Dollar Volatility To Lead Today's Market

Today the U.S. economy is going to be in the driver's seat of today's market, whilst the Euro-Zone currency will take more of a backseat. Traders should pay close attention to the U.S. unemployment data and President Obama's economic reforms, as these 2 factors are expected to have the biggest impact on the optimism in the market in today's trading.

USD - Lowered Risk Appetite Drives USD Higher

After Monday's surprising plummet, the USD appears to be regaining a level of its previous strength. Dropping as low as 1.3720 against the EUR and 1.5350 against the GBP, the greenback has gone on a modestly bullish run as of yesterday. The only currency which appears to be outpacing the Dollar lately is the Japanese Yen, rising to as high as 95.15 against the American currency.

The question most traders are now asking is whether or not this bullishness will continue. Yesterday's trading behavior for the U.S. Dollar may have been heavily influenced by the negative retail sales figures which were released at 12:30 GMT and showed that sales from retail stores across the U.S. dropped by 0.4%, slightly lower than many were expecting. The negative data likely pushed investors away from riskier investments and back into USD-long positions to secure their portfolios from decreased risk appetite. Whether this trend will continue, on the other hand, is entirely dependent on today's news releases.

Expected for today are a number of reports which do not typically carry a high impact on the USD except for two. The first is the Producer Price Index (PPI) due to be released at 12:30 GMT today. This is a consumer inflationary gauge which measures the prices which producers are paying to finish their goods. Higher prices paid by producers are typically passed on to consumers through price mark-ups; as such, this indicator has an inverse relationship with consumer spending. The second important indicator is the weekly Unemployment Claims report which is forecast to show that unemployment has continued to rise since last month. If these reports show negative results we could see a continuation of the USD's recent bullishness. A target of 1.3300 against the EUR may not be too unfounded.

EUR - EUR Plummets from Sudden Risk Aversion

The EUR apparently faced a rough day of trading yesterday as it depreciated against all of its currency rivals. The USD and JPY both made significant gains against the 16-nation currency as they moved up towards the 1.3550 and 129.40 price level, respectively. If risk aversion continues to gain momentum, the EUR could see a continuation to its recent downtrend.

It's no mystery these days that the EUR typically does not perform well while economic figures come out worse than forecasted. Generally a rise in risk appetite, which stems from positive economic news, pushes traders away from the safe-havens of the USD and JPY and into riskier investments, such as those in Europe. However, yesterday's negative news cycle proved once more that the world economy is not yet out of the dark.

Despite inspiring signals that we may be witnessing the bottoming out of this recession, occasionally the market wakes us back up to the reality of the situation. Yesterday was just such a day. US retail sales and business inventories showed a slight dip, and European data failed to add any positive news on top of that. As such, investors pulled away from riskier investments and jumped back into the USD and JPY en masse; hence the sudden turnaround from Monday.

Traders shouldn't anticipate many positive signals to emerge from the Euro-Zone today considering most economic indicators about European GDP were pushed back to Friday. Today will be a relatively light news day for the Euro-Zone and the U.S. economy is going to be in the driver's seat of today's market. Traders should pay close attention to the U.S. unemployment data as it will likely have the biggest impact on the optimism in the market.

JPY - Yen Gains on Poor Economic Outlook

As an apparent safe-haven these recent months, the JPY has begun to strengthen once again due to risk aversion. Climbing to as high as 95.15 against the USD and 129.40 against the EUR, the Yen has performed surprisingly well these past 24 hours. As economic reports from the United States prove that the recession and economic downturn has not yet finished, traders yesterday began to exit their high-yielding investments in exchange for safe-haven assets, such as the JPY. The question is whether this bullish trend will continue.

As Japan maintains a quiet approach to economic indicators, the Japanese economy typically does not lead the market or make much of an impact on trading behavior. However, the JPY does act as a type of safe-haven during economic downturns, as has already been mentioned, and since negative reports were seen across the board yesterday, the JPY appreciated. If today's indicators, such as U.S. Unemployment Claims and Japanese Core Machinery Orders turn out to be worse than forecasted, the JPY's recent uptrend may continue throughout the day. Traders should keep an eye on the economic calendar today to gauge the impending direction for the island currency.

Crude Oil - Oil Plummets after Demand Expectations Flounder

After failing to breach the $60 mark twice this week, the price of Crude Oil unexpectedly dropped during yesterday's trading. Due to a sudden drop in Oil imports, the price of Light Sweet Crude plummeted to just under $58 a barrel after peaking at $60.04 on Monday, the highest it's been since November.

According to economic analysts, two factors played an important role in the price of Oil these past days. The decreasing strength of the U.S. Dollar no doubt generated a moderate bullish run in the price of Crude Oil as market optimism reigned supreme. This optimism generated a perception of economic growth and the belief that demand for Oil would increase in the near future. However, when the demand side didn't materialize, the positive euphoria vanished and prices dropped to reflect their true value. As such, we may see a continuation in the bearish movement of the price of Crude Oil in the coming hours, but if optimism returns, the upward movement may continue.

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US Dollar Gains Against Major Currencies as Stocks Slip in Asian Trading (Euro Open)

The US Dollar advanced against major currencies in overnight trading as stocks sold off across Asian exchanges on news that US Retail Sales unexpectedly fell in April. Swiss Producer and Import Prices are on tap in European hours.

Key Overnight Developments

• New Zealand Manufacturing Contracts for 12th Straight Month
• US Dollar Rises as Stocks Sell Off Across Asian Exchanges

Critical Levels

The Euro trended lower in overnight trading, shedding as much as -0.6% against the US Dollar. The British Pound followed suit, slipping -0.4% against the greenback. The Dollar rose against major currencies as stocks sold off across Asian exchanges on news that US Retail Sales unexpectedly fell in April.

Asia Session Highlights

New Zealand’s Business NZ PMI rose for the second consecutive month in April, printing at 43.7 from 41.9 in the previous month. The reading remains below the “boom-bust” 50 reference level, suggesting the manufacturing sector contracted for the 12th consecutive month, albeit at a slower pace. Most notably, the New Orders component of the metric has advanced for two straight months since bottoming in February, raising hopes that firms have already seen the worst of the slump in overseas demand. The industrial sector employs about 19% of New Zealand’s labor force, so a rebound here would certainly help to boost hiring, promote spending, and help lift the smaller antipode out of the worst recession in over three decades.

Euro Session: What to Expect

Switzerland’s Producer and Import Prices are set to fall at an annual pace of -2.8%, the most in decade, for the second consecutive month in April. The reading suggests continued downward pressure on consumer prices, the headline inflation gauge, after CPI slipped into negative territory for the first time in 5 years in March and continued to contract in April. Weakening domestic conditions will add to external downward pressure on price growth: a survey of economists conducted by Bloomberg suggests that the economy will shrink -1.0% this year, threatening to entrench deflation expectations. This stands to commit the mountain nation to a long-term stagnation as consumers and businesses perpetually put off spending and investment to wait for the best possible bargain. It remains to be seen if the Swiss National Bank is able to stave off this dire scenario with aggressive monetary measures including quantitative easing and currency market intervention.

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.


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!