U.S. Unemployment Claims Data to Drive USD Trading Today

The market is set to go increasingly volatile today on the publication of U.S. Unemployment Claims at 12:30 GMT and the Philly Fed Manufacturing Index at 14:00 GMT, and Treasury Secretary Timothy Geithner's speech at 13:30 GMT . In turn this economic news will help determine the strength of the Dollar versus its major currency pairs going into end of week trading. In order to take advantage of the forex market now, traders are advised to start opening their USD positions now, prior to the release of this crucial data.

USD - USD Weakens on Weak U.S. Inflation Data

The Dollar fell for a second day against most major currencies on Wednesday after lower than expected U.S. inflation data reduced speculation the Federal Reserve would raise Interest Rates in the near future. The Dollar was at ¥95.78 Wednesday, down from ¥96.62, and at $1.3955 per EUR. The Dollar was at 1.0793 Swiss Francs, down from 1.0865 Swiss Francs.

Rising equity markets and positive economic data in recent months had led to speculations the U.S recession will end soon, and the Federal Reserve will need to raise Interest Rates by the end of the year. Concerns of rising inflation have also helped fuel these speculations. However, the U.S. Consumer Price Index (CPI) increased only 0.1% in May, falling 1.3% in the past 12 months, the biggest decline in almost 60 years.

Federal Reserve Board officials may be using next week's policy statement to suppress any speculation of an upcoming Interest Rate increase. This may signal that the underling U.S economy is still weak, resulting in long term downward pressure on the Dollar. Adding to the downward pressure on the currency are concerns over the Dollar's role as a global reserve currency as the leaders of Brazil, Russia, India and China, known as the BRIC group, called for a "more diversified international monetary system” Wednesday.

With several important economic indicators to be released Thursday, including U.S Unemployment Claims at 12:30 GMT, GBP Retail Sales at 8:30 GMT, and the SNB Monetary Policy Assessment at 7:30 GMT, traders can expect a volatile trading day, and a possible continuation of the Dollar's downward trend.

EUR - EUR Jumps On Increased Optimism

The EUR strengthened against the Dollar Wednesday after the release of disappointing U.S. data. The EUR closed at $1.3947 from $1.3863, and at ¥133.68 from ¥133.98. The Pound Sterling weakened as much as 1.2% to 85.36 pence per EUR yesterday, the biggest decline since June 4, but was little changed against the USD at $1.6391 from $1.6410 Wednesday.

The Pound's drop came after a retreat in the stock market and Bank of England (BoE)) Governor Mervyn King's speech stating that Britain's banking system may need to raise more capital to finance the economic recovery amidst a unanimous vote by BoE officials to continue their asset purchasing program.

A rise in a number of U.S stocks helped drive the EUR higher versus the Dollar, improving risk appetite in general, and reducing the Dollar's demand as a safe-haven. A report showing the U.S. current account deficit narrowed in the first quarter added to optimism in the currency market.

Traders should pay attention to the release of the U.S Unemployment Claims at 12:30 GMT, GBP Retail Sales at 8:30 GMT, and the SNB Monetary Policy Assessment at 7:30 GMT, as the results will determine the direction of the EUR, GBP and CHF for the newt few days.

Yen - Yen Rises Against the USD

The Japanese currency rose against the USD Wednesday, benefiting from its safe- haven status as Standard & Poor's (S&P) downgraded or lowered its outlook on almost two dozen U.S banks. The Dollar was at 95.78 Yen yesterday, down from 96.62 Yen. This came one day after S&P said European banks face higher credit losses, a statement that also resulted in gains for the JPY.

As the economic outlook is still positive overall, the Yen fell against most other major currencies since the Yen is often used as a funding currency for higher yielding assets. A report showed that Japanese investors have purchased more oversees assets than they sold also added to the downward pressure on the Yen.

Crude Oil - Crude Oil Rises on Improved Demand

Crude Oil for July delivery rose 48 cents to end trading at $71.51 a barrel on Wednesday. In a volatile trading day, Crude closed higher after a mixed Energy Department report showed a bigger than expected drop in Crude supplies, and an increase in gasoline demand along with higher than expected rise in inventories. Signs of improving Oil demand offset the negative side of the report. Options expiration also played a role in the rally as July options expired Wednesday.

