Tomorrow's U.S. Non-Farm Payrolls to Dictate USD Direction

The Dollar gained considerably ground in yesterday's trading, whilst the price of Crude Oil plummeted. The question today is can this pattern be extended into end-of-week trading? The answer to this question will be determined by a number of factors, such as the U.S. Unemployment Claims release at 13:30 GMT, U.S. Federal Reserve Chairman Ben Bernanke's speech at 12:45 GMT, and investors weighing in on the possible results of the U.S. Non-Farm Payrolls data release tomorrow.

USD - Fed Chairman Bernanke's Speech to Drive Dollar Volatility Today

The Dollar may rise for a second day versus the EUR on speculation of economic recovery after new data gave a mixed outlook for the services and manufacturing sectors of the U.S. economy. The USD advanced versus 10 of the 16 most-traded currencies yesterday after reports showed U.S. companies cut more jobs last month than economists forecast.

The markets are also being calmed after officials from China to Japan, India, Russia and South Korea announced that the U.S. Dollar remains the world's main reserve currency, economists said. The greenback had advanced earlier after news reports signaled major Asian central banks are prepared to keep buying U.S. Treasuries. The U.S Dollar rose significantly to $1.4168 per EUR, from $1.4307 yesterday. The U.S. currency may strengthen to as high as $1.4050 vs. the EUR today.

In his appearance on Wednesday before the House of Representatives Budget Committee, Federal Reserve Chairman Ben Bernanke said rising U.S. debt was contributing to a spike in longer-term Interest Rates and now was the time to start working on reining in deficits. Yet the Dollar's gains have been pretty moderate considering how much it has fallen recently. As Bernanke gave no clue as to whether the U.S. Federal Reserve would step up its purchases of government debt or mortgage-backed securities, this is likely to lead to high volatility for the Dollar in today's trading.

As for today, Ben Bernanke's speech about the state of the U.S. economy at 12:45 GMT is set to drive USD volatility. Additionally, the anticipated results of tomorrow's U.S. Non-Farm Payrolls are set to play a key role in the behavior of forex traders today.

EUR - ECB Interest Rate Decision in the Spotlight

The EUR rose to a 7 month high against the Japanese Yen on Wednesday. However, the EUR/JPY went bearish in late trading on Wednesday to close lower at 136.22 Yen per EUR. Against the U.S Dollar the EUR also weakened after Finland's Finance Minister said EU countries need bank stress tests to regain financial market trust and jolt them out of the worldwide recession.

The EUR slipped against the Dollar to the$1.4168 level yesterday, down from $1.4307, as currency traders shrugged off fresh economic data for the 16-nation Euro-Zone. The European currency declined after the European Union's Statistics Office reported Gross Domestic Product (GDP) in the Euro-Zone fell 2.5% in the 1st quarter. It was the largest economic contraction since the data was first compiled in 1995. The British Pound depreciated as much as 2% against the USD to $1.6263, the biggest intraday drop since March 9, when it tumbled 2.5%.

Meanwhile traders are braced for decisions on Interest Rates from the European Central Bank (ECB) and the Bank of England (BoE) today. The European Central Bank is expected to keep its target lending rate at 1% when it announces its decision at 11:45 GMT. The Bank of England is expected to keep its benchmark rate at 0.5% at its announcement at 11:00 GMT.

JPY - Yen Hits 7 Month Low vs. EUR

The Japanese Yen weakened against the EUR and the Dollar after Fitch Ratings reiterated its confidence in the U.S. and U.K.'s AAA ratings, damping demand for Japan's currency as a refuge from the global financial crisis. However, the JPY recovered in late trading to finish up by 60 pips vs. the EUR to close at 136.22. The JPY dropped to 96.15 per Dollar from 95.63.

Investors are now wondering if the JPY will continue to gain ground against the EUR and Pound in today's trading. It is important to take into account that this may only continue if the leading economies led by the U.S. publish predominantly positive economic data today. The result of this would help reduce demand for the safe-haven JPY. In the meantime traders are advised to open up their JPY trades ahead of the Euro-Zone and British Interest Rate decisions in the coming hours.

Crude Oil - Crude Tumbles 3% on U.S. Inventory Data

Crude Oil prices declined Wednesday by about 3.5%, to $66.15 a barrel, pulling back after government data showed an unexpected increase in inventories last week. The Energy Information Administration reported that U.S. commercial Crude Inventories for the week ending May 29 rose to 366 million barrels, up 2.9 million barrels. Crude Oil was also pushed lower by a bullish U.S Dollar.

