5.21.2009

Prices Hit Highs Unseen since 2008

With recent market volatility, the price level for a few currencies and commodities have begun to see prices not seen since last year. For instance, the price of the EUR/USD pair has now risen to a level not seen since the first week of January, 2009. Crude Oil has also shocked the market lately with a continuous uptrend, rising above $62 for the first time since last November. With rallies this large, the forex market becomes more predictable, and traders can reap the benefits.



USD - USD in Down-Trend since April

The USD witnessed a steady depreciation against most of its major currency counterparts on Wednesday. The Dollar has lost ground for 3 straight sessions against the EUR, and 3 of the last 4 sessions against the Yen. The USD was trading at 1.3604 per EUR and 94.85 per Yen at the close of Wednesday's trading sessions.

According to the FOMC meeting minutes there is willingness by the Federal Reserve to go beyond the $1.75 trillion it has already committed to purchasing, and increase the amounts of mortgage and Treasury securities-purchase programs. The Fed made a similar announcement on March 18, stating it would buy $300 billion in Treasuries; this announcement led to the U.S. Dollar plunging. Purchase of Dollar-denominated debt can have a negative affect on the value of the currency since the Fed pays for these purchases by printing more money and therefore devaluing the currency. In addition, the U.S. recession appears to be deeper than expected and a slower recovery is being factored in over the next two years since labor markets remain under pressure.

While the USD recovered some of its immediate losses since the release of the FOMC meeting minutes, it has been declining significantly since the start of the week and shown a downward trend since mid-April. This is due in part to the recovery in equities markets, which increased traders risk appetite. Important economic indicators to watch today are the Unemployment Claims, to be released at 12:30 GMT, and Fed Chairman Ben Bernanke's speech tomorrow. Positive news will put further pressure on the Dollar.

EUR - EUR Benefits from Heightened Risk Appetite

Yesterday's release of the U.S. Federal Open Market Committee's (FOMC) meeting minutes sent the EUR to its highest level against the USD since early January. The EUR advanced 1% to 1.3768 from 1.3630 yesterday. Earlier the EUR touched the 1.3830 price level, the highest since Jan 5th. However, the EUR slid against the USD slightly after a German report showed producer prices fell at the fastest rate in almost 22 years. The EUR also decreased 0.2% to 130.51 yen from 130.81 Wednesday.

Currently there is a shift into a risk-taking environment spurred by a rally in the stock markets and a decrease in volatility. The USD is the anti-risk currency. It also appears that investors are still confident that the U.S. is set first for a recovery compared to others like Japan, the U.K or the Euro-Zone. According to the International Monetary Fund (IMF), the Euro-Zone regional economy will contract 4.2% this year, more than the projected 2.8% contraction in the U.S. and the 4.1% fall in the U.K.

The EUR may gain for a 4th day versus the USD as the Flash Manufacturing PMI and the Flash Services PMI (German, French and Euro-Zone) reports are due to be released today at 7:30 and 8:00 GMT, respectively, and may show that the region's manufacturing and service sectors contracted at the slowest pace in 7 months.

JPY - Yen Rises after News of Japan's Record Economic Contraction

The Yen rose versus all 16 of the most-traded currencies yesterday after Japan reported that its economy shrank at a record pace. The Japanese currency advanced to 130.04 per EUR, up from 130.77 yesterday. The Yen appreciated 1.3% to 94.75 per Dollar, up from 95.97 Wednesday.

The JPY gained modest ground after Japan's Cabinet Office said the economy shrank an annualized 15.2% in the 3 months ending March 31st, following a revised 14.4% contraction in the previous quarter. Japanese Gross Domestic Product (GDP) fell 3.5%, the most since records began in 1955. Speculations that the recession in the U.S, the world's largest economy, is far from over helped to further boost demand for the Japanese currency as a refuge from the international downturn. However, there are signals that the U.S. currency may have fallen too quickly against the Yen and could strengthen.

Crude Oil - Crude Oil Surges above $62 a Barrel

Crude Oil surged yesterday above $62 a barrel, increasing by $1.94 in a relatively short time-frame. This marks one of the largest price jumps seen in almost 6 months! However, early this morning, Crude Oil for July delivery dropped as much as 69 cents, or 1.1%, to $61.35, breaking three days of gains. This was due to a decline in U.S. stocks after the Federal Reserve predicted a deeper recession and a government report showed a drop in fuel demand.

