USD - Is a USD Rally in the Making?
The Dollar rose marginally against the European currency as the economic calendar in the U.S. was blank due to a bank holiday. The knock-on effect of this was a forex market with less volatility than usual. In reality this translated into little fluctuations in the USD and its main crosses.
Many analysts have been worried about the greenback's rapid deterioration in value in the past several weeks. They are beginning to ask themselves, "Is a reversal in the making?" In Monday's trading, the EUR/USD rate reached as high as 1.4028. However, the pair ended up lower by 15 pips for the day at 1.3974. Against the Pound, the USD was unchanged at 1.5877. The Dollar gained versus the JPY by 10 pips to close at 94.73.
This behavior shows that in late trading hours, the Dollar reversed some of its losses, and started gaining against the major currencies. This may be due to 2 main factors. Firstly, the Dollar has been over-sold lately, and is under-valued. Secondly, the bank holiday in the U.S. made the forex market more flat than it would have been under normal market conditions. The slightly negative German Ifo Business Climate news release from Germany may have also helped weaken the EUR in late trading. This is compounded with the fact that other major economies are in even more dire straits than the U.S.
Looking ahead to today's news, the most important economic news release coming out of the U.S. is the CB consumer confidence figures at 14:00 GMT. The release is a top measure of U.S. consumer spending. Therefore, the results are likely to be pivotal in driving the direction of the market both before and after the data release. Traders are advised to take-up positions in the majors, while volatility is still low, in order to make some profits in the USD and its dominant crosses.
EUR - EUR Declines against Greenback
The EUR slipped slightly against the Dollar as the markets failed to take a clear direction yesterday. It can be said that speculation alone cannot drive the EUR higher due to some of the recent data releases. This was shown when the German Ifo Business Climate report put some downward pressure on the EUR as investors realized that the Euro-Zone currency may be slightly overvalued against the USD, and other major currencies.
The Dollar gained 15 pips against the EUR, reversing a near-2-week trend to close at 1.3974. The EUR/GBP cross finished yesterday's trading to close marginally lower at 0.8799. The EUR/JPY pair was virtually unchanged at 132.36. The question now is can the EUR return to its bullish run against the greenback? It is valid to say that there is more to back the EUR in theory than the USD or the GBP. Both the U.S. and Britain have lower Interest Rates than the Euro-Zone. Additionally, Europe has been more conservative than her 2 economic rivals in printing money. Furthermore, Britain and the U.S. have mounting deficits, whereas the Euro-Zone doesn't. It seems reasonable to say that the long term bullishness may belong to the EUR, rather than to her main currency rivals.
Today, there are plenty of economic indicators from the Euro-Zone that are likely to help determine the EUR's main crosses going into mid-week trading. The Current Account and Industrial New Orders are set to be published at 8:00 and 9:00 GMT respectively. The impact of these releases will show forex traders the health of the Euro-Zone economy. This could signal if the European currency is overvalued, and if it can uphold its bullish run against the Dollar. The impact of this will be increasingly felt, especially as the markets moved little in yesterday's trading due to British and American bank holidays. Traders are advised to open positions now, in order to make profits when volatility kicks in.
JPY - JPY Strength Uncertain, Heavy News Week may Help
The Yen failed to topple the Dollar yesterday, despite a bearish Dollar in the last few weeks. The pair actually closed up 10 pips at 94.73. The release of the worse-than-forecasted CSPI figures in late trading helped prevent the JPY from gaining bullish momentum against its major currency pairs.
There was very little movement in the EUR/JPY pair as it closed at 132.36. However, the Yen lost a bit of ground against the British currency to finish trading at 150.45. These small forex market currency fluctuations were largely owed to the British and American bank holidays yesterday. Nevertheless, markets are set to be much more volatile today, as forex market volatility returns to more normal conditions in the coming hours.
The short-term future of the JPY depends on the speed of the global economic recovery. If things do improve quicker than many analysts anticipate then the Yen may start to go bearish. This is increasingly the case if the U.S. raises Interest Rates before all of the other industrialized countries. Today, in late trading the Monetary Policy Meeting Minutes and Trade Balance figures at 23:50 GMT are likely to help determine the JPY's strength going into mid-week trading. A 95.50 USD/JPY rate may be a possible by tomorrow's close. However, it is wise to open positions in the JPY now as news from the Euro-Zone and U.S. is published.
Crude Oil - Crude Oil Prices Decline 1%
The price of Crude Oil tumbled 1% in yesterday's trading to $60.90. This comes despite increased optimism from the Organization of Petroleum Exporting Countries (OPEC) recently. However, many analysts expect the price of Oil to climb through the long-term as market conditions return to normal. Many analysts believe that the long-term prospects for Crude Oil are between $75-80.
