USD - Dollar to Go Bullish on Weak Equity Market
The encouraging homes sales and manufacturing figures from the U.S. last Thursday helped boost confidence in the USD against the EUR. However, the bearish equity markets drove the USD higher last Friday. The GBP/USD began Friday's trading at 1.6337, whereas now the pair is trading at the 1.6472 level. Additionally, the EUR/USD pair was trading as high as the 1.4000 on Friday, and it now trades at the 1.3915 level. This behavior signals some of the high volatility that the forex market has been experiencing recently.
Last Thursday's poor unemployment figures and the first weekly U.S. equity market loss in a month are likely to play a key role in U.S. trading today and for the week ahead. Traders are advised to follow news surrounding President Obama's economic reforms as well. Furthermore, traders should pay attention to economic news coming out of the Euro-Zone and Britain, as these factors will help determine the USD's strength against its major currency crosses.
When looking ahead to this week, we can say that there is plenty of economic data that will affect the USD. This includes Existing Home Sales, the FOMC's statement, the Federal Funds Rate, and Unemployment Claims. Additionally, the Dollar may go bullish if the equity market continues to fall rapidly, due to traders possibly flocking to the USD as a safe-haven. Furthermore, on Thursday U.S. Final GDP figures at 12:30 GMT are likely to play in the mind of traders' confidence in the Dollar later on this week.
EUR - EUR Weighed Down By Euro-Zone Banking Woes
Despite the EUR/USD rate reaching as high as 1.3982 last week, it now stands at 1.3910. This comes about as the U.S. economy is currently healthier than Europe. The British economy has also been fairing well, as the EUR/GBP rate opened at 0.8536 last Thursday. However, it now stands at 0.8445, indicating a loss in confidence for the EUR since the commencement of Thursday's trading.
As the U.S. economy leads the world in rising out of recession, the Euro-Zone isn't so far away. Nevertheless, they have a banking system which needs radical U.S.-style reforms. This was one of the main reasons for the unstable and at times weak EUR in last week's trading. This came about in response to the European Central Bank (ECB) warning that banks in the Euro-Zone may face up to $300 billion of losses by the end of 2010.
Analysts foresee a possible EUR sell-off for the beginning of the week. However, this process could reverse as the week goes by. Today, there is some important news coming out of the Euro-Zone. This includes the German Ifo Business Climate data at 8:00 GMT and ECB President Jean-Claude Trichet's speech at 12:00 GMT. There is also much data coming out of the Euro-Zone throughout the days ahead. Therefore, the EUR will likely be a key player in the forex market this week.
JPY - Yen to Dominate Forex Trading This Week
As Japan's economy is expected to rise out of the recession faster than many analysts anticipated, we have seen some renewed strength last week for the JPY, especially vs. the USD. The reasons for this behavior are varied. However, mixed economic data releases from the U.S. does play a role in this, such as weak unemployment and inflation figures for the U.S. economy. The USD/JPY rate was as high as 97.76 last week, and is currently trading lower at 95.97
Due to the important data coming out of Japan's economy in the days ahead, there is the potential for great volatility in the JPY. A number of figures, including the CSPI report, Japanese trade balance, Tokyo Core CPI, and All Industries Activity data are to be published this week. These will assist forex traders in getting a feel of what health the Japanese economy is in. It is reasonable to say that the JPY will have a key role in dominating forex trading this week.
Crude Oil - Crude Oil to Hit $75 a Barrel?
Crude Oil managed to hold above $70 a barrel for most of last week. This was owed to a variety of factors, such as China and Japan's economies improving faster than originally forecast. In fact, Crude prices reached a near-9-month high last week at just over $73.20 a barrel. This was despite fears that demand for the black gold was dissipating. Top U.S. banks, such as Goldman Sachs, upgraded their forecasts for Crude Oil. They are beginning to anticipate black gold hitting $85 a barrel by year's end.
