5.15.2009

Oil Goes Bullish on Weak Dollar

Oil prices reached over $59.50 a barrel yesterday, an increase of a whopping 4%. It seems that the OPEC production cuts have worked. Traders should also take into account that the Crude prices were also fueled yesterday by bullish stock markets and a weak Dollar. The price of Crude Oil is only likely to increase further today if the U.S. and Euro-Zone continue to show optimism, and the Dollar continues its bearish run.



USD - Dollar Plummets on Jobless Claims Data

The U.S. Dollar plummeted considerably versus its major rivals on Thursday. This was amid uncertainty about the economic outlook, buoyed by modest safe-haven flows. The Dollar dived against the EU after a report showing U.S. jobless claims rose last week more than analysts originally forecasted. However, the U.S. and global stock markets made gains yesterday.

The USD fell by over 80 pips to 1.3634 against the EUR yesterday, after appreciating earlier to $1.3531, the strongest level since May 8. The Dollar also declined against the GBP by 110 pips to close at 1.5229. The U.S. currency, however, increased against the JPY to 95.99 Yen from a 95.47 opening. The Dollar has weakened in the past 3 weeks, falling to $1.3634 per EUR from $1.2886 on April 22, while the Standard & Poor's 500 Index reached its high for the year and Treasury yields rose amid an increase in risk appetite among investors.

The U.S. Dollar may appreciate further against the EUR after the 16-nation currency was unable to break above $1.3700 amid an increase in U.S. stocks. Stock markets remain a key driver of currencies, and their rise in yesterday's trading was clearly reflected in the bearishness of the Dollar, analysts said. Market players will be watching a heavy round of U.S. economic data on Friday, including April consumer price inflation, the University of Michigan consumer confidence survey.

EUR - The Euro-Zone Goes Defensive on ECB Policy Concerns

The EUR held on to gains made on Thursday against the greenback keeping within sight of recent highs made as optimism has grown that the worst of the global economic crisis may be over. The European currency, which hit a 7 week high at $1.3722 this week, was a shade softer at $1.3624 in early trading on Friday.

Against the Yen, the EUR headed for its first gain in 3 days on speculation the European Central Bank (ECB) will take additional steps to keep down borrowing costs, possibly increasing demand for the currency. The EUR/JPY currency pair finished trading at 130.92 Yen from 129.42 Yen yesterday. Traders now wonder if the EUR can extend this 1 day gain against the JPY.

The market offered limited initial reaction to comments by members of the European Central Bank Governing Council, who on Thursday stated the ECB's key rate may eventually approach zero. Some analysts said recent comments from the ECB underlined disagreement between policymakers regarding how much lower Interest Rates can fall, and if this disagreement continues the result may be a bearish EUR in the medium-term.

The Pound Sterling remained under pressure after the Bank of England (BoE) said on Wednesday that it expected British inflation and the economy to recover more slowly than previously forecast. The Pound made impressive gains against the Dollar on Thursday to finish higher by over 100 pips at 1.5229. Today, investors have their eye on German Prelim GDP figures at 6.00 GMT, as this is likely to lead to volatility in the EUR/GBP cross.

JPY - The Yen Declines vs. the USD as Stocks Rebound

The Yen fell against the EUR for the first time in 4 days as a gain in stocks encouraged investors to buy higher-yielding assets funded with Japan's currency.
The JPY declined by over 1% against the EUR to 130.92 from 129.42 yesterday .The Yen also weakened earlier 1% against the Dollar to 95.99, because of selling to protect options that would become worthless should Japan's currency rise further, according to analysts.

The Yen may reverse this year's decline against the Dollar as Japan's currency succeeds the greenback as the best refuge from the financial crisis. The Japanese currency may appreciate to 92 yen by the end of the year as the link between the greenback and risk aversion deteriorates. As for today, forex traders are advised to follow the U.S. Core CPI data release at 12.30 GMT, as the results of this are highly likely to determine USD/JPY trading going into next week.

