5.11.2009

USD Weakens and World Economies Strengthen?

Last week may have signaled a change in the Dollar's value against the major currencies. If you remember, the EUR/USD was traded almost at the 1.6000 level before the financial crisis outburst, and once it did, the EUR/USD dropped to almost 1.2200. The rally of all the major currencies against the Dollar could be the starting point for the idea that the forex market is finally correcting itself. Could we be seeing a return to market optimism?



USD - Weakening USD May Signal the Final Stage of Recession

Last week may have signaled a change in the Dollar's value against the major currencies, as the USD lost a significant portion of its value despite, or maybe as a result of rather positive data from the U.S economy.

All the significant and influencing data published from the U.S economy last week delivered better figures than those expected by analysts. The Pending Home Sales showed a positive mark for the second time in a row, stating that maybe the housing sector is beginning to stabilize after a long period of crashing. This data has an immense impact on the U.S economy as the mortgage issue was the first catalyst for the current recession. An improving housing sector might be the first sign to tell us that people have regained their faith in the American economy.

Even the poor employment condition is starting to see the light at the end of the tunnel. True, we are still in a situation in which more people are losing their jobs than those who are being hired, but at least the pace of job losses is slowing down. The Non-Farm Employment Change report showed that 539,000 individuals lost their jobs during April, but this is the best figure since January's publication.

The influence of such news usually has a very "easy to predict" impact on the Dollar - it strengthens it; however, the exact opposite has happened, the greenback has dropped on all fronts.

If you remember, the EUR/USD for example, was traded almost at the 1.6000 level before the financial crisis outburst, and once it did, the EUR/USD dropped to almost 1.22. The rally of all the major currencies against the Dollar could be stating that the forex market is finally correcting itself, meaning that the major economies are finally climbing over the hill.

As for the upcoming week, a batch of data is expected from the U.S economy, and traders are advised to focus their attention to the U.S. Trade Balance report which is expected on Tuesday, the Retails Sales indices on Wednesday and unemployment figures on Thursday, as these indicators are expected to dictate the Dollar's movements for this week. Will the USD's weakness continue?

EUR - Interest Rate Cut Had the Opposite Effect on EUR

Traders who went long on the EUR last week saw significant profits as the European currency saw bullish trends within all of its major currency pairs and crosses. The EUR rose over 400 pips against the Dollar, over 200 pips against the Pound and close to 500 pips against the Yen!

The sharp jump in the EUR's value came at the least expected timing. On Thursday, at 11:45 GMT, the European Central Bank (ECB) published that it cut European Interest Rates to 1.00% from 1.25%. One of the reasons that drove the ECB to cut rates was to further weaken the EUR, as it will serve the European exporters and, by doing so, could improve dramatically the Euro-Zone's regional economy. For several weeks now, the entire world is looking forward to see the ECB becoming more active in the effort to fight the financial crisis, and it was widely expected that an interest rate cut will take place.

It could even be said that the 1.00% rate was already accepted in the market, which operated as if the decision was already taken. This initiated a bullish trend for the EUR over the past few weeks, and thus all we're experiencing right now is merely a technical correction to the ECB's publication which came about two weeks after the European markets had accepted the yet unreleased lower rates.

As for the week ahead, a lot of important data will be released from the Euro-Zone; however, the most vital one will be the German Preliminary Gross Domestic Product (GDP). This indicator measures the change in the value of all goods and services produced by the economy. Considering that Germany holds the strongest economy in the Euro-Zone, its health is vital for the valuation of the entire region, and thus this publication tends to have a great impact on the EUR. In case the real result will indeed show another negative result from this report, the EUR's bullish trend could reverse as a result.

JPY - Yen Slides on Inflation Concerns

Last week the Yen mainly saw bearish trends against its major currency counterparts. The JPY underwent sharp downtrends against the EUR and the GBP, and experienced a volatile session against the USD during the past week.

It appears that the Bank of Japan's (BoJ) statement on Thursday was interpreted by investors as a warning sign that inflation in Japan could rise dramatically over the next few weeks. The initial reaction was to avoid holding the JPY. That may have been the exact purpose of the BoJ's statement.

It is no secret that the Japanese economic chiefs are holding the stand that a weak currency is one of the main keys to pull the local economy out of recession. This is largely due to the support of the exporting sector which has an immense influence over the Japanese economy. The easiest way to try and manipulate the currency value is by cutting interest rates. However, Japan is currently holding the lowest Interest Rates in the industrial world - 0.10% - and it would be difficult to go lower. This leaves the BoJ no choice but to create speculations on rising inflation that has the potential of weakening the JPY, and it seems that they have done just that.

