomorrow and no doubt will be one of the primary driving forces in today's market.

While news regarding the EUR may be light this week, the British Pound will not go unnoticed. Much of the European news being released this week may show that the British economy is on track for recovery. It seems about time as Britain appeared to be one of the worst hit economies in this recent recession. If Britain is indeed recovering, the rest of Europe shouldn't be much further off. Watching the indicators emanating from the UK may help traders gauge the direction of the prevailing winds over Europe. So far, European trends appear to be pointing up.

JPY - JPY Set Back from Increased Risk Appetite

As world tourism faces a further set-back due to the outbreak of swine flu in 7 countries, the value of the JPY as a safe-haven from economic risks appears to have continued to drop. The rise in risk appetite, and a continuation of the negative outlook in Japan, has pushed the JPY lower against most of its currency rivals, save the USD. Dropping towards the 127.00 level against the EUR and the 141.00 level versus the Pound, the JPY appears like it may level off in the near future.

With a decision from a number of Pacific countries arriving this week on interest rates, traders have the potential to see a level of volatility in the JPY and NZD which is typically uncommon. Traders should look to the Reserve Bank of New Zealand (RBNZ) today, as it is set to announce a decision on its national interest rate. Most expectations are for a 50 basis point rate-cut. The Bank of Japan (BoJ) is also set to announce its latest monetary policy regarding interest rates on Thursday, although this decision will not likely carry much volatility as Japan has held its rates steady for some time now.

Crude Oil - Crude Oil Declines on Demand Concerns

Crude Oil prices fell for a second straight day on concerns that the outbreak of swine flu would delay an economic recovery and further dampen energy demand. Fears of pandemics have slowed the global economy in the past and officials with the World Health Organization, while raising alert levels yesterday, and warned against overreacting. The fear is that the outbreak could discourage people from traveling, lead to closed factories and further hurt the economy and oil consumption.

Oil prices rose sharply last month from $40 to above $54 taking their cue from a rally in equity markets. But a new sign of a prolonged recession which has crushed energy demand around the world is again pushing prices lower below the psychological price level of $50.

Article Source - Market's Focus on the Federal Reserve Rate Decision
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Euro, British Pound Follow Stocks Higher Against US Dollar (Euro Open)

The Euro and the British Pound rose against the US Dollar as stocks gained for the first in three days in Asian trading, weighing on the safe-haven asset du jour. April’s Euro Zone Economic Confidence is on tap in the forthcoming session, with expectations calling for the metric to rise for the first time in 11 months.

Key Overnight Developments

• New Zealand Annual Trade Deficit Shrinks on Falling Currency
• NZ Business Confidence Negative for Sixth Straight Month
• Euro, British Pound Follow Stocks Higher Against US Dollar

Critical Levels



The Euro added 0.5% against the US Dollar to test above the 1.32 level late into the session. The British Pound followed suit, adding 0.6% against the greenback. USD sold off as stocks rose for the first in three days in Asian trading.

Asia Session Highlights



New Zealand’s Trade Balance deficit narrowed to print at –NZ$4.8 billion in the year to March, down from –NZ$5.2 billion in the previous month. Exports grew at an annualized rate of 17.7%, outpacing a 6.9% rise in imports as the New Zealand dollar fell -18.25% in the 12 months from March 2008 to boost foreigners’ purchasing power of the antipodean nation’s products. The trade gap is likely to contract further if a downward reversal in risky assets continues to weigh on the exchange rate. An average of the New Zealand Dollar’s value against a trade-weighted basket of global currencies is now 91% correlated with the MSCI World Stock Index.

A separate report showed NBNZ Business Confidence jumped to -14.5 in April from -39.3 in the previous month. While the result is an improvement, the print in negative territory continues to suggest that a majority of firms (albeit a narrowing one) surveyed for the study are expecting economic conditions to deteriorate over the next 12 months. Most notably, the NBNZ gauge has been oscillating below the zero level for the better part of 7 years (aside from one outlying uptick in September 2008). The annual pace of GDP growth has trended lower for the majority of the same period, suggesting any connection between the uptick and an end to the current downturn is dubious at best.

In Australia, the Housing Industry Association reported that New Home Sales grew 4.2% in March, marking a significant slowdown from the 7.8% recorded in the previous month. We had anticipated the result in our Australian Dollar Weekly Forecast, noting that vehicle sales fell at the fastest pace in 9 years during the same period, reflecting Australian consumers’ continued hesitation to commit to big-ticket purchases. This seems logical considering the deepening economic downturn has pushed the unemployment rate to a 5-year high of 5.7%, weighing on disposable incomes, while access to borrowing has dwindled to unprecedented levels.

Euro Session: What to Expect



Euro Zone Economic Confidence is expected to rise for the first time in 11 months, rebounding from a record low at 64.6 to print at 65.6 in April. The metric is a weighted composite of five sector-specific sentiment surveys including Industrial Confidence (40%), Service Confidence (30%), Consumer Confidence (20%), Construction Confidence (5%), and the Retail Trade Confidence Indicator (5%). Improvements are expected across the various components and are likely linked to record-low interest rates and a slew of government spending packages put in place across the currency bloc. The ability of these measures to spur a sustainable return to economic growth and thereby encourage long-term strength in the Euro looks questionable at best, however. Bruegel, a think tank, has estimated that European countries will spend an average of 0.9% of GDP on fiscal stimulus, as compared to 2% being spent in the US. On the monetary front, the European Central Bank seems intent on continued waffling, signaling rate cuts will end with borrowing costs at 1% and seemingly failing to reach a workable consensus on quantitative easing. This half-hearted approach means that private demand will likely be slow to step in to pick up the baton after the government’s boost is exhausted, bolstering expectations for a comparatively slower recovery.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro, British Pound Follow Stocks Higher Against US Dollar (Euro Open)
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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!