5.01.2009

U.S Manufacturing PMI Figure will Determine Today's Trend

The Dollar is likely to go volatile during and following the ISM Manufacturing PMI release today at 14:00 GMT. Meanwhile, forex traders are advised to take positions on trades, as a string of data releases coming out of Japan and Britain are likely to affect the greenback's main currency crosses.



USD - Greenback Rebounds on U.S. Jobless Claims Data

The U.S. dollar rose against the Japanese yen and other major currencies on Thursday after data showed a decline in jobless claims, suggesting that the worst of the American recession may be over. The USD was last up 0.2% against the EUR at $1.3235 while against the Yen the Dollar was 0.9 percent higher at 99.00 yen.

U.S. weekly jobless claims decreased in the latest period even as continued claims notched a fresh record high, a sign some investors took as stabilization of the labor market. Analysts said that given the latest sustained stabilization of the U.S. economy, the dollar may begin to perform better due to investors' overall demand for the greenback.

The U.S. central bank's stance was consistent with data showing that the U.S. economy remained on track to improve later this year despite a surprisingly steep 6.1% fall in national activity in the first quarter. Market players were watching Chrysler's efforts to avoid bankruptcy ahead of a government imposed restructuring deadline later in the day. The company's bankruptcy may reduce the appeal of the U.S. currency as a refuge. Economists said that if Chrysler LLC will go bankrupt, the dollar may face even stronger selling pressure.

EUR - EUR Is Pressured By High Unemployment Figure

The European currency reversed its early gains against the dollar on Thursday, slipping into negative territory with traders citing profit taking following the single currency's gains earlier in the day. In volatile trading, the EUR fell 0.2% to $1.3224. Earlier, the currency fell to an intraday low of $1.3190.

Unemployment in the Euro-Zone rose to 8.9% in March, slightly higher than in February, the statistics agency Eurostat said. A rise in unemployment data from an upwardly revised 8.7% in February underlined the view that the European economy remains weak. Other data showed that Euro-Zone inflation remained at a record low of 0.6% year-on-year in April. The European Central Bank, which meets on Interest Rates on May 7, wants to keep inflation just below 2% and is expected to cut its refinancing rate to 1.0%.

The British pound remained flat against the dollar at $1.4783. British consumer confidence posted its third monthly rise in April, continuing a slow rebound from an all-time low notched last summer, market research firm GfK NOP reported Thursday.

JPY - The Yen Fall to 2 Week Low on Jobless Rate Numbers

As expected, the Bank of Japan on Thursday left official Interest Rates unchanged and reduced its expectations for economic growth in fiscal year 2009 as exports continued to suffer from the weak global economy. The central bank also said it expects overseas economies to start recovering in the latter half of the fiscal year.

The Japanese currency fell against all of the 16 most actively traded currencies except the New Zealand dollar as a decline in foreign-exchange fluctuation encouraged investors to engage in carry trades, in which they buy higher-yielding assets after borrowing in countries with lower interest rates. The yen declined 0.6% to 130.42 per EUR, from 129.61 yesterday. The JPY also slid 1% to 98.72 against the Dollar.

Data from Japan Friday highlighted economic weakness there, with the March jobless rate coming in at 4.8% while the March core consumer price index fell 0.1% on year, the first negative reading in a year and a half and a sign the nation might have entered a long period of deflation.

Crude Oil - Crude Reverses Losses on Economic Recovery Optimism

Crude Oil prices rose higher on Thursday to $50.92 a barrel as gains in wider global markets offset rising energy inventories and slumping demand. Oil prices had been buffeted earlier this week on speculation that global health concerns about the spread of swine flue would trim demand for fuel.

The number of U.S. workers filing new claims for unemployment aid fell unexpectedly last week, suggesting the pace of layoffs was easing, helping to lift the U.S. stock market ahead of the settlement in oil prices.

Markets were also eyeing the flu outbreak as officials urged increased worldwide precautions against an imminent pandemic and Mexico began shutting down parts of its economy to slow the spread of the new flu strain. Analysts have said the flu could hurt jet fuel demand by curtailing travel.

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Euro, British Pound Diverge Against US Dollar as Prices Test Key Levels (Euro Open)

The Euro gained while the British Pound slipped lower against the US Dollar in overnight trading as the greenback tested the boundaries of its 9-month up trend while global equity markets hoped to break the downward trajectory that has characterized prices since October 2008.

Key Overnight Developments

• Japanese Economic Data Points to Deepening Recession
• US Fed Delays Stress Test Findings as Banks Debate Results
• Euro, British Pound Diverge Against the US Dollar

Critical Levels



The Euro trended higher in overnight trading, with EURUSD adding as much as 0.4%. The British Pound diverged from its continental counterpart, slipping as much as -0.2% against the greenback. The US Dollar has suffered some notable setbacks in recent days but technical positioning suggests the dominant bias continues to favor weakness in risky assets and a stronger greenback.

