6.19.2009

Philly Fed Manufacturing Index Boosts Dollar

The Philly Fed Manufacturing Index and a string of other positive U.S. data boosted the Dollar yesterday. This marks a turnaround for the U.S., as there is increasing optimism that the current recession will be over sooner than later. Now may be a good time for forex traders to enter the market as investors continue to profit from yesterday's bullish Dollar.



USD - Dollar Driven Higher By Federal Reserve Rate Outlook

The U.S Dollar went bullish versus the EUR and Yen on Thursday after a report showing the number of continuing claims filed for jobless benefits during the first week of June fell more than expected. The USD finished trading to end up 38 pips higher vs. the EUR at $1.3917, while against the Yen, the USD rose 0.9% to 96.58 Yen.

Sharply higher U.S. Treasury yields also lent support to the Dollar. Higher rates on U.S. investments compared to the rest of the world are expected make the USD more attractive versus other currencies in the short-medium term future. In the earlier trading however, the greenback weakened as traders cut bets that the Federal Reserve will raise its benchmark Rate this year to a 45% chance from 64% odds a week ago.

The Dollar traded in a range between $1.3750 per EUR and $1.4001 this week. The currency fell to a 6 month low of $1.4338 on June 3 on concern that investors will demand higher yields as U.S. debt sales surge to finance a record budget deficit.

Analysts stated that with no U.S. economic data due for release on Friday, many investors were starting to look ahead to a Federal Reserve policy meeting next week. The outcome of the Fed meeting, which commences on Tuesday, and the ensuing reaction in U.S. long-term yields are seen as key to the near-term direction of the U.S Dollar in the future.

EUR - EUR Climbs Against the CHF

The EUR jumped against the Swiss franc on Thursday to as high as 1.5144 Francs amid speculation that the Bank for International Settlements was acting on behalf of the Swiss National Bank (SNB) to defend the 1.50 Franc level, analysts said. The EUR may weaken however against the Swiss Franc should the SNB soften its stance on weakening its currency, according to analysts.

The EUR also advanced against 12 of the 16 major currencies on speculation that the European Central Bank's (ECB) officials speaking tomorrow will signal they plan to keep Interest Rates on hold, maintaining the allure of assets in the 16-nation region. The EUR also gained for a second day versus the Pound after U.K. Retail Sales unexpectedly dropped in May for the first time in 3 months.

The European currency appreciated to as high as 0.8604 vs. the Pound Sterling, and may move higher to 90 pence in the next 3 months. Against the U.S Dollar, however, the EUR weakened to $1.3917, from $1.3955 yesterday. Investors have abandoned bets that the EUR would appreciate further after the common European currency failed to strengthen beyond $1.40.

JPY - The Yen Tumbles Versus the Major Currencies

The Japanese Yen weakened against all 16 major currencies after U.S. economic reports added to signs the steepest global slump since World War II may be starting to end. The JPY remained low against the EUR for a third day as signs the global recession is easing spurred demand for higher-yielding assets. The currency weakened to 134.43 per EUR and fell to 96.58 per U.S. Dollar. The Yen declined the most versus the Australian and New Zealand Dollars after the World Bank said the Chinese economy will expand 7.2% this year, up from a previous forecast of 6.5%.

The Japanese currency is still headed for weekly gains versus the Dollar and the EUR after U.S. reports earlier this week showed confidence among homebuilders fell unexpectedly in June, and industrial production dropped for a seventh month in May, raising concerns that any recovery by the world's largest economy will take time. The Yen may continue to decline if there are more signs in the coming week that the global economic slump is dissipating.

Crude Oil - Crude Oil Rises on Positive U.S. Outlook

Crude Oil finished Thursday's volatile session 49 cents higher at $72.00 a barrel. The commodity was upbeat after economic data in the U.S. raised hopes for an economic recovery. Oil prices have nearly doubled since February on signs of a potential economic recovery. However, the pace of the rally has also sparked concerns that prices do not fully reflect improvements in Oil fundamentals, and costly Crude may hurt any nascent recovery.

Oil had risen above $72 this week on a weaker Dollar and militant attacks in Nigeria, Africa's biggest Oil producer, which disrupted supply. Investors have also pushed Oil higher by buying contracts as an inflation hedge to offset a decline in the Dollar. There is a reasonable possibility that the price of Crude will continue to rise in the coming weeks.

Article Source - Philly Fed Manufacturing Index Boosts Dollar
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Euro in Focus as German Producer Prices Stoke Deflation Expectations (Euro Open)

The Euro may see selling pressure in overnight trading with German Producer Prices set to fall -3.6% in the year to May, the largest decline in 22 years, stoking expectations that the Euro Zone’s largest economy will help drag the currency bloc into deflation, containing economic growth.

