6.08.2009

Greenback Slips After Posting Its Largest 1 Day Gain

The currency market is focusing on U.S. short-term Interest Rates as talk of a rate increase by the Federal Reserve has emerged. Dealers said that market participants will focus on a slew of Treasuries auctions this week. If longer-term Treasury yields rise on supply worries, this could weigh on the U.S dollar. and that might be difficult for the USD to climb further only on U.S. positive jobs data.



USD - USD Reversal in the Works - Will it Hold?

Last Friday's surprising Non-Farm Employment Change report helped to generate a fantastic reversal for USD pairs and crosses. Regaining much of what it had lost in the previous 2 weeks, the greenback rallied Friday and breached a number of significant support and resistance levels. The EUR/USD traded over 1.4200 by mid-day Friday, yet currently trades under 1.4000. The GBP/USD temporarily spiked above 1.6200 only to fall back towards 1.5950 by today's early trading session. These currency pairs only demonstrate a small sampling of the movement which the Dollar witnessed in late-afternoon trading on Friday.

Perusing through today's market movements it seems as though last Friday's employment reports will continue to drive market optimism in the US economy. Therefore, traders can expect USD pairs and crosses to continue their reversal, or level-off at the very least. So far, in today's early trading hours, the greenback has appeared to stabilize and float in neutral territory against most of its currency counterparts. With hardly any news coming from the United States, this isn't likely to change today.

Looking ahead this week, there isn't much economic news expected which will impact the Dollar like last week's data releases. Traders will likely see a continuation of recent trends primarily due to the lack of economically impacting data from world markets. Significant to bear in mind, however, is the upcoming G8 summit this coming weekend. While it is not an official regulating body, it is an official meeting between finance chiefs and central bankers at the highest levels who will meet to discuss recent issues facing the global economic community. As a result, it may carry an impact on the future movement of the major world currencies; like the USD.

EUR - EUR Strength a Myth?

After climbing to its highest level in 2009 against the USD, the EUR now appears to be losing steam. Last week's jobs data from the US has put a damper on EUR gains. Climbing as high as 1.4330 against the Dollar, and 0.8867 against the GBP last week, the EUR is now trading at 1.3985 and 0.8773, respectively, marking a considerable loss in value in just a short time period.

As many analysts are anticipating traders to jump on the band-wagon of USD-buying this week, the EUR will likely continue to see bearish results against many of its rivals. Once it had reached the key resistance level of 1.4300 against the Dollar, economists began to state that the EUR will now face a sell-off period from the failure increased risk appetite to generate the demand for the EUR needed to sustain its recent bullish movement. They now claim that the EUR is going to witness a bearish run against most currency counterparts before continuing its climb.

Looking at today we can clearly see that the EUR has very little economic news which will impact the market. Generally speaking, this means that the EUR's downtrends will likely continue throughout the day. This is also true of the remainder of the week as well. With few pieces of meaningful economic data expected to be released, the EUR will not likely regain the strength seen last week for some time.

JPY - Yen a Primary Currency to Watch this Week

Last week's jobs data from the United States has helped generate a confident push in the value of the USD and the JPY felt the sting of this rush just as every other currency. Trading as high as 96.50 against the greenback during early trading sessions last Friday, the USD/JPY currently stands near 98.50 in today's early morning hours. The strength in the US market has helped rally the appeal of the American safe-haven and taken more funds away from the carry-trade safe haven of the Japanese Yen.

With an inordinate amount of economic news expected from Japan this week, we could see a sharp increase in trading volatility for this specific currency. As figures such as the M2 money supply, Japanese Final GDP, and core machinery orders are published this week, traders will get a healthy look at the state of the island economy. No doubt the Japanese Yen will be one of the currencies to watch this week!

Crude Oil - Crude Oil Prices Falling back towards $65 a Barrel

Last week's spike towards $70 a barrel for the price of Crude Oil may have indeed been a fluke. As the USD strengthens on positive economic data, the value of Crude Oil has begun to decline as a result. A number of analysts have cautioned that this recent spike in price may be similar to the spike in mid-2008 which played a role in the economic crash which ensued. If oil prices are not brought under control, the impact on the global energy market could severely impede the progress of economic recovery.

