USD - Dollar Moves on Release of Strong Economic Data
The release of strong economic data from the U.S. economy led to a stock market rally in the U.S. and the rest of the world. This led to strong implications for the Dollar. The Dollar rose against the Yen, whilst dropping against the British Pound. However, there was very little movement against the EUR. The main factors affecting Dollar volatility yesterday were the release of optimistic manufacturing, personal income, and construction figures from the U.S. This led traders to the conclusion that the worst of the economic downturn in the U.S. is over.
The results of the data releases led the Dollar to tumble to an 8-month low against the Pound. The pair closed higher by nearly 230 pips at 1.6445. The greenback rose by nearly 140 pips vs. the Yen to 96.37, as investors dropped the JPY for higher-yielding assets. The Dollar's behavior against the EUR was more stable as the pair remained virtually unchanged, up barely 10 pips at 1.4154. This was mainly due to traders putting their money into riskier investments on both sides of the Atlantic, leading to low volatility in the EUR/USD currency cross.
Looking ahead to today, there are 2 important news events coming out of the U.S. These are the Pending Home Sales data set to be released at 14:00 GMT, and the Total Vehicle Sales figures that will be released throughout the afternoon. Forex traders are advised to take up their positions in the Dollar and its major crosses early in the day as markets are likely to go volatile as Europe also publishes unemployment data later in the day. Additionally, investors are likely to weigh-in on the real value of the U.S. Dollar as the forex market still reacts to Monday's U.S. data.
EUR - Pound Climbs to an 8-Month High Versus the Dollar
The Pound climbed to an 8-month high in Monday's trading versus the Dollar. This was in part due to a global stock market rally, led by the U.S. that was sparked by the release of highly optimistic U.S. economic data. This was what the GBP needed to extend its rally against the Dollar. However, investors dropping lower-yielding currencies such as the Dollar, for higher-yielding ones such as the Pound led to a very bullish Pound yesterday. The GBP also recorded great volatility and gains versus its other major currency pairs.
The Pound rose by a massive 230 pips against the Dollar to around 1.6445. The GBP recorded massive gains vs. the JPY to close nearly 400 pips higher at 158.24, as traders dropped the safe-haven JPY currency for the GBP. The Pound also gained an impressive 100 pips against the EUR to close at 0.8618. These results show a resurgent British Pound, as the global economic situation improves in Britain and the rest of the developed economies. Therefore, as long as long as the global economic situation improves, then the Pound is likely to reap the benefits.
Today is set to be another congested news day for the British economy and the Pound. There is the release of Construction PMI at 7:30 GMT, Net Lending to Individuals and Mortgage Approvals at 8:30 GMT and Nationwide Consumer Confidence figures at 23:01 GMT. It would be a wise move for traders to open their GBP positions both prior to and after these economic data releases, as the pound is likely to be volatile throughout the trading day.
JPY - JPY Tumbles Against its Major Currency Pairs
The JPY tumbled against its major currency pairs yesterday as the Japanese Stock market made big gains. This was ignited by a release of a string of strong economic figures from the U.S. immediately fueling a rally on Wall Street. Japanese shares, especially the automakers, such as Toyota were boosted by the General Motors bankruptcy. This led to signs of optimism that Japan will gain a higher global market share of the auto industry.
The Yen declined by about 440 pips vs. the GBP to close at 158.24. The Yen also made steep declines against the Dollar to close about 140 pips lower at 96.37. The EUR/JPY pair finished higher on Monday by over 200 pips at 136.47. This market behavior came about as traders dropped the Yen for higher-yielding currencies in yesterday's trading. The repercussions of a weaker Yen in the long-term may turn out to be fruitful for the Japanese economy as competitiveness returns to Japan's export market
Crude Oil - Crude Oil Eyes $70 a Barrel
Crude Oil recorded another day of bullishness on Monday, as the black gold extended
its bullish run. Crude closed up $1.25 or 2% in yesterday's trading. This came about as the U.S. released impressive economic data, indicating that the U.S. economy will continue to beat many analysts' expectations. Traders are also still taking into account the optimism of the OPEC meeting from the latter part of last week.
