Return to Risk Aversion over Negative U.S Data

The USD and JPY regained their status as safe-haven currencies after the release of worse than forecasted economic data from the Empire State Manufacturing Index and TIC Long-Term Purchases reports and a subsequent return to risk aversion. The two currencies gained against most of their major currency pairs amidst a volatile trading day. Today's trading is expected to be volatile as well with major news releases from the U.S and Euro-Zone including the U.S Building Permits and the PPI releases at 12:30 GMT, the German ZEW Economic Sentiment at 9:00 GMT and Britain's CPI at 8:30 GMT.

USD - Empire State Manufacturing Index Release Boosts Dollar

The Dollar was boosted yesterday by the publication of the Empire State Manufacturing Index and TIC Long-Term Purchases. The results were worse-than-forecasted, helping the Dollar climb against virtually all of its major currency pairs in yesterday's trading, as the USD's safe-haven status returned to the forefront. The Dollar was also boosted by a number of other factors, such as Russian Finance Minister Alexei Kudrin stating that the USD will be the world's reserve currency for some time. The poor economic figures from the U.S. also led to a tumbling U.S. and global stock market, further favoring the USD.

The USD rose by over 150 pips vs. the EUR to close at the 1.3793 level. This came about as the European Central Bank (ECB) warned that banks in the Euro-Zone may face up to $300 billion of further losses by the end of 2010. The USD rose about 80 pips against the GBP yesterday to close at 1.6275. This was considerably moderate as Britain is on her way to quicker-than-expected economic recovery. Against the JPY, the Dollar actually fell 130 pips to 96.99. This dramatic movement is owed to the Yen returning as the number 1 safe-haven currency amidst Monday's market volatility.

Looking ahead to today, the market is likely to be volatile, as it still continues to move on yesterday's economic news. As the U.S. market opens, several important publications will be released simultaneously at 12:30 GMT. The most important of these being the publication of Building Permits and the PPI (Producer Price Index) releases. Forex traders are advised to follow information surrounding President Obama's economic recovery plan, as this tends to help increase market volatility. Therefore, directly impacting the Dollar and its major currency crosses.

EUR - European Central Bank Warning Hits the EUR

Shock waves hit the global markets yesterday as the European Central Bank (ECB) revealed that it expects losses of Euro-Zone banks to reach $283 billion by the end of next year. This was one of the main factors that led to a bearish EUR throughout yesterday's trading. Additionally, weak U.S. data led traders to ditch the EUR for the safe-haven USD. Additionally, German Chancellor Angela Merkel received criticism yesterday due to Germany's tight fiscal policy. Opponents in Germany point out that she should be more flexible, and follow her British and American counterparts.

The EUR plummeted by over 150 pips vs. the USD to close at 1.3793. The news from the U.S. also helped global stock markets plummet, further helping push down the EUR/USD exchange rate. The EUR/GBP rate finished lower on Monday by 30 pips at the 0.8487 level. This marks further bearishness in the pair as the British economy has faired far better than the troublesome Euro-Zone economy in recent months. Against the JPY, the EUR tumbled a massive 350 pips to close at 133.85. This comes about as the economic uncertainty led the JPY's safe-haven status to become dominant again.

Today, there are plenty of economic data releases that are likely to greatly affect EUR trading. Amongst these are the German ZEW Economic Sentiment at 9:00 GMT, and the publication of Britain's CPI (Consumer Price Index) at 8:30 GMT. It is also advisable to follow statements coming out of the European Central Bank throughout the day. In addition, it is advisable to pay attention to the economic news from the US., as the EUR/USD rate will be greatly affected upon the release of this data.

JPY - JPY Safe-Haven Status Returns to the Forefront

The JPY climbed against its major currency pairs yesterday, as its safe-haven status returned to the forefront. This was in response to the release of worse-than-forecast U.S. Empire State Manufacturing Index results, and Japanese and global stock markets falling yesterday. Thus risks for the financial system led to a cut in risk appetite, resulting in traders selling-off stocks, commodities, and bonds, and buying-up safe-haven currencies, such as the JPY and USD.

The JPY climbed against the Dollar by about 130 pips to close at 96.99. The JPY rose to a 2-week high against the EUR, to finish higher by a massive 350 pips at the 133.85 level. The GBP/JPY rate fell by nearly 400 pips, marking a correction to the pairs several week bullish run. The Yen's behavior yesterday reminds investors that you can never underestimate the Yen. The JPY is set to move today on the release of data from the U.S. and Europe.