In the meantime, the price of Crude Oil may only start going bullish again when the Dollar continues its decline, and if OPEC makes no output increases in their next meeting in Vienna, Austria on the 28th of May. In today's trading, the economic figures coming out of the U.S. and Euro-Zone are likely to impact the volatility of oil prices and traders would be wise to enter the market before this volatility kicks off.
Article Source - Can German Ifo Data Reverse EUR Trends?
Key Overnight Developments
• New Zealand’s Trade Deficit Shrank a Fifth Straight Month
• RBA Director McKibbin Doubts Stimulus Power
Forex markets were slightly more volatile than in the previous day as market participants returned from their respective holidays to offer and bid their way through Euro selling. Indeed, the 16-nation currency faltered slightly against the Dollar in mid-session trading. Price action on the British Pound continued to mimic much of the Euro’s movements.
Asia Session Highlights
New Zealand’s Trade Deficit shrank for a fifth straight month in April as the demand for goods produced abroad continued to dwindle. The gap between imports and exports shrank to NZ$4.1 after demand from Asia dropped nearly 10% and imports from Europe fell NZ$176 million. Declining imports might have come on the back of a deflationary environment which saw producer prices decline by 2.5% in the first quarter. As the price of raw materials from abroad declined, the import metric would have naturally followed suit.
The debt generated by stimulative government measures will hamper the economy’s ability to grow, says Reserve Bank of Australia director Warwick McKibbin. In statements to The Australian, the board member also said that the country should look toward China as a reliable fuel for growth. Demand for Australia’s minerals and natural resources from the Asian country will act as a natural driver of export led growth for his country, McKibbin said. Running large deficits would reduce the availability of private funds to finance new investments, he stated. "The danger is you add too much fiscal deficit," he added. Indeed, "most fiscal policy doesn't do anything except switch spending from one period to another," the RBA director said. "When you change fiscal policy, all you do is stimulate the economy today out of future possible growth," he added.
McKibbin's statements deviate from the general consensus of the the board, which feels that the combined effect of both monetary easing and fiscal stimulus has began propping the economy. In fact, April saw some of these positive signs. The unemployment shocked many people after it unexpectedly dropped by 0.3 percentage points. Spending got a huge boost as retail sales rose more than four times larger than that which was expected.
Euro Session: What to Expect
Germany’s final Gross Domestic Product estimate is expected to confirm the country’s steepest plunge since the government began recording this statistic in 1970. The world’s fourth-largest economy most likely contracted for the fourth consecutive quarter in the first three months of 2009. The final estimate,comes two weeks after the preliminary one saw the non-seasonally adjusted figure display a bleeding German economy that shrank -6.7% in the 12 months through the end of March. When taking into consideration periodic events that occur on a seasonal basis, the figure is expected to come to a more optimistic, albeit still dreaded, -3.8%. This key data directly aligns itself with Chancellor Angela Merkel’s forecasts calling for a 6% contraction in her country’s economy this year. Recent comments by Jochen Sanio, Germany’s chief financial regulator, painted a possibly gloomier picture. In them, he said that the toxic debts on the balance sheets of many of his nation’s banks are “like a grenade” which are ready to explode if a series of “brutal” downgrades of mortgage backed securities by the rating agencies occurs. Perhaps these recent developments may spook consumers enough to reduce the GfK Consumer Confidence survey downward rather than allowing it to remain flat.
Euro-Zone Current Account data for March will likely continue to remain in negative territory. It may, however, gain a bit of strength as trade data showed an improved balance between exports and imports during the month. Income from abroad may have significantly toned itself due to the surge in emerging market equities in March. Much of this may have bode well for European income generation from abroad.
Switzerland’s Employment Level in the year through the first quarter of 2009 is expected to have declined for the first time in nearly six years during a trend in which the nation’s unemployment rate either rose or stood steady for nine consecutive months. This three month lag in the data may, however, not necessarily be indicative of the near-term outlook. April saw Switzerland’s consumer prices rise by the largest amount in nearly two years. The realized number beat expectations by 0.3 percentage points. Some of this inflationary increase may have been due to the slowing rate of labor market weakness; afterall, March’s rate of unemployed remained even.
Written by Luis Gil, DailyFX Research
Article Source - Merkel's Forecast to be Further Realized With Finalized GDP Estimate (Euro Open)
What is Forex?
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.
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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.
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Why to trade on Forex?
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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!