Crude Oil - Crude Rises Above $59 a Barrel

Crude Oil prices rose on Thursday, tracking a rebound on Wall Street, though a gloomy demand forecast from the International Energy Agency (IEA) limited gains.
Crude prices rose $2, or 4%, to settle at $59.53 a barrel. Oil prices continue to track equities markets as traders look to stocks for signs of an economic recovery that could lift ailing world fuel demand. The other factor that helped Oil prices yesterday was the weak Dollar, directly leading to a bullish price of Oil.

The 11 members of the Organization of Petroleum Exporting Countries (OPEC) bound by production targets implemented 77% of planned cuts of 4.2 million barrels a day in April, down from a revised 82% for March. The cartel next meets on May 28, and is unlikely to alter production limits if prices remain strong, Iraq's oil minister said Thursday. The price of Crude may hit $65 by the end of the month if additional solid signs of an earlier-than-forecasted economic recovery become more apparent.

Article Source - Oil Goes Bullish on Weak Dollar
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Euro, Risk Appetite Threatened with German and EZ GDP to Record Deep Losses (Euro Open)

The Euro may see substantial selling pressure in the forthcoming session with German and Euro Zone Gross Domestic Product readings set to register deep losses in the first quarter. The data may also weigh on risk appetite on the implications of deepening recession in the world’s second-largest economy. Switzerland’s Retail Sales report is also on tap.

Key Overnight Developments

• New Zealand Retail Sales Tumble Most in Nearly Two Decades in Q1
• Euro Slightly Lower, British Pound Range-Bound in Overnight Trading

Critical Levels



The Euro trended gently lower in overnight trading, shedding -0.2% against the US Dollar. The British Pound oscillated in a narrow, 34-pip range above the 1.5210 level.

Asia Session Highlights



New Zealand Retail Sales unexpectedly fell in March, shedding -0.4% and upsetting economists’ expectations of a 0.5% advance. Inflation-adjusted sales tumbled -2.9% in the three months to March, the sixth consecutive quarter of losses and the largest decline in at least 19 years. Retail activity is likely to remain subdued in the months ahead: unemployment has surged to the highest in over 6 years and the latest data on business confidence suggests a majority of firms expect conditions to deteriorate over the next 12 months, meaning hiring is likely to remain tepid for the time being. Indeed, a survey of economists conducted by Bloomberg reckons the jobless rate will register above 6% in both 2009 and 2010. This will trim disposable incomes for those out of work and encourage precautionary saving for those that are still employed, weighing on spending.

Euro Session: What to Expect



The Euro may see substantial selling pressure with a large dollop of dour economic data set to cross the wires in European trading hours. Preliminary estimates of Germany’s Gross Domestic Product are set to show that the Euro area’s largest economy shrank for the fourth consecutive quarter in the three months to March to bring the annual pace of contraction to a shocking -6.0%. The analogous reading for the Euro Zone as a whole is set to show that the region’s economy shed a whopping -4.1% in the year to the first quarter. Reasonably enough, the unprecedented scope of the current downturn has weighed on price growth, with the Euro Zone Consumer Price Index to show that the annual inflation rate remained at a record-low 0.6% in April.

The fallout from the dour data will be compounded by the European Central Bank’s lackadaisical approach to providing the necessary stimulus to revive growth. Although ECB President Jean-Claude Trichet announced that the bank would move forward on quantitative easing with a scheme to “purchase euro-denominated covered bonds issued in the euro area,” details of the program (and thereby its actual commencement) have been delayed at least until the next policy meeting on June 4th. Such waffling may see the single currency punished as traders price in a longer path to recovery as well as the political implications of inaction: grumbling electorates are increasingly likely to entertain calls to free national monetary capabilities from the ECB’s “measured approach” as recession deepens, threatening the very existence of the currency union itself.