Driving the price of Crude Oil this week is the value of the US Dollar. Most signals indicate that the greenback is forecast to continue its bullish trends this week which indicates that Crude Oil will likely continue its decline in the days ahead. Short of any significant breaking news which revalues the USD, it is safe to say that these trends are relatively more predictable and stable this week as compared to other weeks. We may have a healthy price target of $65 a barrel in the short-term.

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Euro Vulnerable as Looming Currency Crisis in Latvia Threatens Contagion (Euro Open)

The Euro may see selling pressure in European hours as a developing currency crisis in Latvia threatens to spill over into Western Europe. Overnight data offered conflicting releases from Japan, seeing the Current Account narrow more than expected while merchants’ economic outlook surged to the highest since September 2007.

Key Overnight Developments

• Japan's Current Account Surplus Shrinks as Exports Tumble
• Eco Watchers Survey Sees Merchant Sentiment Surge in May

Critical Levels



The Euro corrected a bit higher in overnight trading, testing the 1.40 level against the US Dollar. The British Pound trended gently downward, testing as low as 1.5921 to the greenback.

Asia Session Highlights



Japan’s Current Account surplus narrowed more than economists expected in April, printing at 630.5 billion yen from 1485.6 billion in March. Forecasters were calling for an 850 billion yen result ahead of the release. Trading terms declined -54.5% from a year before as shrinking global demand weighed on exports. Indeed, overseas sales fell -40.6% in annualized terms, outpacing a -37.8% drop in imports. The International Monetary Fund has forecast that world trade volumes will contract by a whopping -11% this year and recover just 0.6% in 2010, spelling continued trouble for export-sensitive countries like Japan: companies are likely to maintain lower output levels, keeping a lid on a recovery in the labor market to keep disposable incomes low and hold back spending. Indeed, a survey of economists conducted by Bloomberg sees unemployment continuing higher at least through the second quarter of next year.

Meanwhile, the forward-looking component of Japan’s Eco Watchers Survey surged to 43.3 in May from 39.7 in the previous month, the highest since September 2007. The metric polls barbers, taxi drivers, and other retail service providers to gauge underlying trends in consumer confidence. Merchant sentiment was likely boosted by the government’s record 2 trillion yen ($20 billion) fiscal boost. It remains to be seen if the improvement is sustainable after this effort is exhausted.

Euro Session: What to Expect



Switzerland’s Unemployment Rate is expected to tick higher for the seventh consecutive month in May, rising to 3.6% in from 3.4% in the previous month, the highest since January 2006. Growing joblessness will weigh on disposable incomes and weigh on spending, putting a lid on overall economic growth. Hiring is likely to remain tame in the months ahead with firms keeping output low as demand remains lackluster from Switzerland’s key trade partners in the European Union. Indeed, the Swiss government’s official forecasts and those derived from a survey of analysts conducted by Bloomberg agree that the unemployment rate will hit 5% next year.

In the Euro Zone, the Sentix Investor Confidence indicator is expected to rise to -31.0 in June from -34.3 in the previous month, the highest reading since October. The boost is likely to come as traders price in the European Central Bank’s decision to expand monetary easing efforts beyond benchmark interest rates. However, it is important to note a negative reading implies analysts remain overall bearish, though comparatively less so.

On balance, the Euro may look past the data docket as recent developments in eastern and central Europe darken the near-term outlook: a looming currency crisis is emerging in Latvia, threatening to force devaluation and break a peg to the Euro unless rush efforts from the ECB and the IMF succeed in securing an adequate international aid package in the days ahead. Western European banks are heavily invested in Latvia as well as neighboring Lithuania and Estonia who also peg their currency to the Euro; if the currency collapses, the value of Western European investments in the region will go with it, putting intense strain on lenders already battered by losses from the subprime crisis. Needless to say, such a scenario could weigh heavily on the single currency, forcing yet more concessions to the US Dollar after Friday’s sharp decline.

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!