Asia Session Highlights



Signs of deepening Japanese recession were on full display in Asian trading with the economic calendar soaked in red ink yet again. The Jobless Rate jumped higher than economists expected to print at 4.8% in March, the highest since August 2004, while the ratio of available jobs to seeking applicants dropped to the lowest in 7 years. The pattern is a familiar one: dwindling overseas sales have pushed firms to scale back capacity, boosting unemployment and weighing on disposable incomes, with Labor Cash Earnings falling -3.7% in the year to March, the fastest in since July 2002. Reasonably enough, this has eroded consumer spending and pushed the world’s second-largest economy into the deepest downturn since the Second World War. Indeed, Japan’s government forecast that the economy will shrink -3.3% this year. Stagnating output has also pushed price growth deeper into negative territory with the Consumer Price Index revealing that inflation fell at an annual pace of -0.3% in the year to March.

The Federal Reserve said that it will postpone the release of stress test results for the biggest US banks as the firms’ executives debate the findings with regulators. The release was originally slated by for May 4th, but concerns arose that undercapitalized institutions would see their stock prices collapse after their names were revealed to the markets. However, the added uncertainty may prove to be enough in and of itself to spook investors out of risky assets in the days head.

Euro Session: What to Expect



Tentative signs of stabilization in the UK housing market are set to continue to trickle in during European trading hours. Mortgage Approvals are set to rise for the fourth consecutive month in March while Net Consumer Credit is set to turn back into positive territory after dropping to a record low in February. Still, it seems premature to conclude that the data is indicative of a robust, sustainable rebound that would bring economic growth to healthy pace in the near future. Indeed, past experience suggests that a bottoming in the pace of economic decline seems to lag behind a pickup in buying interest by at least 6 months. NIESR, a think tank, said the economy could “continue to decline for up to another year.”

Written by Ilya Spivak, Currency Analyst
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Dollar, Stocks And Risk Appetite Reaction To Fed's Stress Test May Not Be Straightforward

• Dollar, Stocks And Risk Appetite Reaction To Fed’s Stress Test May Not Be Straightforward
• US 1Q GDP Sets A Disappointing Precedence For Global Growth
• Yields Continue To Contract With The RBNZ Cut Lowering The Ceiling On A Key FX Rate

The steady and relatively unimpeded rise in risk appetite over these past few months may have finally been put off its pace. After a bout of high volatility that coincided with heavy event risk, the markets seem to have lost their clear bias with momentum receding and the fundamental outlook for global growth and financial markets growing more complicated. This time around, traders and investors may require a tangible source of support to bolster their exposure while the future of risk and reward are still unbalanced. Taking measure of the market’s health though, there are a few irrefutable improvements in general conditions. The key improvement comes through the DailyFX Volatility Index. Though this indicator ticked higher week-over-week; at 13.7 percent, the forecasted range of price action over the next three months is nonetheless just off its lowest levels since the September (just before the panic that led to the panic sell off in equities and a deleveraging for so many other asset classes). This is a trend that cannot be ignored as its consistency reflects an underlying improvement in a critical component of the risk/reward equilibrium. For the potential yield or return side of that same equation, the forecast is not as bright – yet. Benchmark interest rates among some of the highest yielding currencies continue to fall and will do so until there is a genuine economic recovery underway. In the meantime, the global rates will trend closer and closer to zero and subsequently close the gap (or carry) along the way. However, we have seen in this market, things can change on a dime.

How risk appetite (or aversion) develops is becoming more and more a factor of sentiment rather than a natural response to fundamentals. The effects of recession are familiar to nearly every market participant; but policy officials, economists and speculators are quickly coming to a consensus that the global economy is beginning to stabilize and is likely to recover sometime at the end of this year or into the beginning of 2010. At the same time, the slighter than expected improvement in the pace of the United States’ recession through the first quarter certainly pushed this outlook back somewhat. As further growth readings from the industrialized and emerging markets cross the wires, the outlook will find further adjustments. Expansion and economic activity are inherently a platform for returns. As such, the timing of the eventual recovery will play a significant role in how quickly the rebound for speculation will be. Should the correction happen immediately, there will still be substantial yield differentials to work with and spur investment. However, with each month that passes, income producers like the Australian and New Zealand dollar will see their rates steadily depreciate. And, while there demand for return is on the rise, we cannot completely write off risk. After months of stability in the capital and credit markets, we are coming on the next major threat to calm: the Fed Stress Test. Initial reports suggest six of the 19 banks under review will come up short and be forced to raise capital. How will the market react to this? Is another collapse inevitable? Time will tell.

Written by John Kicklighter, Currency Strategist
Article Source - Dollar, Stocks And Risk Appetite Reaction To Fed's Stress Test May Not Be Straightforward
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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!