5.25.2009

USD-Negative Market Reversal Due this Week?

Many forex traders witnessing the strong bearish trends across the USD pairs and crosses have been wondering when it will come to an end. As last week's U.S. housing market data and unemployment figures proved worse than forecast, mixed with a boom in confidence for Euro-Zone economies such as Germany, the USD went negative. However, this week's data forecasts could create the rumblings of a reversal for the greenback. This exciting volatility is where money is made in the forex world; don't miss out.



USD - Dollar Drops on Poor Data

The American Dollar saw an extremely bearish session during last week's trading as it dropped in value against all the major currencies. The EUR/USD actually rose to the 1.4000 level for the first time in 5 months!

It appears that two main economic indicators have initiated the USD's downfall on all fronts throughout last week. For starters, the U.S Building Permits report revealed that hopes for an improvement in the U.S housing sector are currently unrealistic, as only 490,000 new residential building permits were issued during April. Many analysts have assumed that the first significant step in pulling out of the recession will be shown from the housing sector. The reason is very simple, it was the mortgages crisis that caused this gloomy economic condition, and a real improvement in the housing sector would have shown that both investors and the major banks have regained confidence in American real-estate, which should be a sign for all others that the economy is recuperating.

In addition, on Thursday, the weekly Unemployment Claims showed that 631,000 individuals have filed for unemployment insurance for the first time, making it the 16th week in a row on which over 600K people have done so. The combination of these two publications had a very clear effect on the Dollar, and its drop in value was only a matter of time.

As for the week ahead, a bundle of data is expected from the U.S economy, and traders should take notice of all of the major indicators. The Consumer Confidence report is expected on Tuesday, and analysts predict that the best result in six months may be published. This has the potential effect of reversing trends in the forex market, as it will show that people are regaining their confidence in the US economy, and in their government to improve the situation in the near future. The New Home Sales on Thursday will probably steal all of the attention on a busy news day, as the housing sector seems to have the biggest impact on the USD for the moment.

EUR - The EUR Soars amid Positive German Data

Last week the EUR saw bullish trends against most of its major currency counterparts, as its most significant appreciation was against the USD. The EUR/USD rose to over 1.4000, marking a 5-month record.

Last week's trading was highly impacted by the positive signals from the German economy. Germany is the biggest and strongest economy in the Euro-Zone, and thus has the most influence on the region's currency. On Tuesday, the German ZEW Economic Sentiment report was published with an amazing 31.1 mark. The Economic Sentiment is a diffusion index based on surveyed institutional investors and analysts. The 31.1 figure was the most positive figure seen since June 2007. What was so incredible about this result was that it followed a series of negative publications and was really "out of the blue." This had an immediate reaction on the EUR and a strong bullish trend, especially against the USD, took place. Later on last week, the German Manufacturing Purchasing Managers' Indices were release, both with better than expected figures, further strengthening the EUR.

Looking ahead to this week, the most important data expected from the Euro-Zone will be published later on today, at 08:00 GMT. The German Ifo Business Climate, which is derived from about 7,000 businessman who are asked to rate the level of current business conditions, has proven before to have a significant impact over the EUR, especially when analysts forecast that the positive signs from Germany will continue with a 85.1 figure. If the real result will be similar, another bullish trend might take place for the EUR, and the EUR/USD may hit as high as 1.4200 this week.

JPY - JPY Provides Mixed Results against the Majors

The Yen saw mixed results during last week's trading. While rising sharply against the USD, the JPY dropped against the EUR and underwent a volatile session against the GBP.

It seems that the negative results coming from the Japanese economy are the main reason for the Yen's volatile behavior. Last week it was released that the Japanese Preliminary Gross Domestic Product (GDP) had dropped by 4.0% in March, making it 4 consecutive months on which the value of all goods and services produced by the Japanese economy dropped. The Tertiary Industry Activity, which measures the change in the total value of services purchased by businessman, has also decreased by 4.0% in March. In addition, the Bank of Japan (BoJ) has decided to leave Interest Rates at 0.10% as it cannot drop it farther and is unwilling to raise it at the moment. On normal conditions, all this should have led to a significant drop for the JPY against every major currency; however, the bearishness of the Dollar was the leading force in the forex market last week, and thus even the weak Yen rose against the USD.

