6.12.2009

G20 Summit and U.S. Consumer Sentiment Set To Dominate USD Trading

Today's upcoming G20 Summit of the 20 most industrialized nations in Berlin, Germany today is set to dominate USD trading. Additionally, the forex market is set to go very volatile on the publication on the U.S. Import Prices indicator at 12:30 GMT, and the publication of the U.S. Consumer Sentiment indicator at 13:55 GMT. Forex traders are advised to open their Dollar positions now in order to make profits as today's events unravel.



USD - Dollar Drops despite Positive Data from U.S

The Dollar's downtrend continued yesterday as the USD dropped against all the major currencies. The Dollar's most distinct bearish trend was marked against the GBP, as the pair was traded as high as the 1.6620 level.

In accordance to what appears to be developing into a pattern, the USD dropped in spite of some positive figures published from the US economy yesterday. The weekly Unemployment Claims report, which measures the number of individuals who filed for unemployment insurance for the first time during the past week, dropped for the fourth time in a row, this time to 601K. The figure is still quite large, and is far from depicting a strong, recuperating economy. However, the trend surely seems to favor the U.S. economy.

The U.S. Retail Sales figures were also published on Thursday, showing a 0.5% increase in the total value of sales at the retail level. This figure reflect a state of mind in which US consumers feel more comfortable to spend, which means they have more confidence that their financial status will improve with time. This kind of behavior is imperative in order to pull the economy out of recession, as only a better cycling of funds has the ability to create a real change in the current gloomy economic conditions.

As for today, there is the G20 Summit in Berlin Germany. Additionally, a batch of data is expected from the US economy, and traders are advised to focus on two main reports. First, the Import Prices which is scheduled for 12:30 GMT. This is one of the earliest publications that try to predict the level of inflation. Traders should also follow the Consumer Sentiment report, as analysts forecast another positive figure for this indicator, which can further support the notion that the U.S. economy returns to the fast lane.

EUR - EUR Looks to Finish the Week Strong

EUR trading on Thursday was highlighted by the EUR/USD climbing back above the 1.4100 level. In a week that was showing bearish movement on the oft-traded pair, the Euro rallied to make up ground on last weeks closing, as it trumped both the greenback and the Yen. Yesterday's push came shortly after the release of US economic data. Positive change in US Retails Sales and Unemployment Claims did not impress enough to drop the EUR for the USD, as the pair went bullish, as traders bought back into higher-yielding assets.
Early Thursday morning, saw the release of the European Central Bank's (ECB) Monthly Bulletin, which reveals data gathered by the ECB Governing Board on the state of the Euro-Zone economy. The report helped get the ball rolling on a bullish EUR trading day.
Traders can look toward Industrial Production at 9:00 GMT and a speech by ECB President Jean-Claude Trichet at 11:30 & 15:30 GMT for some indication to how the rest of the day will go for the EUR. Traders should also follow news from the opening of the G20 Meeting in Berlin, Germany throughout the day for any clues on policy that could add volatility to the forex market.

JPY - JPY Moves on Market Volatility

The Yen's high volatility continued yesterday, as it saw contradicting trends against the major currencies. On one hand, the JPY rose 15 pips against the USD yesterday, as the pair closed at the 97.75 level. On the other hand, the Yen dropped over 50 pips against the EUR, closing at 137.86 level.

It appears that lately the Yen is mostly affected by its counterpart currencies. The USD is currently very weak, and thus the Yen consistently appreciates against it. However, the EUR seems quite strong, and its recent appreciation has pushed down the JPY.

Looking ahead to today, traders are expected to follow the main news events from the US and Western Europe, and the commencement of the G20 Meeting in Germany later today. Traders are advised to follow these events very closely as they may set the pace for JPY trading later today.

Crude Oil - Oil Eyes $75 a Barrel

Crude Oil's bullish trend continues as the price of Crude continues to rise. Oil rose 42 cents to finish trading at $72.39 yesterday. The main reason for Crude's bullishness was the positive economic data released from the US economy. The weak Dollar also helped push up Oil prices yesterday. In addition, the International Energy Agency corrected its demand projection and increased it to 120,000 more barrels a day.

The bullish trend of Crude Oil looks to continue, with the potential of reaching $75 a barrel. Traders should follow the data published from the US, and news coming out of the G20 Meeting later today, as these factors are set to play into Crude Oil's bullishness later today.

Article Source - G20 Summit and U.S. Consumer Sentiment Set To Dominate USD Trading
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US Dollar Looks Past Stock Markets to Advance in Asian Trading (Euro Open)

The US Dollar shrugged off gains across Asian stock exchanges, with the typically safety-linked currency advancing 0.4% against top counterparts. Overnight data saw New Zealand’s Retail Sales beat expectations while Japan’s Consumer Confidence rose for the fifth consecutive month in May.

Key Overnight Developments

• NZ Retail Sales Top Expectations as Currency Boosts Auto Receipts
• Japanese Consumer Confidence Top Forecasts But Outlook Remains Bleak

Critical Levels



The Euro trended slightly downward in overnight trading, testing as low as 1.4069 to the US Dollar. The British Pound sold off more aggressively, slipping as low as -0.4% to the greenback. Rising stock markets failed to hold back the US unit in Asian trading, with the Dollar Index 0.4% higher ahead of the opening bell in Europe.