Crude's rally over the past several months was supported by a weakening Dollar, and fears of inflation that pushed investors to buy commodities as a hedge. However, concerns of inflation in the near future subsided as the U.S. CPI (Consumer Price Index) increased by only 0.1%. As Crude inventories remain at very high levels, and the USD is showing signs of stability, another rally for Oil may be unlikely in the short-term.

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Swiss Franc Volatility Likely As Central Bank Responds Deflation Threat (Euro Open)

The Swiss Franc may see heavy volatility in European trading hours as the central bank weighs up an increasingly credible deflationary threat. While changes to benchmark interest rates look remote, an expansion of unconventional measures that already include quantitative easing and forex market intervention seem plausible.

Key Overnight Developments

• Australia's Industrial Output, New Orders To See First Gains in 9 Months, Says Westpac
• RBA Sold A$1.4 in FX Market, Said Interest Rate Changes Losing Effect on Lending Costs

Critical Levels

The Euro traded sideways in the overnight session, consolidating in a well-defined 40-pip band above 1.3930. The British Pound followed suit, oscillating around the 1.64 level.

Asia Session Highlights

Australia’s Westpac/ACCI Industrial Trends Survey saw an index of firms’ expectations rise to 47.6 in the second quarter, the highest since the three months to September 2008. Notably, sub-indices tracking output and new orders expectations swung back into positive territory for the first time in 9 months, suggesting manufacturers are expecting a bit of a rebound in demand in the months ahead. That said, employment expectations remained negative (albeit less so than in the previous two quarters), hinting at firms’ intention to continue to operate with slimmer labor forces and casting doubt on whether the apparent stabilization in industrial activity will meaningfully contribute to lifting the economy out of recession.

Separately, data from the Reserve Bank of Australia showed that the central bank sold A$1.4 billion of the local currency in the spot forex market in April, the most in five years. The same month saw the Australian dollar gain a whopping 6.4% against a trade-weighted basket of top currencies, suggesting the bank is actively working to counteract upward pressure on the Aussie from a rebound in risky assets over the past three months. Indeed, the RBA’s currency sales have surged by A$1.2 since March when stock markets found a bottom and began to reverse course higher. A stronger currency threatens the export sector, making Australian goods comparatively more expensive for overseas buyers. Perhaps most notably, the RBA said that the influence of changes in benchmark interest rates on bank lending rates has weakened over the past two years, suggesting monetary policy is losing potency in stimulating economic activity. On balance, this suggests deeper cuts than what has already been undertaken may be needed to bolster the economy in the months ahead. Minutes from the last policy meeting confirmed that Glenn Stevens and company are leaving the door open for additional easing.

Euro Session: What to Expect

The monetary policy announcement from the Swiss National Bank tops the economic calendar in European hours with volatility likely as the central bank weighs up an increasingly credible deflationary threat. The last policy meeting saw the SNB announce one of the most aggressively dovish monetary policies among top global economies, sending the Franc tumbling with promises of quantitative easing and currency market intervention in an effort to keep price growth from settling in negative territory. Since then, the annual pace of consumer price growth has dropped to a record-low -1.0% and appears likely to extend losses after Producer Prices fell by the most in over two decades, hinting at shrinking price tags on final goods as firms pass on lower input costs. Indeed, yesterday saw SECO revised lower the government’s official CPI estimate to -0.5% in 2009, down from the -0.2% forecast reported in March. Although overnight index swaps reveal that traders are pricing in virtually no chance of a change in benchmark interest rates, an expansion of unconventional policies seems likely. However, it is uncertain what such actions could practically look like considering the SNB is already throwing everything but the kitchen sink behind its monetary efforts, adding to the likelihood of erratic price action as the announcement hits the tape.

UK Retail Sales are expected to shrink -0.4% in the year to May, the first decline since February. Receipts have trended lower since May of last year, with the forthcoming result extending falling firmly within the outlines of the overall trajectory. Although consumer confidence rose for a second consecutive time last month following a recovery in stock prices as well as signs of moderating turmoil in the housing market, rising unemployment is set to undermine retail activity going forward, trimming disposable incomes and weighing on spending for those already out of work and encouraging cautionary saving for those still holding on jobs. The latest labor-market data revealed the claimant count rose to 4.8%, the highest in over 11 years, despite a smaller-than-expected gain in jobless claims. Indeed, a survey of economists conducted by Bloomberg expects the jobless rate will average 8.2% this year and 10.2% in 2010, suggesting month-to-month volatility in claims figures is hardly reason enough to be optimistic about Britons’ job prospects in the foreseeable future.

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.


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!