As for the week ahead, a batch of data is expected from the Japanese economy. The Trade Balance scheduled for Tuesday will be one of the most impacting publications as the Japanese economy relies greatly on its exports, and this report is one of the best ways to estimate this nation's economic condition. Traders should also consider the Retails Sales and the Household Spending indicators which could possibly dictate the Yen's movements later this week.

Crude Oil - $60 a Barrel Might Be a Solid Price for Crude Oil

Last week was a relatively calm week for Crude Oil. A barrel of oil was traded within the $59 to $62 price range, and wasn't too affected from the large fluctuations of the leading currencies.

Recent Notifications suggest that the Organization of Petroleum Exporting Countries (OPEC) desires to see Crude Oil reaching $70 a barrel; however, it is currently reluctant to cut supplies as demand for oil still hasn't shown real signs of recovery from the current world-wide economic crisis. In spite of OPEC's will, it appears that investors are pretty cautious on putting their faith in Crude Oil. Even in a week like the last one, on which the Dollar dropped on all fronts, Crude Oil barely rose by $2 a barrel. This could be interpreted as a clear sign of investors that for now the price around $60 a barrel correctly reflects the market value.

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Sentiment May Save Europe as Business Managers Foresee Better Times (Euro Open)

European markets tomorrow may be looking toward the release of the German IFO series of sentiment surveys. The outlook is expected to be positive for a second straight month after global stock markets erased losses seen in early-2009. As an indicator that leads overall growth by nine-twelve months, IFO's outcome may be heavily favored if it does indeed post an upward move.

Key Overnight Developments

• North Korea Tests Nuclear Weapon, South Korea Reports
• Japan’s All Industry Activity Index Fell in March

Critical Levels



Euro traders saw the the currency gap upward 14 pips against the Dollar to reach a high of 1.4044 before pressure forced the pair down to levels last seen during the second half of Friday’s session. Sterling exhibited similar characteristics despite lacking a gap. Both pairs ultimately established downward trends in the early hours of this week’s trading session.

Asia Session Highlights



Geopolitical tension may have rocked markets in Japan after South Korea’s office of the president reported that North Korea had tested a nuclear weapon. The U.S. Geological Survey reported a 4.7 magnitude earthquake 230 miles north-east of Pyongyang, the North Korean capital. Intraday Japanese stock trading saw the Nikkei fall from a high of 9402.76 to a low of 9331.74 in the 30 minutes following the release of the news.

Japan’s All Industry Activity Index fell 2.4% in March. The figure, which has declined on all but one occasion dating back to October, might not necessarily be indicative of the current economic environment in Japan because of the three month lag between the month’s empirics and its release. In fact, the previous week saw an analyst at Merrill Lynch upgrade the share price outlook for IHI Corp., Japan’s second-largest manufacturer of heavy-machinery, to “buy” from “underperform,” citing an increased demand for such equipment from emerging markets. If such a prediction comes into fruition the Asian country may benefit from a boost in its export sector, which has been battered over the year as a result of dying demand for electronics and vehicles from abroad.

Euro Session: What to Expect



A series of German sentiment survey’s will be released tomorrow. The IFO Business Climate survey is expected to increase for a second consecutive month after having fallen eight of nine sessions prior. A move upward here would be a sign of relaxed pessimism coming off of a stock market rally which saw global equities erase losses seen in the first two months of the year. Because business and investor sentiment generally lead the real economy by at least nine-twelve months, the IFO surveys are seen as a key point of interest for those looking to estimate prospects for growth.

As the largest economy in the Euro-Zone, Germany’s outlook is of utmost importance for the region. With nearly a quarter of all Euro-Zone external exports coming from Germany, the world’s third largest economy, improving sentiment among German business managers may provide foreigners a larger sentiment to invest in the European economy.

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!