6.24.2009

US Federal Funds Rate to Drive the Market Today

The market is expected to be very volatile today, as the U.S. announces the Federal Funds Rate at 18:15 GMT, which specifies U.S. Interest rates. The other factor that which is set to affect both the USD and Crude Oil is the publication of the U.S. Crude Oil Inventories at 14:30 GMT. In order for traders to start making profits today, it is recommended that they open their USD and Crude Oil positions as the trading day gets under way.



USD - USD Under Pressure Ahead of Interest Rate Announcement

The U.S. Dollar went bearish against most major currencies on Tuesday, as uncertainty ahead of today's Federal Funds Rate announcement put the USD under strong selling pressure. The greenback fell the most in 2 weeks against the EUR as European Central Bank (ECB) council member Axel Weber said policy makers have already used up their room to cut borrowing costs, indicating the Euro-Zone's Benchmark Rate will stay higher than the equivalent U.S. rate

The Dollar did rise against the Yen, to finish trading at the 95.54 level. This was despite U.S. data showing sales of previously owned homes in the United States rose less than expected in May. However, the Yen's losses may have been extended in late trading due to mixed data from Japan's economy.

Today, the Federal Open Market Committee (FOMC) is widely expected to leave its fed funds Rate target in a range of 0% to 0.25%. Investors will be watching to see whether the Federal Reserve unveils any changes to its Treasury and mortgage asset-purchase program to further boost liquidity.

The U.S Dollar has come under pressure in recent weeks as more upbeat U.S. economic data fueled hopes that a global economic recovery was on track. The USD may extend its declines after this week's Federal policy meeting, according to analysts.

EUR - EUR Rises to a 2 Week High vs. the USD

The EUR rose 1.6% against the Dollar to $1.4075 in late afternoon trading yesterday, after hitting a session peak of $1.4109. It was the biggest one-day percentage gain since May 8. The EUR also gained 0.9% against the Japanese Yen to finish trading at the 134.61 level.

Investors were also buying the EUR ahead of the European Central Bank's (ECB) first-ever one-year refinancing operation on Wednesday, aimed at encouraging banks to lend again. The European currency also rose against the British Pound to 0.8557 yesterday by the most in almost 3 weeks after Bank of England (BoE) Chief Economist Spencer Dale said a weaker currency was a key channel to spur economic growth.

Markets will be watching for the Federal Reserve's outcome today, as low Interest Rates would hurt the Dollar, and any move to expand the Fed's $300 billion Treasury buying program to keep long rates low could raise inflation concerns, undermining foreign appetite for U.S. assets.

JPY - Yen Falls against the USD on Economic Concerns

The Japanese currency fell sharply on Tuesday, falling against most of its major currency pairs, tumbling from creeping doubts about the sustainability of any economic recovery. The JPY fell 0.3% vs. the greenback to 95.54 Yen. The JPY also slipped against the EUR by over 250 pips to 134.61 Yen, as investors continued to cut bets on low-yielding assets, and sold-off the Yen against other major currencies.

Traders were also cautious ahead of a U.S. Federal Reserve policy decision on Wednesday, and this week's record $104 billion sale of U.S. debt. This has meant that renewed concerns about the global economy have actually fed through more into a weaker Yen than a weaker Dollar, analysts said.

Crude Oil - Crude Oil Inventories Data to Drive Oil Trading Today

Crude Oil prices rose nearly 4% on Tuesday to $68.59, as the U.S Dollar weakened and disruptions from OPEC member Nigeria stoked supply concerns. Crude prices also rose on expectations that Crude Oil Inventories in the U.S., the world's biggest consumer of Oil have fallen. Oil rose yesterday as the U.S. currency slipped the most in 2 weeks against the EUR on speculation that the Federal Reserve will temper expectations of an Interest Rate increase this year.

Inventories expectations and the weak Dollar are helping Crude Oil, analysts said. Commodities' trading was choppy with all the news ahead, such as inventories and the Federal Reserve's decision later today. Analysts expect the data to show U.S. commercial Crude stocks dropped 1.2 million barrels, according to a survey of analysts. Traders are also awaiting the Federal Reserve's statement at the end of its two-day meeting later today.

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Forex Markets Range-Bound, Looking to FOMC to Guide Risk Sentiment (Euro Open)

Forex markets traded in narrow ranges in the overnight session as traders saw past the immediate data docket, looking for tomorrow’s FOMC policy announcement to guide risk sentiment and set the directional bias for the US Dollar and major currencies. May’s OECD Economic Activity Outlook for the Euro Zone may shake things up ahead if it mirrors the World Bank’s recent pessimism.

Key Overnight Developments

• Japan’s Trade Surplus Swells as Drop in Imports Tops Expectations
• US Dollar Range-Bound as Forex Market Eyes FOMC Announcement

Critical Levels



The Euro kept to a narrow 40-pip range in the overnight session, oscillating below 1.41. The British Pound followed suit, trading in a 50-pip band above 1.6420.

Asia Session Highlights



Japan’s Merchandise Trade Balance grew more than economists expected, printing at 299.8 billion yen in May from 69 billion in the previous month. Forecasters were calling for a 210 billion yen result ahead of the release. Notably, the uptick in the headline figure came courtesy of a steep decline in inbound shipments that outpaced the drop in overseas sales, painting a grim picture of the spending climate in the world’s second largest economy. Imports fell -42.4% in the year to May, printing within a hair of the 22-year record drop of -43% registered in February. Looking ahead, the headline figure may continue to grow as companies acclimate to lower global demand. Minutes from the last Bank of Japan policy meeting saw policymakers note that exports will “level out…mainly due to progress in adjustments in local inventories” while consumption (including that of imported goods) remains weak as the “employment and income situation becomes increasingly severe.”

Euro Session: What to Expect



The Euro Zone Current Account deficit may narrow for the sixth consecutive month in April, but looking beyond the headline figure reveals a picture that is hardly encouraging for the currency bloc’s economic prospects. The trade portion of the metric released last week saw the deficit narrow more than economists expected and the capital side of the equation also seems supportive: Euro Zone countries’ stock exchanges rose 15.4% on average in April while benchmark 10-year bonds from Germany, France and Italy (the bloc’s top three economies) added an average of 2.3%.

That said, the improvement in the Euro area’s trade position came as the fall in imports (-2.7%) outpaced that of exports (-1.3%), an ominous sign that suggests home-grown spending is relatively weaker than overseas demand. Private consumption is the largest component of overall economic growth so the latest trade data may be hinting that the Euro Zone will lag behind its main trading partners in seeing a meaningful recovery from the current downturn.

This is not to say the Current Account deficit will necessarily continue to contract: support from capital flows may prove fleeting if risky assets reverse course as traders see stocks as overvalued relative to future earnings given the increasingly negative global growth outlook, sinking top European exchanges. May’s edition of the OECD Economic Activity Outlook may prove to be a near-term catalyst in this regard if the report mirrors the tone of last week’s World Bank forecast which downgraded their Euro Zone forecast to call for a -4.5% drop in GDP this year, an outlook that is nearly twice as worse as the Bank’s previous call for a -2.7% contraction reported in March. On balance, a survey of economists conducted by Bloomberg forecasts that the current account deficit will slice 1.5% off GDP in 2009, the most in 9 years, and take off another 1.2% in 2010.

Barring significant surprises in the upcoming economic data, near-term price action is likely to remain subdued in European hours as in the Asian session as traders look for tomorrow’s FOMC policy announcement to guide risk sentiment and set the directional bias for the US Dollar and major currencies.

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!