As for the week ahead, traders should focus their attention on statements made by BoJ Governor Masaaki Shirakawa on Wednesday. As proven this week, the BoJ is using its last resort in order to control the economy's condition, and that is done by speeches and statements. Any update on the BoJ's plans for the future will probably have an imminent impact on the Yen, and traders should be ready.

Crude Oil - Will Crude Oil Reach $60 a Barrel this Week?

Crude Oil continues its straight bullish trend, and last week a barrel of oil saw a record price of $58.20 a barrel; a price not seen in about six months.

The first reason beyond any doubt to Crude Oil's surprising rise is the sharp drop in the U.S Dollar this week. Crude Oil is valued in Dollars and as such, any sudden movement in its value is being immediately reflected in the commodity's value as well, especially when the change is so unexpected. In addition, it has been proven over the past few months that the price of Crude Oil is highly correlated with the American equity markets. The relatively solid week that equity markets saw in the U.S had also a direct effect on oil prices, which helped it reach close to $60 a barrel.

The main question now is whether a barrel of Crude Oil will rise over $60 a barrel this week, and the answer is probably no. Current forecasts are assuming that the traveling expenses this summer will drop significantly as opposed to previous years. This will have a devastating impact on oil's value. If the upcoming weeks won't show a massive increase in traveling package orders, then a drop is Crude Oil's prices is probably just a matter of time.

Article Source - USD Weakens and World Economies Strengthen?
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US Dollar May Rise as Stock Index Futures Point to a Reversal in Risk Appetite (Euro Open)

The US Dollar may rise as an uneventful economic calendar is likely to yield to risk sentiment as the main driver for forex price action with US equity index futures trading down 1% ahead of the opening bell in Europe. French and Italian industrial production figures are on tap, with expectations calling for the fourth consecutive month of double digit declines in the year to March.

Key Overnight Developments

• New Zealand House Prices Fall for Tenth Month in April
• Australian Business Confidence ‘Stabilized Significantly’ Says NAB

Critical Levels



The Euro traded sideways in a well-defined range above 1.3615 in overnight hours. The British Pound followed suit, oscillating in a 50-pip band above the 1.5200 level.

Asia Session Highlights



New Zealand House Prices (calculated based on quoted home values) fell for the tenth consecutive month in April, shrinking at an annual pace of -9.2%. The reading is within a hair of March’s record -9.3% decline, the largest in nearly 4 years. Deepening recession, rising unemployment, and scarce credit access have kept buyers away from big-ticket purchases, sending property values lower. For those that already own a home, the decline amounts to a negative wealth effect, eroding the value of one’s assets to discourage spending and thereby keep a tight lid on economic growth. The Reserve Bank of New Zealand has tried to encourage demand by cutting interest rates to a record-low 2.5% at the last policy meeting and explicitly stated that they “consider it appropriate to provide further policy stimulus to the economy [and] expect to keep [interest rates] at or below the current level through until the latter part of 2010.” The economy is expected to shrink -3.2% through 2009.

In Australia, April’s Business Confidence was little changed from the previous month’s result, printing at -14 versus -13 in March according to National Australia Bank. The metric set a record low at -32 in January. NAB chief economist Alan Oster said that “confidence levels have stabilized significantly” and speculated that “a moderate return to [economic] growth” was possible if sentiment holds at current levels through the second quarter. Still, Oster remained cautious, noting that “future expectations [are] at record lows” and forecasting that the jobless rate would rise to 6.75% this year and reach around 8% by 2010 despite a notable upswing in April’s data. For its part, the Reserve Bank of Australia has argued that existing monetary and fiscal policy measures will adequately support economic recovery.

Euro Session: What to Expect



An uneventful economic calendar is likely to yield to risk sentiment as the main driver for forex price action in European hours. Although Asian stock markets seesawed overnight, US equity index futures headed convincingly lower, trading down 1%. If risk appetite abates in a meaningful way, traders could see upside in safety-linked currencies such as the US Dollar and the Japanese Yen.

Scanning the data docket, signs of deepening recession continue to abound in the Euro Zone. French Industrial and Manufacturing Production readings are set to issue the fourth consecutive month of double digit declines, shrinking -14.6% and -16.1% respectively in the year to March. Meanwhile, Italian Industrial Production is expected to shed -21.2% in the same period. Output has dwindled as the global economic downturn weighed on overseas demand. Exports contribute over 40% to the Euro Zone’s overall economic growth, with other factors like investment and private consumption indirectly to foreign demand. Indeed, the current fallout has led companies to scale back investment and cut labor costs, boosting unemployment and weighing on consumption. This bolsters expectations that the currency bloc will trail the US in recovering from current turmoil: most US economic growth is derived from domestic factors, while the Euro region will need to wait for the second-round effects of a recovery among its top trading partners to see a lasting return to positive growth.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar May Rise as Stock Index Futures Point to a Reversal in Risk Appetite (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!