Crude Oil - Crude Oil Slumps on Release of Poor U.S. Data

The price of Crude Oil slumped by over 50 cents a barrel yesterday, to finish trading at $70.78 a barrel. This was due to several important factors, initiated by the release of poor U.S. economic data upon the opening of the U.S. market. As a result, the U.S. and global stock markets tumbled dramatically, leading to the sell-off of commodities such as Crude. The black gold was unable to recover thereafter.

In today's trading, all eyes will be looking to economic events coming out of the US. and Europe. However, the release of U.S. data is likely to have a higher impact on Crude Oil. It's a wise choice for traders to start opening-up their positions in Crude Oil prior to market volatility kicking-in as the trading day kicks in.

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Euro, British Pound Selling May Accelerate As CPI Reports Stoke Deflation Fears (Euro Open)

The Euro and the British Pound may see selling pressure accelerate as May consumer price index results bolster fears that Europe may slip into deflation. The June edition of Germany’s ZEW survey of investor sentiment is also on tap.

Key Overnight Developments

• BOJ Keeps Rates at 0.10%, Upgrades Economic Forecast for 2nd Month
• RBA Meeting Minutes Hint Australia May Cut Rates Again This Year

Critical Levels

The Euro ended the overnight session little changed against the US Dollar as prices retraced having tested as low as 1.3749 after stocks tumbled in Asian trading. The British Pound bore the brunt US Dollar strength, slipping as much as -0.6% before recovering a bit ahead of the opening bell in Europe.

Asia Session Highlights

The Bank of Japan kept interest rates unchanged at 0.10% as was expected. Policymakers said that “economic conditions have began to stop worsening”, raising its economic forecast for the second consecutive month. That said, the BOJ continues to see downside risks to economic growth and said inflation may decline more than expected. Although Maasaki Shirakawa and company said “exports and production have begun to turn upward”, the dismal outlook for global trade volumes in 2009 and 2010 from the IMF suggests otherwise, arguing that a robust recovery for the export-dependent country 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%.

Minutes from the last meeting of the Reserve Bank of Australia bolstered governor Glenn Stevens’ earlier comments suggesting policymakers may reduce interest rates again in the months ahead. While the RBA again asserted that the full effects of standing monetary and fiscal stimulus are yet to be fully reflected in the broad economy, the bank said the current inflation outlook “gives scope” for rate cuts if needed. Policymakers also acknowledged that the recent appreciation in the Australian Dollar have reduced the impact of stimulus measures.

Euro Session: What to Expect

The UK Consumer Price Index report is expected to show that the annual pace of inflation to fell to 2.0% in the year to May, the lowest since September 2007. Although the reading is still within the Bank of England’s target parameters, continued economic weakness is likely to push price growth lower. Indeed, a survey of economists conducted by Bloomberg is calling for GDP to continue to shrink at least through the first quarter of next year, sending CPI below 1% by the third quarter of this year. The Bank of England has said that such extremes will be temporary, with prices recovering to 1.4% by the end of next March. However, these forecasts are based the assumption that the economy will grow 0.2% next year, a claim that is contested by the International Monetary Fund which expects the UK will shrink -0.4% in 2010. If the IMF outlook proves correct, prices could well drift into negative territory, threatening to substantially extend the current downturn as expectations of deflation encourage consumers and businesses to wait for the best possible bargain and perpetually hold off on spending and investment.

Turning to the continent, the Euro Zone Consumer Prices Index is set to show that annual inflation came to a standstill in May having registered at a record-low 0.6% in the previous month. As we noted last week, the currency bloc 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. This opens the door for traders to punish the Euro as they price in expectations that the region will substantial lag behind other industrial economies in seeing economic recovery, forcing interest rates to stay lower longer than elsewhere.

Separately, Germany’s ZEW Survey of investor sentiment is expected to rise to 35.0 in June from 31.1 in the previous month, registering at the highest level in three years. However, improvements in the metric are unlikely to offer much near-term support to the single currency: the ZEW reflects the forward-looking perspective of the survey respondents, meaning the reading tends to lead the Euro by a significant margin such that the trend in the Expectations component inverts major tops and bottoms in the exchange rate. Specifically, the ZEW began to trend lower in the beginning of 2006 and bottomed out in July of last year; the same end-points mark the beginning of the last major uptrend in EURUSD that saw the pair test record highs above 1.60. If the same dynamic is to continue to hold, traders can expect the European unit to set a bottom as the ZEW tops out, a scenario that seems unlikely for the time being considering how much ground remains to be covered before the economy regains firm footing.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro, British Pound Selling May Accelerate As CPI Reports Stoke Deflation Fears (Euro Open)
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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!