Despite Wednesday's weakness, Oil prices have surged 60% over the last 3 months. Analysts state that Oil has surged in recent weeks on speculation and a weak Dollar, not on actual demand. This was apparently not enough to hold the recent bullish Oil prices, as yesterday's inventory report underscores this.

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Euro, British Pound in Play as Forex Markets Brace for Interest Rate Decisions (Euro Open)

The Euro and the British Pound May are in focus with back-to-back interest rate announcements from the European Central Bank and the Bank of England headlining the economic calendar. While neither policymaking body is likely to act on benchmark borrowing costs, significant changes in quantitative easing policy could stir heavy volatility.

Key Overnight Developments

• Japanese Corporate Profits, Investment Tumble on Overseas Demand
• Australian Trade Balance Unexpectedly Falls Into Deficit in April
• NZ Commodity Price Report Shows Currency Gains Threaten Recovery

Critical Levels

The Euro recovered a bit of ground overnight after heavy losses in New York trading hours, adding as much as 0.4% against the US Dollar. The British Pound diverged from the single currency, slipping as much as -0.8% ahead of the opening bell in Europe.

Asia Session Highlights

Japan’s Capital Spending fell -25.3% in the first quarter, the largest drop in at least seven years. Annual profits fell by a staggering -69.0%, with profit-to-sales ratio falling to just 1.4%, the lowest in at least 8 years. Profit margins for electronics and car manufacturers suffered the greatest losses, shrinking -6.9% and 7.1% respectively, on dwindling overseas demand. Lackluster investment in expanding or improving production capacity suggests firms are expecting a sluggish global rebound from the current downturn. This worldview is likely to translate into tepid hiring, weighing on consumption and keeping the lid on economic growth.

Australia’s Trade Balance fell into deficit for the first time since July 2008 in April, showing a –A$0.09 billion deficit after posting a revised A$2.3 billion surplus in the previous month. Economists had forecast a A$1.7 billion result ahead of the release. Exports fell -11.3%, the most in at least 6 months, while imports shed -1.7%. Shipments to China fell for the first time since November 2008, losing -14.8%. RBA Governor Glenn Stevens has repeatedly expressed optimism about Chinese economic growth, noting that exports to the south-Asian giant will help Australia weather the current global downturn. Revenues from overseas sales of coal and iron ore, the country’s top export commodities, fell -17.7% and -21.1% respectively.

Although the economy unexpectedly grew in the first quarter, details of the report suggested that much of the result was owed to aggressive fiscal stimulus, raising concerns about the sustainability of such performance in the months ahead. Tellingly, Australian Treasurer Wayne Swan noted that his country was yet to feel the full impact of the global recession, alluding to expectations that overseas demand would continue to fall from current levels. The International Monetary Fund has forecast that world trade volumes will shrink -11.0% in 2009 and grow by a meager 0.6% in 2010.

New Zealand’s ANZ Commodity Price Index revealed that world prices for the country’s top exports rose for the third consecutive month in May, adding 2.7% from the previous month. Prices for dairy, New Zealand’s top export commodity, rose 5% to register the biggest gain in at least 7 months. Most critically, prices measured in terms of the New Zealand Dollar fell for the third consecutive month, the increase in global prices is accounted for by a stronger local currency rather than improved overseas demand. A stronger currency will weigh on exports (which account for 30% of total output) and hamper the economy’s ability to recover, making New Zealand’s goods comparatively less competitive.

Euro Session: What to Expect

Interest rate announcements from the European Central Bank (ECB) and the Bank of England (BOE) headline the economic calendar in the forthcoming session. Looking first at the ECB, traders will be most anxious to see the details of unconventional stimulus measures announced at the last meeting in May. So far, ECB President Jean-Claude Trichet has only said that the bank would move forward on a scheme to “purchase euro-denominated covered bonds issued in the euro area,” saving the details of the plan for this go-around. On balance, the ECB has been notably more reserved than most of its major counterparts in offering monetary stimulus. Such waffling may see the Euro punished as the markets price in a longer path to recovery as well as the political implications of inaction. Indeed, grumbling electorates are increasingly likely to entertain calls to free national monetary capabilities from the ECB’s “measured approach” as recession deepens and unemployment levels rise, threatening the very existence of the currency union itself.

Turning to the BOE, chances for any further easing are virtually nil with benchmark borrowing costs already at just 0.50%. To that effect, the real question will be whether Mervyn King and company will expand their standing quantitative easing (QE) programs. Policymakers unexpectedly boosted their QE efforts by 50 billion pounds – another increase so soon after the last expansion would speak volumes about the bank’s perception of the headwinds facing the economy and could substantially weigh on the British Pound.

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!