Safe Haven Currencies Tumble as Optimism Returns

An increase in optimism led by a bullish stock market as well as positive comments made by U.S. Treasury Secretary Timothy Geithner yesterday led to an increased demand for riskier currencies. Expect a busy news day today, with important news coming from the U.S, Euro-Zone and Japan.

USD - Dollar Declines as Stock Market Rallies

The Dollar declined against most of its currency pairs as the U.S. stock market rallied in yesterday's trading. The rally was sparked by positive comments by U.S. Treasury Secretary Timothy Geithner in which he changed his views as he voiced his opposition against pay caps. He went further and stated that in the coming weeks there will be more big reforms in the U.S. financial system. Another factor that led to volatile Dollar trading and the bullish stock market was the intent of JP Morgan, Goldman Sachs and Morgan Stanley to repay the $45 billion that was lent to them through TARP (Treasury's Troubled Assets Relief Program). The optimism also led to massive increases in shares including those of Citigroup and Bank of America.

The Dollar declined by a hundred pips versus the EUR to close at 1.3540. This comes as investors dropped the safe-haven USD, and returned some confidence to the EUR. The British Pound recorded an impressive 160 pip gain against the Dollar to close at 1.5305. This comes as the Dollar lost ground over the last several weeks against the British currency. The reason for this may be as the global bullish stock market rallies continue so does a weak USD. However, against the Japanese Yen, the USD gained 170 pips to close at 96.49. This rebound may be the result of a correction in the pair, and traders dropping the safe-haven Yen, as investors turn to riskier assets.

Looking ahead to today, much news is expected from the U.S. The 2 main events are the Building Permits and Housing Starts data that will both be released simultaneously at 12:30 GMT. The 2 results are interrelated, and are a strong indicator of a recovery of the U.S. property market. If results are positive, then we can expect much of the same behavior in the forex market as on Monday. On the other, hand gloomy data may lead to a stronger Dollar as investors return to the safe-haven currency and drop more risky assets.

EUR - EUR Soars Against Dollar

The EUR soared against the Dollar in Monday's trading. This was largely due to a global stock market rally that was led by the U.S. The pattern of late is when stock markets are bullish the EUR climbs against the U.S. Dollar. Analysts continue to misread the market as they expect the Dollar to recover against the EUR to 1.2500 levels. However, this is unlikely to happen anytime soon. If the equity markets continue to rally in the coming weeks, then the EUR may continue to strengthen versus the USD. The EUR/USD behavior was also a surprise, as German Prelim GDP figures on Friday morning showed that the German economy declined by a massive 3.8%. Though, the EUR remains in some respects to be resilient.

The EUR/USD pair closed higher yesterday by 100 pips at 1.3540. The EUR/GBP pair finished Monday's trading lower by 25 pips at 0.8841. This may be due to the Bank of England (BoE) revealing that it made profits of a billion Pounds, as it took advantage of the financial crisis over the past year. Against the JPY, the EUR ascended by a massive 300 pips as demand for the safe-haven Japanese Yen plummeted, as traders put their money into riskier, more volatile assets. It seems that over the coming week this pair may continue its correction higher.

Today, there are several important economic news events that are set to be released from Britain and the Euro-Zone. Britain is set to release the PPI and RPI figures at 8:30 GMT. The Euro-Zone is expected to release German ZEW Economic Sentiment and ZEW Economic Sentiment figures at 9:00 GMT. Negative figures may lead to bearish trading for both the EUR and GBP. However, positive results, may lead to a bullish GBP and EUR in Tuesday trading. This is likely to be compounded if it seems that British Prime Minister Gordon Brown produces optimism in Britain as he attempts to rescue her economy.

JPY - JPY Tumbles Against Dollar

The JPY tumbled against the Dollar in Monday's trading, as traders dropped the ultra safe-haven Yen, and returned to the lesser safe-haven Dollar. This also marks a correction in the USD/JPY, as the pair tumbled in the past 2 weeks. The behavior was sparked by a stock market rally from the U.S. that was initiated by economic optimism in the U.S. economy. This soon led to bullish equity markets in other industrialized countries. This in turn led to traders to take more risks in yesterday's trading. Japan's government hopes for more of this as the country struggles to climb out of the economic recession, as the bullish JPY has helped prevent this.