There were, however, arguments from the other side, implicating that demand would be unable to keep up with the current price of Crude. However, since the latter half of last week, the former argument has had more strength. Trading on Friday did see Oil drop by nearly $2 a barrel to near the $70 mark, possibly owing to the bullish USD at the end of trading last Friday. If the U.S. continues to publish predominantly positive economic news, it isn't far off to say that we may see Crude hit $75 relatively soon.
Article Source - Traders Anticipate Heavy News this Week in Forex
Key Overnight Developments
• Japanese Merchant and Industry Sentiment Rises But Outlook Remains Dour
• World Bank Cuts Economic Growth Forecast, Says Risk Aversion to Continue
The Euro trended lower in the overnight session, losing as much as -0.6% to the US dollar. The British Pound tested as low as 1.6447 but rebounded to stand relatively unchanged ahead of the opening bell in Europe.
Asia Session Highlights
Japan’s Tertiary Index rose 2.2% in April following a -2.8% decline in the previous month. Although an improvement in percentage terms, the result would still puts merchant sentiment at the lowest level in 5 years and firmly within the downward trajectory that has held since the index topped out in August 2007. Meanwhile, the Ministry of Finance’s BSI Large All Industry gauge of business confidence printed at -22.0 in the second quarter, rebounding from a record low at -51.3 registered in the three months to March.
Current signs of stabilization in business and consumer confidence likely owe to the government’s record-setting $25 trillion yen stimulus package as well as the rebound in share prices (the Nikkei benchmark index has surged 39.4% to date since early March). Looking ahead however, the outlook seems 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. Minutes from the last Bank of Japan policy meeting saw policymakers note that exports will “level out” due to inventory adjustments, meaning little chance of a meaningful rebound in global demand, while private consumption will “remain relatively weak…as the employment and income situation [becomes] increasingly severe.”
The World Bank cut its economic growth forecast, saying global GDP will shrink -2.9% in 2009 versus forecasts of a -1.7% decline reported in March. The forecast for 2010 was also lowered, with the Bank calling for the world economy to add 2% versus previous estimates of a 2.3% expansion. Global trade volumes are now expected to fall -9.7% in 2009 versus March’s -6.1% contraction. The report accompanying the revisions said that “While the global economy is projected to begin expanding once again in the second half of 2009, the recovery is expected to be much more subdued than might normally be the case.” Bank President Robert Zoellick and company also seem to think that risk aversion remains a factor in financial markets, saying “investors’ flight from perceived danger [is a] trend that is very likely to persist through the end of 2009.” Such a dynamic stands to benefit safety-linked currencies, particularly the US Dollar and the Japanese Yen.
Euro Session: What to Expect
Germany’s IFO Business Climate indicator is expected to rise to 85.0 in June, the third consecutive improvement since the metric hit a record low at 82.2 in March. The forward-looking Expectations component of the survey is seen rising for the seventh straight month, hinting at sustainable improvement in firms’ 6-month economic outlook. Still, the reading is expected at 86.9, a print below the 100 “boom-bust” threshold, suggesting conditions are still deteriorating albeit at a gentler pace. Some recovery is to be expected as the government’s 82 billion euro fiscal boost filters into the broad economy, but the big question in Germany as well as most anywhere at this stage is whether growth is sustainable after stimulus cash dries up.
On a comparative basis, the pace of GDP expansion in Germany is expected to underperform that of the US by 3.2% and 1.5% in 2009 and 2010, respectively. Looking at the Euro Zone as a whole, the currency bloc is set to trail the States by 1.5% over the next two years. This suggests the US will lead its European counterparts in unwinding fiscal and monetary stimulus measures and, most importantly, lead in reversing higher the trajectory of benchmark interest rates. Indeed, overnight index swaps reveal traders are pricing in the likelihood that the Fed will raise interest rates by 1.00 – 1.25% over the next 12 months as compared to 0.25 – 0.50% expected from the ECB, arguing for a yield shift in favor of the US Dollar that will put downward pressure on EURUSD.
Written by Ilya Spivak, Currency Analyst
Article Source - Euro May Rise on German IFO Gains But Overall Outlook Remains Bearish (Euro Open)
What is Forex?
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.
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