5.08.2009

Dollar Expects High Volatility Today

Today, traders should pay close attention to the release of the U.S. Non-Farm Employment Change report. This indicator always provides for extreme market volatility in the major currency pairs. Traders may find good opportunities to enter the market following this vital announcement at 12:30 GMT.



USD - Dollar Slides Against the EUR

The Dollar recorded some mixed results in yesterday's trading. However, the most notable result was the slide vs. the EUR. The Dollar's trading was dominated by a number of factors throughout the trading day. Earlier on, Thursday was dictated by poor, but slightly better-than-expected Unemployment Claims data that put downward pressure on the USD. This helped the Dollar tumble against the European currency for much of the day. This currency pair was also affected by the 25 basis points drop in EUR Interest Rates to 1%, which helped increase confidence in the EUR.

The factor that strongly affected the Dollar in late trading was the Stress Test, overseen by U.S. Federal Reserve Chairman Ben Bernanke. The conclusion of the Stress Test was that 10 of the 19 U.S. banks would need to raise $75 billion Dollars in capital. This was in order to help convince investors about the sound financial system. The figure was less than many had expected, and helped the Dollar increase slightly in late trading. The currency market is likely to continue reacting to the finding in end of week trading.

The Dollar ended Thursday's trading lower by 75 pips vs. the EUR to close at 1.3362. The USD did make some impressive gains against the JPY as it extended its 2 day winning streak against the Japanese currency to finish up 1% or 80 pips at 99.20. The USD also climbed against the British Pound by 120 pips to close at 1.4996, as the British stock market closed slightly higher. This comes as Britain keeps her Interest Rates unchanged at 0.5%. The question is can the Dollar extend its gains vs. the GBP as the weekend kicks in.

Looking ahead to today, there are several important news releases coming out of the U.S. These include the Non-Farm Employment Change and Unemployment Rate at 12.30 GMT. Better-than-expected results may help the Dollar recover some of yesterday's losses against some of its crosses such as the EUR. On the other hand, if the results turn out to be in line with forecasts, then the Dollar may record a fairly bearish session in Friday's trading.

EUR - EUR Surges Versus GBP

The EUR made a massive surge against the British Pound, as the Euro-Zone cut its Interest Rates by 25 basis points to 1%. This is the lowest in the Euro-Zone's history. This is very important as this action put a notable boost into the EUR, as investors feel that the European Central Bank (ECB) under Jean-Claude Trichet is continuing to show flexibility. The European Currency was also boosted by impressive German Factory Orders figures that were released early on Thursday. These 2 factors provided such a boost that the EUR was able to strengthen throughout yesterday's trading session.

The EUR eventually finished Thursday's trading up 120 pips against the GBP to close at 0.8908. This was obviously driven by the EUR's rate cut. Additionally, forex traders continue to fear Britain's mounting negative finances. The EUR also made gains vs. the Dollar to close up 65 pips or 1.3362. This comes about as the U.S. releases poor economic data and the Bank Stress results. The EUR gained a massive 170 pips against the JPY, as investors confidence continued to pour back into the European currency throughout Thursday's trading session.

As for today, there are a number of important economic data releases coming out of Britain and the Euro-Zone. These include the German Trade Balance throughout the day and the German Industrial Production figures at 10.00 GMT for the EUR. Britain is expected to release PPI Input and PPI Output figures at 8:30 GMT. The figures from Britain and the Euro-Zone are likely to set the pace for the strength of the Pound and the EUR throughout today's trading. Expect high volatility as each data release is published.

JPY - JPY Tumbles Against Currency Rivals

The JPY tumbled against its major currency rivals in Thursday's trading. The most dominant reasons for this were other factors apart from the Japanese economy. These external factors seem to be increasingly affecting JPY trading as of late. Despite major economic data releases on Wednesday, yesterday investors reacted to events coming out of the Atlantic. The reasons for this may also be that JPY investors continue to look for signs of global economic recovery. This is despite the bottoming out of the current economic slump in Japan.

The JPY fell against the USD by 80 pips to 99.20, recording its second day of losses against the U.S. currency. Against the EUR, the JPY slid 170 pips to 132.47 as investors poured into the EUR, as the Euro-Zone made a 25 basis point rate cut to 1%. However, the GBP/JPY rate was down slightly, as Britain's economy continues to deteriorate. Today, expect some high volatility for the JPY, as Japan is absent from the forex calendar. Therefore, yet again, much of the movement of Japan's currency will be largely influenced by external economic dynamics.

Crude Oil - Crude Oil Eyes $60

The price of Crude Oil hit as high as $58.55 before ending Thursday's trading at $57.10. Oil closed up about 1% or 51 cents to close at the $57.12 level. Crude made the early gains due to inflation fears and the thought that the worst of the economic downturn is over. This was also helped by Wednesday's lower-than-forecasted Crude Oil Inventories and impressive Construction Spending data from earlier in the week.

The price of Oil did however start to drop as the day went by as commodity traders started to fear tomorrow's employment data figures that are due tomorrow from the U.S. If economic figures continue to show decent results from the developed nations, and investors feel that the global economy is continuing to recover, then expect Crude Oil to reach $65 a barrel by the end of next week's trading session.

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US Dollar Range-Bound Against Euro, British Pound Ahead of US Jobs Report (Euro Open)

Key Overnight Developments

• RBA Concedes Recession in 2009 But Retains Optimistic Outlook
• Bank of Japan May Expand Current Quantitative Easing Programs

Critical Levels

The Euro oscillated in familiar territory in overnight trading, oscillating in above 1.3350. The British Pound followed suit, trading sideways in a well-defined 100-pip range below 1.5050.