The Yen slid 170 pips or nearly 2% against the Dollar to close at 96.49. The JPY declined by 420 pips versus the British Pound as traders ditched the safe-haven Yen for the cable. This helped reverse much of the losses that the Pound made against the JPY in last week's trading. The JPY also declined by a breathtaking 340 pips against the EUR, as investors ditched the safe-haven currency, in order to diversify their portfolios. There are 2 important sets of data that will be released from Japan later today. These are the Prelim GDP and the Prelim GDP Price Index at 11:50 GMT respectively.

Crude Oil - Crude Oil Climbs 5%

The price of Crude Oil rose by an impressive $2.42 to $59.45 a barrel, or 5%. This is remarkable in a commodity that has recorded so much volatility as of late. Much of the price increase was spurred by a weak Dollar, and strong commodity and equity markets. The main way for Crude to continue this bullishness, is for investors to feel that there are increasing signs of a global economic recovery.

In recent weeks, it seems that the price of Crude has been stabilizing. This is partly owed to the production cuts that OPEC has made. The question now is will OPEC continue enacting production cuts over the next several months? If they do, then Oil prices may reach $65-$70 by the end of June. It's also important to note that Crude prices can be used as a measure of economic health in the economy.

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US Dollar Extends Losses as Stocks Advance in Asian Trading (Euro Open)

The US Dollar slipped as much -0.3% in overnight trading as Asian stock exchanges followed Wall St higher with the MSCI Asia index adding 2.75% ahead of the opening bell in Europe. The UK Consumer Price Index as well as the ZEW Survey of investor confidence for Germany and the Euro Zone are on tap ahead.

Key Overnight Developments

• Meeting Minutes Show RBA Sees Stimulus, China Will Support Demand
• US Dollar Declines as Stocks Add Nearly 3% in Asian Trading

Critical Levels

The Euro extended gains in overnight trading, testing as high as 1.3579 against the US Dollar. The British Pound oscillated in a choppy 50-pip range below 1.5350. Broadly, the US Dollar slipped as much -0.3% as Asian stock exchanges followed Wall St higher with the MSCI Asia index adding 2.75% ahead of the opening bell in Europe.

Asia Session Highlights

Minutes from the last meeting of the Reserve Bank of Australia echoed policymakers’ initial optimism, noting signs that “the economic stimulus that had been applied was supporting demand.” The decision to hold rates was not uncontested, however, and some RBA members did suggest that “monetary policy could be eased further at this stage.” The Reserve Bank also reiterated their view that resurgent demand in China will boost Australia’s export sector and bolster the economy, though some on the policy-setting Board questioned the sustainability of such developments if the boost comes from the Beijing government’s stockpiling of coal and iron ore rather than recovering private-sector demand. Australian Secretary to the Treasury Ken Henry also touted the government’s action in a separate speech, saying the unemployment rate could have reached as high as 10% without the government's spending initiative. Separately, RBA Governor Glenn Stevens said in a speech in Sydney that Australia and Canada will emerge “in reasonable shape” from the global downturn.

Euro Session: What to Expect

The UK Consumer Price Index is expected to see the annual pace of inflation slowed to 2.4% in April, the lowest since January 2008. Last week, the Bank of England’s quarterly inflation report revealed that policymakers expect inflation to remain below the target 2% until 2012 as the economy takes a slow path to recovery from the current downturn. The British Pound dropped sharply on the announcement, suggesting the fallout in price growth may already be priced into the exchange rate. That said, the Pound did see buying interest in as stock markets rebounded in New York hours to gain 1.1% against the US Dollar and tonight’s release could serve to undermine the sustainability of the upswing by shifting the focus from risk trends back to economic fundamentals.

Germany’s ZEW Survey of investor confidence is expected to print at the highest level in nearly 2 years in May, rising to 20 from 13 in the previous month. However, improvements in the metric are unlikely to offer much near-term support to the single currency: the ZEW reflects the forward-looking perspective of the survey respondents, meaning the reading tends to lead the Euro by a significant margin such that the trend in the Expectations component inverts major tops and bottoms in the exchange rate. Specifically, the ZEW began to trend lower in the beginning of 2006 and bottomed out in July of last year; the same end-points mark the beginning of the last major uptrend in EURUSD that saw the pair test record highs above 1.60. If the same dynamic is to continue to hold, traders can expect the European unit to set a bottom as the ZEW tops out, a scenario that seems unlikely for the time being considering how much ground remains to be covered before the economy regains its footing.

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!