Key Overnight Developments

• Meeting Minutes Show BOJ Remains Uncertain About Domestic, Global Economy
• Euro, British Pound Range-Bound Against US Dollar in Overnight Trading

Critical Levels



The Euro consolidated in a narrow 40-pip range in overnight trading, oscillating around the 1.39 level. The British Pound followed suit, trading sideways in a 100-pip band above 1.63.

Asia Session Highlights



Minutes from the last meeting of the Bank of Japan revealed policymakers are far from optimistic about the world’s second largest economy. On exports, the BOJ stated that overseas sales are expected to “level out…mainly due to progress in adjustments in local inventories,” meaning the bank sees little chance of a meaningful rebound in global demand for the time being. On private consumption, the BOJ said spending was “likely to remain relatively weak…as the employment and income situation [becomes] increasingly severe,” chalking up the recent uptick in consumer confidence to “various demand-boosting policy measures” (i.e. government handouts). On the financial markets, the bank acknowledged that “there had been some easing of tension” but maintained that conditions remain tight, saying that “the stimulative effects from [monetary easing] had been limited.” On balance, the BOJ concluded that “the outlook [for Japan going forward] was attended by a significant level of uncertainty, given that economic activity was likely to be strongly affected by developments in overseas economies and global financial markets.”

Euro Session: What to Expect



German Producer Prices are set to fall -3.6% in the year to May, the largest decline in 22 years. The reading foreshadows continued downward pressure on consumer inflation as cheaper wholesale prices are passed on via a lower final price tag. German CPI came to a standstill in May and is poised to head into negative territory from here. The onset of deflation in the Euro Zone’s largest economy is all but certain to take region-wide inflation along the same trajectory, threatening to commit the currency bloc to a long-term period of subpar economic growth as consumers and businesses are encouraged to wait for the best possible bargain and perpetually delay spending and investment.

As we noted last week, the present situation argues 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 substantially lag behind other industrial economies in recovering from the current downturn, forcing interest rates to stay lower for longer than elsewhere.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro in Focus as German Producer Prices Stoke Deflation Expectations (Euro Open)
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Risk Appetite Weighed by Forecasts for Recession, Looming Financial Risks

• Risk Appetite Weighed by Forecasts for Recession, Looming Financial Risks
• Financial Leaders Defer the Government’s Withdrawal From the Market at G8 Meeting
• US Banks Suffer Downgrades, European Officials Refuse Stress Test

The market finally saw its steady rise in optimism knocked off track this past week. After such a heady buildup in sentiment, it took the collective influence of dreary growth projections, growing financial troubles and the G8’s refusal to cater to investors’ sentiment-fueled rally to win a temporary break in risk appetite. However, the general bias has not changed. Risk appetite retains the positive bias that has encouraged speculative funds back into the market for nearly four months now. The current period of indecision instead offers an opportunity for fundamentals to truly catch up to price action. Looking across the more popular measures of risk appetite, we have seen the Dow Jones Industrial Average drop below the floor of the 8,600-8,850 range that had equities sidetracked for nearly two weeks. More attuned to the growth forecasts derived from positive sentiment, commodities put in for their biggest correction since late April. Even the more sensitive credit market gauges deteriorated despite the government’s steadfast liquidity and guarantees. Credit default swap premiums have risen more than 17 percent in the past week. How has this shift in attitude presented itself in currencies? The Carry Trade Index has violated its stable rising trend and marked a double top with the peak set at the beginning of this month. With risk reversals and yield forecasts turning lower, the scales of risk and reward seem to be once again shifting.

While they have taken a back seat to sentiment in the past few months, fundamentals have always been there for market participants scrutiny. And, a critical look at the growth forecasts and burgeoning financial troubles at eye level certainly do not support a rabid redistribution of capital into risk assets. This past week, the headline event was the two day G8 summit in Lecce, Italy. Rhetoric from the Finance Ministers was generally mixed; but the official statement maintained a cautious tone. Growth was deemed the top priority; and considerations for the government’s exit strategy was deferred to a later date. Record budget deficits no doubt present a significant long-term problem for individual economies; but they also support an economic recovery in the near-term. This is an important point considering the IMF forecasts the global economy to see its first contraction (1.3 percent) since the Great Depression and there are numerous financial concerns that could quickly escalate into crises. An ongoing risk to the world’s financial markets is the health of US banks. Just this past week, Standard & Poor’s downgraded 22 American banks – seven of which were TARP recipients. And, despite the lingering risks with liquidity and future earnings, nine of the 19 banks that were put through the stress test paid back a total of $68 billion of their government loans. The trouble isn’t isolated to the US though. European officials refuse to perform a stress test on their own banks even though the ECB has forecasted another $283 billion writedowns this year (the IMF projects $904 billion).

Written by John Kicklighter, Currency Strategist
Article Source - Risk Appetite Weighed by Forecasts for Recession, Looming Financial Risks
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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!