Asia Session Highlights



New Zealand Retail Sales trumped expectations in April, rising 0.5% following a -0.4% decline in the previous month. Economists had forecast a 0.2% result ahead of the release. Interestingly, retail receipts excluding auto sales actually fell -0.1%, a result substantially worse than the 0.4% expected. The discrepancy may be accounted for by currency appreciation: a trade-weighted index tracking the average value of the Kiwi dollar advanced 12.3% in March, suggesting that by April foreign-made goods were comparatively cheaper in terms of the local currency; vehicles and machinery top the list of commodities imported by New Zealand, and auto sales clearly showed to be the make-or-break sector taking retail activity into positive territory. On balance, suggests the strength in the headline figure does not reveal much underlying improvement in consumer sentiment. Indeed, standing labor market forecasts make any meaningful recovery in confidence unlikely: the Reserve Bank of New Zealand expects the jobless rate to hit 5% this year and top 7% in 2010, weighing on disposable incomes and darkening the outlook for the retail sector.

Japanese Consumer Confidence advanced for the fifth consecutive month in May, rising to 36.3 from 33.2 in the previous month. Although the metric has advanced nearly 30% since setting a record low in December of last year, it remains below the 50 mid-point level, suggesting consumers’ outlook remains sour albeit less so than in the recent past. The improvement likely owes to the government’s record-setting $25 trillion yen stimulus package as well as the rebound in share prices. Indeed, the Nikkei benchmark index has surged 44.3% to date since early March. Looking ahead, the outlook for consumer sentiment looks shaky at best: the dismal outlook for global trade volumes in 2009 and 2010 will mean that a robust recovery for the export-dependent Japan will remain elusive for the time being, leaving output and employment levels at the lower end of the spectrum. Indeed, the current account surplus shrank more than expected in April as overseas sales tumbled -40.6%. Lower wages will trim disposable incomes and weigh on confidence

Euro Session: What to Expect



The economic calendar looks fairly uneventful in European hours, with most of the outcomes of most releases reflecting themes that have already been priced into exchange rates. On the inflation front, Germany’s Wholesale Price Index is set to shrink -9.0% in the year to May, the largest decline on record; meanwhile, France’s Consumer Price Index is set to dip into negative territory with a print at -0.2% for the annualized metric. German and Italian consumer inflation also turned weaker, with the former coming to a standstill and the latter dropping to a record-low 0.8% in the year to May. Such outcomes hammer home the fact that the Euro Zone now faces a credible deflationary threat, arguing for a far more forceful monetary response than anything that has been introduced by the European Central Bank thus far. Overnight index swaps suggest that traders are pricing in virtually no chance that the ECB will lower rates at the next policy meeting and quantitative easing will be difficult to expand beyond the modest measures announced earlier this month given the internal conflict about such policies within the central bank. On balance, the currency bloc is looking increasingly vulnerable to slipping into prolonged stagnation as entrenched expectations of lower prices see consumers and businesses hold off on spending and investment as they perpetually wait for the best possible bargain.

Separately, Euro Zone Industrial Production is set to contract for the eighth consecutive month in April, shedding -0.4%. Although the decline is markedly smaller than anything seen in recent months, some moderation is to be expected as companies restock depleted inventories. Global demand remains extremely fragile and output is likely to remain at subdued levels in the months ahead.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Looks Past Stock Markets to Advance in Asian Trading (Euro Open)
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Carry Diverges From Risk Appetite: What are the Risks to a Market Recovery?

• Carry Diverges From Risk Appetite: What are the Risks to a Market Recovery?
• Outlook for Yields Starting Rising To Levels That May Compensate for Lingering Risk
• Will G8 Finance Ministers Discuss Spark Volatility?

Risk appetite in most regions of the financial market is still actively suppressed by skepticism over early growth warnings and concern surrounding the eventual unwinding of government support from a still fragile global economy. However, shirking the caution seen most prominently in the equities market, carry interest have surged this past week. Looking at the Carry Trade Index, a sharp 430 point rally this past week has pushed the gauge to retest the 10-month high set early last week. Why the divergence? The answer lies in the market conditions numbers. The DailyFX Volatility Index has shown a quick retreat from the aggressive rise in sentiment that transpired over the previous four weeks. This is in line with the deflated fear indicators for the other traditional asset classes (the VIX, junk bond spreads, credit default swaps, etc). More interesting, however, is the improvement in the other side of the traditional risk/reward balance in the market. While market sentiment is still the primary source of strength for most investments; there have been a few key changes to yields over this past week to support the traditional carry trade basket. Most notably, the RBNZ announced it would hold its benchmark unchanged at 2.50 percent and forecasts for RBA interest turned decidedly hawkish in the span of a few days. Is this shift in returns indicative of the larger currency market? No. However, when sentiment is balanced like it has been over the past few months, a factor like this can make all the difference in the world.

Sudden shifts in yield speculation or sentiment like we have seen this past week are critical for swing traders; but for carry interests, they can be a dangerous distraction. A stability in risk and return is essential for supporting the longer-term strategy. And, considering the evolution of fundamentals this past week, there is little reason to believe that optimism is on the verge of a sudden and complete return. To be sure, there were a few positive events to take account of. The two highest yielding, liquid currencies reported a positive shift in their respective rate forecasts. What’s more, the outlook for an economic recovery was furthered by a far smaller-than-expected drop in US payrolls. However, these are still dull readings in an overwhelming gloom. There is a consensus among policy officials and market participants that current recession will hold over for the rest of the year and that even the eventual recovery will be drawn out and slow. In fact, the World Bank today downgraded its forecasts for activity through 2009 from a 1.7 percent contraction in March to 3.0 percent slump. In the meantime, there are plenty of factors that could derail a recovery. Sovereign debt ratings, ballooning budget deficits, struggling financial institutions, diminishing confidence in safe-haven assets and the government’s eventual withdraw of its financial aid are all big ticket issues. The mention of any one of these at this weekend’s G8 meeting could substantially alter sentiment.

Written by John Kicklighter, Currency Strategist
Article Source - Carry Diverges From Risk Appetite: What are the Risks to a Market Recovery?
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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!