U.S. Non-Farm Employment Change Data to Dominate USD Trading

Today's U.S. Non-Farm Employment Change data release is set to dominate the trading between the Dollar and its major currency pairs. A number of other factors are also likely to impact the forex market today, such as European Central Bank Chairman Jean-Claude Trichet's speech at 7:50 GMT, and the U.S. Unemployment Rate publication at 12.30 GMT. The results of today's data are likely to determine the USD's bullishness going into next week's trading.

USD - USD Awaits Today's Non Farm Employment and Unemployment Figures

The Dollar was down against the EUR Thursday after the European Central Bank's (ECB) decision to keep the main Interest Rate at 1.0%. The Dollar Index also slipped to 79.446 from 79.499 on Thursday.

Dampening demand for the Dollar in recent weeks has helped the U.S. stock market rise and global Oil prices jump to near $70 a barrel. Higher stocks have encouraged traders to take their positions out of the Dollar which is a major funding currency. Risk appetite among investors is improving which reduces demand for the Dollar. The USD is considered a safe-haven currency, a key to the currency's strength during the financial crisis.

The recent influx of positive economic news from the U.S, Europe and China reduced the desire for the safety of the greenback and pushed traders towards riskier, higher yielding currencies. The Dollar fell against the EUR., but rose against the Pound and JPY. The GBP/USD rate finished lower by nearly 140 pips at 1.6128.Against the EUR, the USD lost 30 pips to close at 1.4198.

Overall there was little volatility in the market yesterday, ahead of the much anticipated May Non-Farm Employment Change and Unemployment Rate reports to be released today at 12:30 GMT. Positive news may help reverse some of the Dollar's
recent losses.

EUR - EUR recovers on Trichet's speech

The EUR recovered from a one-week low against the USD Thursday. However, trading remained inside a narrow range, staying roughly within the $1.40-$1.43 range. The EUR/USD rate closed at $1.4198 from $1.4168 on Thursday. Additionally, the EUR/JPY finished trading at 137.39 Yen from 136.22 Yen. These results show the EUR recovered after a climb in U.S stocks and a relatively optimistic speech by the European Central Bank's (ECB) President Jean-Claude Trichet. He stated that he believes the region's economic performance will improve later this year.

The European Central Bank decided Thursday against cutting its main Interest Rate, maintaining it at 1.0%. Although low, this rate is still higher than the Federal Reserve's key rate, which is in a range between 0% and 0.25%. This means that yields on the EUR based assets remain more attractive than those denominated in the USD. The ECB's reluctance to ease monetary policy further gives way to further strengthening of the EUR.

Traders should pay close attention to the U.S Non-Farm Employment Change and U.S Unemployment Rate reports to be released today at 12:30 GMT, as well as the GBP PPI Input to be released at 8:30 GMT.

JPY - JPY Plummets as Safe-Haven Status Comes Under Threat

Japan's currency declined Thursday versus 15 of the 16 most traded currencies. The USD/JPY rate closed at 96.74 Yen per USD from 96.15 Yen yesterday, and at 137.29 Yen per EUR from 136.22 Yen on Thursday. The fundamentals in Japan are quite poor. Furthermore, the yields are extremely low and many Japanese investors are opting to buy higher yielding assets oversees while selling the Yen, therefore devaluing the Japanese currency further.

The release of the U.S Non-Farm Employment Change report today may put further downward pressure on the Yen, and it is likely to continue its losses against the USD and EUR. This is increasingly likely, as the expectation is that employers in the U.S. cut fewer jobs last month as the deterioration of the labor market slowed.

Crude Oil - Oil Rallies Towards the $70 Price Level

Crude Oil rose dramatically on Thursday, rising to a seven-month high. Crude Oil prices rose to $69.22 yesterday, an increase of more than $3 a barrel. Crude prices quickly recovered from Wednesday's steep losses and resumed the march toward $70 a barrel. The rally followed a forecast made by a Goldman Sachs analyst stating that “As the financial crisis eases, an energy shortage lies ahead”. The bank set a 12-month price target of $90 a barrel, up from $70.

Expectations of a quick economic recovery dominate long-term prospects for Oil trading. Oil prices recovered very quickly from a Department of Energy report showing a surprise increase in U.S. Crude Oil inventories on Wednesday. The release of the Unemployment Rate data today may put some strain on Oil prices as the rate is expected to rise. However, as optimism seems to be the leading force in the markets, rising equities and a weakening Dollar may prove to have a greater affect on Oil prices than the unemployment results.

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Forex Markets See Trading Ranges Narrow as Traders Brace for US Jobs Report (Euro Open)

The forex market saw trading ranges narrow dramatically in the overnight session as traders looked ahead to the looming event risk of May’s US Non Farm Payrolls report to guide directional momentum. Switzerland’s Consumer Price Index and UK Producer Prices are on tap in European hours.

Key Overnight Developments

• Australia's Construction Sector Shrinks for Fifteenth Month in May
• Euro, British Pound Ranges Narrow Ahead of US NFP Report

Critical Levels

The Euro consolidated in a narrow range in overnight trading, oscillating around the 1.42 level. The British Pound followed suit, confined to a narrow band above the 1.61 level.

