6.17.2009

British Pound May Dominate Today's Market

As the USD shows unclear signals about where it is heading, and the EUR appears to be following the lead of the greenback, the market's primary currencies seem to be confusing the bulk of forex traders. On the other hand, the British Pound has shown strong signs of life and Britain is scheduled to release significant economic data today which may cause the GBP to be the main subject of today's trading.



USD - USD Erratic from Mixed Signals

The USD dropped against most of its major currency rivals yesterday, pressured by Russian angling for a new global reserve currency. By yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.3835. The Dollar experienced similar behavior against the GBP and closed at 1.6402.

Concerns that the pace of economic recovery may be more tepid than initially thought forced a retreat in a broad equity advance in the United States. While U.S. housing starts in May rebounded and producer prices rose less than expected, suggesting inflation pressures were muted. But not all investors were convinced that the economy is on a path to recovery, and global stocks turned lower as the strong rise in U.S. housing starts was outweighed by a slide in industrial production.

Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Core CPI at 12:30 GMT. Analysts are forecasting this figure to increase from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the USD in the short-term. Traders are also advised to follow Federal Reserve Chairman Ben Bernanke's speech at 13:00 GMT. This speech is very important as it is very likely to impact the Dollar's volatility. This may set the pace for the Dollar going into the rest of the week.

EUR - EUR Rises on Positive Economic Data

The EUR experienced a bullish day of trading yesterday against the USD, mainly due to the German ZEW economic expectation figure. The ZEW indicator jumped to 44.8 in June from 31.1 in May. This suggests that analysts and investors were not as grim about the economy as before. In other words, the improvement in this consumer sentiment signals that the worries about a further aggravation of the economic recession may be limited by the end of the year. The reading is now firmly in positive territory, which indicates that optimists far outnumber pessimists.

Since the release of this important figure earlier yesterday the EUR has climbed against the USD, and continued during today's trading session and closed at 1.3835, as trader confidence returned back to the EUR. A strong EUR may continue in the coming days if the European economy continues to release better-than-expected economic figures. If this does occur, the confidence of investors may continue to return back to the EUR in the short-term.

Looking ahead to today, the Euro-Zone and Britain are set to publish a number of important data releases. These include the British Claimant Count Change at 8:30 GMT and the Euro-Zone Trade Balance at 9:00 GMT. These figures are likely to determine the GBP and EUR's strength going into end-of-week trading. Forex traders are also advised to closely follow the speech coming from U.S. Fed Chairman Ben Bernanke, as the forex market is likely to be very volatile while he speaks.

JPY - Yen Experiences Mixed Results against Major Currencies

The Yen completed yesterday's trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the EUR yesterday and closed its trading session at around the 133.50 level. The JPY also saw bullishness against the USD and closed at 96.50.

The Yen rose and stocks slumped the most in more than two months on concern a global recovery may be delayed. While the Bank of Japan (BOJ) said earlier that the nation's worst post-war recession is easing, BOJ Governor Shirakawa said that the economy is improving because of three temporary factors: replacement of stockpiles at home and abroad, global fiscal stimulus measures, and improving confidence. It's unclear whether a recovery in demand will take hold.

Crude Oil - Crude Oil Prices Stable near $70

Oil fell during yesterday's trading session and closed around $70.60; giving back early gains as worries about the ailing world economy persist.

Oil prices have risen steadily during the past two months, going above $70 a barrel and causing concern that high energy costs could slow the economic recovery from recession. Slowing production has contributed to the price increase, but weakness in the U.S. dollar may be the main cause.

As for today, traders should pay attention to the U.S Crude Oil Inventories report scheduled, as it tends to have a large impact on Crude Oil's prices recently, especially for the short-term.

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British Pound in Play with Jobs Report, Bank of England Minutes on Tap (Euro Open)

The British Pound may see volatility in UK jobless claims expected to rise for the first time since February while the Bank of England is set to release the minutes from the last monetary policy meeting. April’s Euro Zone Trade Balance and Swiss Retail Sales are also up for release.

Key Overnight Developments

• Australian Leading Index Rose for 2nd Month But Rate Cuts Still On, Says Westpac
• US Dollar Gains Stall Against Euro, British Pound Despite Asian Stock Losses

Critical Levels



The Euro and the British Pound found footing and rebounded in overnight trading, testing above 1.3860 and 1.6400, respectively. The US Dollar was under pressure despite continued losses on Asian stock exchanges, with the MSCI Asia Pacific Index down -0.9% ahead of the opening bell in Europe.

Asia Session Highlights



Australia’s Westpac Leading Index grew at the fastest pace in over a year, adding 0.7% in April. In annual terms, the metric fell -3.5%, the smallest decline since November of last year. Westpac chief economist Bill Evans said that “while still deep in negative territory, this [annual] growth rate represents a significant improvement.” Evans added that the release is consistent with Westpac’s expectations that the economy will shrink 0.6% in the second quarter and contract at an annualized rate of -1.5% through the second half of this year, with positive growth coming back into the picture by the beginning of 2010. Australian GDP unexpectedly grew in the first quarter, boosted by the government’s aggressive fiscal stimulus efforts. Perhaps most notably, Evans said that “rising unemployment, higher fixed interest rates, and likely economic disappointment offshore will continue to make the case for more [interest rate] cuts in Australia.” For their part, the Reserve Bank of Australia has left the door open for additional easing, saying the current inflation outlook “gives scope” for further cuts if needed.

Euro Session: What to Expect



The UK labor market is set to show continued signs of weakness in May, with Jobless Claims set to grow by a 60k, the first increase in the number of workers applying for unemployment benefits since February. The Claimant Count, the UK’s timeliest measure of unemployment, is set to rise to 4.9%, the highest in nearly 12 years. Although consumer confidence rose for a second consecutive month in May following a recovery in stock prices as well as signs of moderating turmoil in the housing market, rising unemployment may undermine sentiment going forward as lower wages weigh on disposable incomes and trim spending, threatening the standing Bank of England forecast that holds economic growth will rebound 0.2% in 2010. While minutes from the last BOE policy meeting are unlikely to yield much in the way of new insights considering no policy changes were put in place, a restatement of their GDP forecast will be important in the context of the jobs report if the market perceives that Mervyn King and company are too optimistic and may need to expand standing quantitative easing programs. Indeed, the International Monetary Fund expects UK GDP will contract -0.4% next year.

Turning to the continent, the Euro Zone Trade Balance is expected to show a seasonally adjusted -1.5 billion euro deficit in April following a -2.1 euro shortfall in the previous month. The reading falls firmly within the downward trajectory that has led trading terms lower since March 2007. A survey of economists conducted by Bloomberg suggests a deepening external shortfall will slice -1.5% off GDP growth in 2009, the most in 9 years, and another -1.2% in 2010. A growing trade gap implies an outflow of Euros from the regional bloc to their trading partners, suggesting downward pressure on the single currency in the long-term outlook.

In Switzerland, April’s annualized Retail Sales figure is unlikely to break the downward trajectory that has held since May of last year. The unemployment rate surged to a three-year high of 3.5% while UBS’ leading consumption indicator has fallen to the lowest levels since early February 2005, both pointing to weakness in the retail space. The long-term is also indicative of weakness, with the KOF Institute forecasting private consumption will grow a meager 0.2% this year and shrink -0.4% in 2010. Separately, the June edition of the SECO Economic Forecasts report will give the government’s official forecast for growth and inflation.

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!