The price of Crude Oil is only likely to keep on rising as long as the global economic situation continues to pick up. In recent months the U.S., Euro-Zone, British, and Chinese economies have signaled that they are getting back on track. This is despite rising unemployment. If the trend continues, then OPEC's forecast may be correct and we may see Crude at $75-$80 sooner rather than later.
Article Source - A Global Stock Market Rally Leads Trading
Key Overnight Developments
• Australian Current Account Gap Smaller Than Expected on Imports Drop
• RBA Keeps Rates Unchanged at 3%, Says Deflation May Prompt Future Cuts
The Euro traded sideways in the overnight session, oscillating around the 1.4160 level. The British Pound followed suit, with prices confined to a narrow band 60-pip band above 1.64.
Asia Session Highlights
Australia’s Current Account Balance deficit narrowed more than economists expected in the first quarter, showing a shortfall of just –A$4.6 billion versus expectations of a –A$5.4 billion result. The improvement came as the drop in Australians’ demand for foreign-made goods outpaced sagging outbound shipments. Imports fell -9.2% from the three months to December 2008, while exports declined -7.5% during the same period. On balance, external trade added 2.2% to overall economic growth in the three months to March. The Reserve Bank of Australia has argued that “signs of stabilization” in global growth (and particularly in China, a key trading partner) will help the larger antipode weather the current crisis better than most other industrialized economies. However, Westpac Banking Corp chief economist Bill Evans expressed skepticism about whether continued improvement in trading terms is sustainable, saying the deficit will likely expand in the second quarter as large declines in coal and iron ore prices weigh on export volume measures.
The Reserve Bank of Australia kept interest rates unchanged at 3.00%, as expected. RBA Governor Glenn Stevens sounded cautiously optimistic, saying the evidence suggested the global economy was “stabilizing” as after most countries committed to aggressive stimulus measures. Stevens suggested that signs of recovery were clearest in China and some other emerging market countries. However, the RBA chief warned that global financial markets remain fragile and credit remains tight. Most significantly, Stevens said that although “monetary policy has been eased significantly…the prospect of inflation declining over the medium term suggests that scope remains for some further [interest rate cuts]”.
Euro Session: What to Expect
Switzerland’s Gross Domestic Product report is expected to show the economy shrank -1.5% in the first quarter, the largest drop in at least three decades. The most recent comparable result dates back to the first quarter of 1991 when the economy shed -1.4%. Separately, the SVME-Purchasing Managers Index is expected to show that manufacturing shrank for the eighth consecutive month in May, albeit at a slower pace than in April. On balance, the ability of these releases to meaningfully weigh on the Swiss Franc seems limited: Switzerland’s troubles are largely a factor of overall weakness in global demand and the surge in risk appetite across financial markets since early March suggests that traders have long since priced in a dismal outcome for the first three months of 2009 and are looking ahead to a broad-based rebound later in the year.
Turning to the UK, May’s housing data is set to show a bit of an improvement from the previous month: Mortgage Approvals are set to rise by 41K, the most in over a year, while Construction PMI is likely to tick up to 39.5 from 38.1 in the previous month. Importantly, the news is only relatively encouraging: results in line with expectations would still see mortgage approvals down -25.6% from a year earlier while a reading below the 50 “boom-bust” level for the PMI metric means the construction sector is still shrinking, albeit at a slower pace. With that in mind, the data does not amount to a significant departure from the economic outlook already priced into the British Pound exchange rate, suggesting sterling is likely to look past the releases to continue taking cues from trends in risk appetite. Indeed, short-term studies show a trade-weighted average of the Pound’s value against top counterparts is now over 85% correlated with the MSCI World Stock Index.
Finally, the Euro Zone Unemployment Rate is set to rise to 9.1% in April, the highest in nearly 4 years. A survey of economists conducted by Bloomberg suggests unemployment will surpass 10% by the end of this year and continue higher through 2010. Mounting job losses will trim disposable incomes and weigh on consumption, the largest component of total economic output. Indeed, GDP growth in the currency bloc is expected to substantially under-perform that of the US and the UK heading into the first quarter of next year, suggesting the ECB is likely to lag behind the Fed and the BOE in raising interest rates, amounting to a bearish bias for EURUSD and EURGBP in the medium- to long-term outlook.
Written by Ilya Spivak, Currency Analyst
Article Source - Australia Holds Rates at 3% But Says Deflation May Prompt Future Easing (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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