Asia Session Highlights

The Reserve Bank of Australia’s Quarterly Monetary Policy Statement saw policymakers concede that the economy will see the first recession since 1991 this year, with gross output shrinking -1.25% in the 12 months through June. Still, the bank echoed optimism from the last interest rate announcement, saying Australia will perform better than most other developed countries amid the current downturn and expressing confidence that existing monetary and fiscal measures will help support demand in the period ahead. To that effect, Glenn Stevens and company asserted that it was “appropriate to make smaller and less frequent adjustments to [interest rates having seen] some signs of stabilization in the world economy."

Minutes from the last policy meeting of the Bank of Japan revealed that policymakers may expand current lending programs to assure credit access for companies. The BOJ cut benchmark interest rates to a mere 0.1% in December and has been actively buying corporate and government bonds from banks to boost those institutions’ capital available for lending. For the time being, members were content to broaden the range of assets that would be acceptable as collateral to further ease access to borrowing. However, Maasaki Shirakawa and company did not rule out “additional measures” if conditions become more severe.

Euro Session: What to Expect



Switzerland’s Unemployment Rate is expected to tick higher in April, rising to a 3-year high at 3.5%. Job losses will trim disposable incomes for those out of work and encourage precautionary saving for those that are still employed, weighing on spending. Private consumption is the largest component of GDP, so turmoil in the labor market is likely to keep a lid on economic growth. The central bank has committed to aggressive monetary stimulus: interest rates stand at just 0.25%, quantitative easing measures are in place, and the policymakers are committed to keep down the value of the Swiss Franc in a bid to prevent deflation. Still, the annual pace of inflation printed in negative territory for the second consecutive month in April and a survey of forecasters conducted by Bloomberg expects the mountain nation’s economy will shrink by 1% this year.

In Germany, the Trade Balance surplus is expected to narrow to 8 billion euro in March, down from 8.7 billion in the previous month. This would amount to a whopping -51.8% drop in trading terms from a year before on as deepening global recession weighed on overseas demand for German manufactured goods. Lackluster sales have seen firms scale back output and lay off workers. Indeed, Industrial Production is likely to have shed -20.9% in the year to March, the most on record. Rising unemployment has weighed on disposable income and trimmed spending, weighing on economic growth and pushing the economy to shrink by a whopping -4.95% in 2009 according to the latest forecasts collected by Bloomberg.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Range-Bound Against Euro, British Pound Ahead of US Jobs Report (Euro Open)
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Immediate Risk Appetite, Dollar, Stock Response To Fed Stress Test A Sign Of Optimism?

• Immediate Risk Appetite, Dollar, Stock Response To Fed Stress Test A Sign Of Optimism?
• Bank of England And European Central Bank Struggling To Keep Pace
• What Happens When Speculation Turns To Fundamentals For Support?

Investors and traders have waded through the most densely-packed week for event risk in months; and the initial report is that optimism has held up well despite a relatively dour mix. However, until fundamentals catch up to (and support) sentiment, the recovery will be built on unstable ground. The recent tempered pace of what is now a two-month recovery in risk appetite may be a sign that investors are slowly coming to this realization – though recent ‘better than expected’ data and performance gauges have kept the various asset classes from faltering under the weight of a weak backdrop. With headlines covering smaller than expected quarterly losses for major companies and signs of a slower contraction in the global economy, side-lined market participants have been encouraged to put their capital back to work in traditional securities. The benchmark Dow has pushed to near-four month highs in a 30 percent advance from its 12 year lows. The same sentiment is reflected in the currency market. A quick recovery in carry interest has brought the Index up to its highest level since the short-term rebound following the market crash back in October. As far as support goes, a measured recovery in investment levels and yield appetite is warranted through a steady reduction in risk and very early signs of a recovery in rates of return. Volatility in the deeply liquid currency market has pulled back to levels not seen since September and the interest rate outlook for the Australian dollar has just recently ticked higher. On the other hand, market sentiment is still recovering from a near panic state and returns on every other asset are contacting. So, is sentiment overshooting the actual recovery?

Whether the current recovery in optimism and investment levels continues into the medium term will become more and more a factor of fundamentals. A natural boost in the markets is natural as participants reinvest and early speculators trying to jump back in the market to make up for their crushing losses through 2008. However, such sentiment can prevail for only so long before investors are discouraged by the lack of a return over benchmarks and risk-free instruments – or are driven away by another unforeseen shock to the financial system. For this week, another leg of the recovery has been won through the relief provided by the results of the Federal Reserve’s Stress Test. Despite the government’s requirement for 10 of the United States’ largest banks to raise another $74.6 billion dollars and forecasts that 19 of its institutions could see a combined $600 billion in additional losses through 2010; investors were calmed by the fact that things weren’t worse. However, this data shows a fundamental issue. Further losses are inevitable. More importantly, global growth is fully expected to contract going forward. At the most fundamental level of finance, returns are borne from economic expansion and the lending and investing it generates. With both the BoE and ECB reporting their efforts to shore up the markets this past week and government funds still holding things together, it is clear that a recovery can’t yet support itself.

Written by John Kicklighter, Currency Strategist
Article Source - Immediate Risk Appetite, Dollar, Stock Response To Fed Stress Test A Sign Of Optimism?
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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!