Looking beyond the Euro, the forthcoming data may prove to weigh on risk appetite across financial markets. Collectively, the Euro Zone is the second-largest economy after the United States, accounting for 15-20% of global demand (depending on whether one looks at nominal or PPP-adjusted GDP measures). This means makes a forceful rebound in worldwide economic growth unlikely as long as the currency bloc continues to lag. To that effect, a sharp contraction in Euro Zone GDP may weigh heavily on the markets’ recent optimism, driving stock markets lower and boosting safe-haven currencies like the US Dollar and the Japanese Yen.

Separately, Switzerland’s Retail Sales will push lower in March having tumbled -3.8% in the year to February, the most in over 5 years. Consumer confidence has sunk to the lowest since 2002 and UBS has reported that their leading consumption gauge remains well below its long-term average despite a shallow upswing in March and said the outlook for the coming 3-4 months is becoming “increasingly gloomy”. A growing deflationary threat is likely to compound the dour consumption outlook: producer and import prices fell more than economists expected in April, suggesting consumer prices will continue lower after having printed in negative territory in both March and April. If expectations of falling prices become entrenched, retail activity could slip into long-term stagnation as consumers perpetually put off spending 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
Article Source - Euro, Risk Appetite Threatened with German and EZ GDP to Record Deep Losses (Euro Open)
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Can Stocks And High-Yielding Currencies Maintain Their Rally Without Fundamental Support?

• Can Stocks And High-Yielding Currencies Maintain Their Rally Without Fundamental Support?
• Doubts Over the Reliability of the Fed’s Stress Test Growing
• How Far Ahead Will Speculators Look in Forecasting a Global Recovery?

The collection of European monetary policy decisions, US non-farm payrolls and the results of the Federal Reserve’s bank Stress Test last week seems to have been a turning point for sentiment in the market. However, the tempered pace of job losses in the world’s largest economy and in-line capital shortfalls from 10 of the largest banks was more effective at curbing the ongoing recovery in optimism than supporting it. Looking at those asset classes with an indelible link to sentiment and risk, it was clear that investors from all levels of the market realize that capital gains and yield can only be supported by a genuine economic recovery – which is still months away at the earliest. The deflation in optimism for stocks has been modest so far, as the benchmark Dow has pulled back less than four percent from the four month highs set just last week. The same can be said for sentiment in the currency market. This past week, the Carry Trade Index managed to top six-month highs before being turned off its steady advance. So, while the market has taken a step back, we have to consider that the bias over the past two months is still bullish on risk. However, should the shift in underlying market conditions continue alongside the fledgling trend in asset prices, we may see a true collapse in bull convictions and the revival of a long-term bear market. We are still a long ways off from this scenario though. The DailyFX Volatility Gauge has ticked above 14 percent just after exploring a seven-month low. Along similar lines, risk reversals and interest rate expectations from the most risk prone pairs have edge off their steady trends of improvement to raise the potential for a pause rather than a full-blown retracement.

From a fundamental perspective, it is ironic that risk appetite was rising into thedense round of event risk last week; and after the data crossed the wires with a positive bias, the advance would fall apart. Putting this incident into perspective though, this reaction played out exactly as would have been expected. Over the past two months, we have seen investors lower their guard against the threat of an unexpected market shock and begin to reinvest their capital into risky assets. However, throughout this period of burgeoning optimism, the outlook for economic activity and returns were in fact deteriorating. Growth forecasts from policy officials and central bankers are laden in caution even though they conservatively project a ‘slow’ or ‘gradual’ recovery through the end of this year and into the beginning of 2010. Meanwhile, hard data is still painting the picture of a severe recession. Advanced readings on first quarter GDP figures are looking at significant, negative revisions while timely indicators like employment maintain their painful trajectory. Now that sentiment has broken trend, investors will be more wary with their confidence. A potential concern going forward is the accuracy of the Fed’s Stress Test. There is speculation that losses were understated and forecasts overstated - a questionable combo.

Written by John Kicklighter, Currency Strategist
Article Source - Can Stocks And High-Yielding Currencies Maintain Their Rally Without Fundamental Support?
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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!