Asia Session Highlights

Australia’s AiG Construction PMI rose to 46.9 in May from 36.5 in April. The reading below the 50 “boom-bust” level reveals that the sector contracted for the fifteenth consecutive month, albeit at the slowest pace in over a year. Builders have seen demand begin to stabilize after the government tripled its grants to first-time home buyers to A$21,000. Perhaps most notably, the wages component of the metric expanded for the second consecutive month, rising from 50.6 to 55.0. Higher wages are supportive of consumption, the largest component of overall economic growth, offering a bit of hope that the private-sector demand will support the economy after the government’s boost is exhausted. Australian GDP unexpectedly expanded in the first quarter but 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.

Euro Session: What to Expect

Switzerland’s Consumer Price Index is expected to show prices shrank at an annual pace of -0.9% in May, the third consecutive month that CPI has printed in negative territory. A survey of economists conducted by Bloomberg expects deflation will persist for the remainder of 2009 as economic growth remains subdued. Switzerland was confirmed to be in recession after GDP shrank in the six months ending in March and positive growth is not expected to return at least until the second quarter of next year. The downturn could be prolonged for substantially longer if expectations of lower prices become entrenched, encouraging consumers and businesses to wait for the best possible bargain and perpetually hold off on spending and investment.

Turning to the UK, May’s Producer Price Index report is expected to reveal that the annual pace of wholesale inflation shrank -0.4%, the first time in nearly seven years. The reading implies downward pressure on consumer prices (the headline inflation gauge) in the months ahead as lower production costs are passed on via cheaper finished products. Although inflation now stands at 2.3%, a reading comfortably close to the Bank of England’s 2% target level, economists expect price growth to slip below 1% through the second half of this year. Median estimates from the bank now suggest economic growth will average 0.02% over 2010, an assumption that yields forecasts of a return to inflation above 1% in the first quarter of next year.

On balance, forex traders are likely to look past the European data docket, with price action waiting for the release of the US Non Farm Payrolls report late into the session to guide directional momentum. Expectations call for payrolls to drop 520k in May as the unemployment rate surges to a 26-year high at 2.6%. Markets have viewed the health of the US economy as a proxy for that of the world at large, expecting a rebound in the largest consumer market to offer positive spillover elsewhere.

Written by Ilya Spivak, Currency Analyst
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Carry Interest is Rising But a Lack of Risk Doesn't Translate Into Strong Fundamentals

• Carry Interest is Rising But a Lack of Risk Doesn’t Translate Into Strong Fundamentals
• Central Banks Keep Rates Unchanged Yet Policy Officials Cautious
• Growth is Emerging as the Underlying Driver of Market Sentiment

Event risk was torrential this past week with a round of central bank rate decisions that covered both the most hawkish and dovish extremes of the policy scale as well as a slew of headline growth indicators. Naturally, one would expect extreme volatility and the establishment of new trends from this mix of fundamental fodder; but instead, we have seen exactly the opposite. The presence of so much event risk has frozen risk trends as market participants wait to absorb the releases rather than trading against a potentially influential event or piece of data. Since this week started with growth numbers on Monday and will end with US NFPs on Friday; there has is a consistent damper on swells in risk appetite. This has been seen across all of the capital markets. The S&P 500 has stalled below 950 just after hitting a seven month high; gold’s advance has seized within $10 from once again testing $1000/oz; and the Carry Trade Index has pulled back after a brief incursion to highs not seen since before the height of the financial crisis last October. It is not a stretch at this point, that this is merely a break within a rather momentous bull trend. However, looking back further than just the past three to six months, there is reason to believe that this advance could also be a correction in a much larger trend. The Carry Index is still nearly 28 percent off its record highs. It is unlikely that we will see the level of sentiment that preceded the crisis for a long time.

It is hard to be skeptical in a bullish market – much harder than doubting a long-term decline. Investors are hard-wired to buy assets as they find their way into the market. However, there is a difference between an influx of capital into the market and the appreciation an asset enjoys when speculation supports its strength. Sidelined money is returning to a market space that has shrunk (reducing the opportunities for liquidity) and the pool itself has been severely diminished through the market collapse and global recession of the past few years. Eventually, the market will bear as much of the risk-seeking capital as participants are willing to invest (unless another crisis unexpectedly arises); and then fundamentals will to come back into view. The burden of risk has not completely dissipated. The grip of recession is still tight (even if there are signs its pace is slowing) and the eventual recovery will be fraught with difficulties. Upon the recovery, government’s will have to unwind their aid, which restrict credit and saddle the market with toxic debt that is currently being held on the central bank’s accounting books. Widening rates on US mortgages and TALF loans are already showing signs of strain. What’s more, a revival of investment will require attractive returns. With central banks maintaining interest rates near multi-decade lows and keeping open the option to further loosen policy and expand quantitative easing; it is clear that there is little hope to see a significant increase in yields anytime soon.

Written by John Kicklighter, Currency Strategist
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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!