Prices also climbed after refinery fires and unrest in Nigeria threatened supplies. A falling Dollar further assisted the price increase. However, U.S. oil demand hardly improved, and remained 7.6% weaker than a year ago when Americans were already consuming less. There is doubt that the fundamentals of the oil market can support prices above $60 a barrel since there isn't any improvement in demand and no sign the Organization of Petroleum Exporting Countries (OPEC) is likely to reduce output any further in their meeting at the end of this month.

Monday's Memorial Day holiday signals the unofficial start of the U.S. summer driving season. So far gasoline demand gained 3.6% this past week. A continued increase in demand will help push the Oil price further up, however, with the latest report from the Federal Reserve a quick economic recovery in the U.S seems less likely.

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US Dollar Fails to Gain on Stock Weakness, Pressured by Fed Forecasts (Euro Open)

The US Dollar consolidated at lower levels in the overnight session, failing to capitalize on falling stock prices across Asian exchanges as the minutes from the last Fed policy meeting continued to weigh on the exchange rate. Japan’s service demand fell to the lowest since 1995 while Australian consumers expected lower inflation in May. UK Retail Sales are on tap in European hours.

Key Overnight Developments

• Japan’s Service Demand Falls to the Lowest Level Since 1995
• Australian Inflation Expectations Show Weakness in Consumer Sentiment
• US Dollar Fails to Gain on Stock Weakness, Consolidates at Lower Levels

Critical Levels



The Euro consolidated gains in overnight trading, oscillating in a 50-pip range below the 1.38 level. The British Pound followed suit, trading sideways in a 70-pip band below 1.58. The US Dollar failed to capitalize on losses across Asian stock exchanges, with the typically safety-linked currency weighed down by the Fed’s revised growth forecasts and prospects of expanded quantitative easing.

Asia Session Highlights



Japan’s Tertiary Industry Index fell much more than economists expected in March, tumbling -4.0% versus expectations of a -1.5% result. Service demand dropped by a hefty -9.16% from a year earlier, printing at the lowest level in 14 years. The metric follows how much households and businesses spend on such things as utilities, health care, and financial services. The jobless rate has surged to the highest in nearly five years, trimming disposable incomes and encouraging precautionary saving to weigh on spending. Private consumption accounts for over 58% of total output, pointing to continued weakness in overall growth in the months ahead after the economy shrank by a record 4.0% in the first quarter.

Australia’s survey of Consumer Inflation Expectations saw the headline figure slip to 2.3% in May from 2.4% in the previous month, the second-lowest reading since the metric set a record low at 2.2% in March. Looking at the details, 57.5% of survey respondents expect prices will go up, the most in 6 months. Curiously, hourly wage growth expectations continued lower, with respondents saying those will increase at a pace of 3.9%, down from 4.7% in the preceding month. Extrapolating the likely mentality of Australian consumers as reflected in the data, it is reasonable to suppose that they are likely to buy what they need now, expecting prices to be higher and the wage climate less favorable in the future. This bolsters the negative view of long-term consumer sentiment that we noticed in analyzing March retail sales figures, wherein we saw that the way consumers were spending the government’s fiscal package suggested it was seen as a one-off income boost, hinting at expectations of lower spending power in the months ahead.

Euro Session: What to Expect



UK Retail Sales are expected to rise 2.4% in the year to April, the second consecutive month that sales growth accelerated after setting a record low at 0.4% in February. The improvement will likely come as the government’s spending boost begins to work its way into the broad economy. Still, the metric has been trending firmly downward since May of last year and the expected upswing will hardly amount to a break from that trajectory. Looking ahead, retail activity is likely to remain subdued: the unemployment rate has ticked up to 4.7% in April, the highest in over 11 years, and is expected to top 9% by the beginning of next year, shrinking disposable incomes to put substantial pressure on spending. Indeed, Business Investment is set to fall -4.0% in the first quarter to bring the annual pace of decline to -5.9% from -4.5% in the three months to December 2008 as companies scale back capacity amid dwindling domestic and overseas demand. Household spending accounts for 63% of overall economic growth, hinting that the UK will continue to underperform for some time yet.

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.

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!