6.26.2009

Ben Bernanke Speech to Continue Dominating Dollar Volatility Today

The Dollar is set to continue its volatility today, as the market continues to act on yesterday's critical speech of U.S. Federal Reserve Chairman Ben Bernanke. Additionally, traders will continue intensive Dollar trading, as they take into account that U.S. Interest Rates will stay at 0.25%, lower than most industrialized nations. Furthermore, a bullish stock market today could be an additional factor that may add to the forex market's volatility, and possibly push down the USD.



USD - USD Slides on Poor Unemployment Claims Figures

The U.S Dollar fell against most of its major currencies pairs yesterday. It was dragged lower by an unexpected rise in weekly U.S. jobless claims that dimmed the economic picture in the U.S. The USD was also pushed lower by Federal Reserve Chairman Ben Bernanke's testimony, as he was put on the defensive due to recent controversial U.S. bank acquisitions.

By Thursday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.4043. The Dollar experienced similar behavior against the JPY for most of the day. However, the greenback recovered slightly to finish trading higher at 95.70.

Initial claims for state unemployment insurance increased by 15,000, to a higher-than-expected seasonally adjusted 627,000, a reminder that companies will keep cutting staff, even as the U.S. economy stabilizes. However, recent data shows that some areas of the economy, such as housing and manufacturing, are seeing a smaller pace of decline, consistent with the Federal Reserve's projection that the slump is “slowing.” Companies are unlikely to hire until there are sustained gains in demand, meaning a recovery remains dependent on the effectiveness of government stimulus efforts.

Looking ahead to today, there are several news releases coming out of the U.S. These include the Personal Spending and Revised UoM Consumer Sentiment at 12.30 GMT and 13:55 GMT respectively. Better-than-expected results may help the USD recover some of yesterday's losses against the EUR and CHF. On the other hand, if the results turn out to be lower than forecast, then the USD may record a bearish session in today's trading.

EUR - EUR Soars Against the Dollar

The 16 nation currency completed yesterday's trading session higher versus most major currencies. The EUR closed higher versus the JPY yesterday, and the pair closed at around the 134.70 level. The EUR also saw bullishness against the GBP as it jumped around 60 pips and closed at 0.8547.

The major economic event that came out of the Euro-Zone yesterday was the Industrial New Orders data release. Industrial orders in the Euro-Zone were unequivocally weak, plunging more than a third, year on year in April, a record decline led by falling demand for capital and intermediate goods. A slowdown in the decline in orders in March had raised hopes that the downturn was bottoming out, but the sharp fall in April signals that a recovery may take longer to start in earnest. Analysts believe the first quarter of this year was the low point of the Euro-Zone's recession.

Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the German Prelim CPI. 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 continue to bolster the EUR in the short-term.

JPY - Yen Experiences Mixed Result against the Major Currencies

The Yen completed yesterday's trading with mixed results versus the major currencies, on bets that the U.S. Federal Reserve and the European Central Banks' (ECB) efforts to stabilize the global economy will spur demand for higher-yielding assets. The JPY closed at 96.08 per USD from 96.20 yesterday.

Japan's consumer prices fell at a record pace in May, adding to signs that a return to deflation may hamper a rebound from the nation's worst recession. Bank of Japan Governor Masaaki Shirakawa said last week that price declines will accelerate through the middle of the fiscal year, as demand slackens and Crude Oil continues to trade lower than last year's record. Retailers are cutting prices to attract customers as falling wages and the worsening job outlook dampens spending.

Crude Oil - Crude Oil Reaches $70 a Barrel

Oil prices rose sharply to above $70 a barrel yesterday on renewed rebel attacks against Oil facilities in Nigeria, and worries that a glitch at the largest U.S. Oil refinery could tighten gasoline stockpiles during this summer's driving season. Crude Oil also got a lift from a rally on Wall Street fueled by optimism that the recession was easing, a prospect that could spell a recovery in ailing world energy demand.

Looking ahead, traders are advised to watch carefully at the leading stock markets and the major economic indicators which will be published from the U.S. and Euro-Zone in order to predict the upcoming movements in Oil prices. Nevertheless, in case the USD continues to weaken as it has lately, Oil at $75 a barrel seems like a very realistic target for next week.

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Euro Selling Possible as German Inflation Shrinks For the First Time in 23 Years (Euro Open)

The Euro may see selling pressure ahead as preliminary estimates of Germany’s Consumer Price Index show that the annual inflation rate shrank for the first time in over two decades in June, threatening the Euro Zone’s largest economy and the region as a whole with the onset of deflation.

Key Overnight Developments

• New Zealand’s Economy Shrank More than Forecast in First Quarter
• Japanese Annual Inflation Rate Falls Most in Seven Years in May
• US Dollar Lower as Stock Exchanges Advance in Asian Trading

Critical Levels



The Euro advanced in overnight trading, adding 0.4% against the US Dollar to test as high as 1.4047. The British Pound followed suit, testing as high as 1.6444. The greenback saw selling pressure as Asian stock exchanges gained on news that US GDP shrank less than expected in the first quarter.

Asia Session Highlights




New Zealand’s Gross Domestic Product shrank more than economists expected in the first quarter to reveal the economy was contracting at an annual pace of -2.7%, the most in over three decades. The result marks that fifth consecutive quarter of negative growth for the smaller antipodean nation. Although RBNZ Governor Alan Bollard has said that economic growth will pick up by the end of this year and chose to leave interest rates unchanged at 2.5% earlier this month for the first time since June 2008, additional easing seems likely to jolt the economy back to life especially since the soaring public deficit has seen Prime Minister John Key’s government abandon a hefty portion of the fiscal stimulus measures that had been included in the latest budget. Bollard conceded that “modest” interest rate reductions may be on tap “in the coming quarters” and reiterated that policymakers "expect to keep [rates] at or below the current level through the latter part of 2010." Still, overnight index swaps price in only a 22% probability of additional easing at the next RBNZ policy meeting in July and 50-75 basis points in tightening over the next 12 months.

In Japan, May’s Consumer Price Index report revealed that inflation fell at an annual pace of -1.1%, the largest decline since April 2002 and just a hair off the record low at -1.6%. Deflation looks set become entrenched once more in the world’s second-largest economy, keeping a lid on a meaningful rebound in economic activity as consumers and businesses are encouraged to wait for the best possible bargain and perpetually delay spending and investment.

Euro Session: What to Expect



Preliminary estimates of Germany’s Consumer Price Index are expected to show that the annual inflation rate fell to -0.1% in June, the first reading in negative territory in 23 years. We had noted the likelihood of such an outcome last week as Producer Prices were set to tumble to a similar low. 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 have argued previously, the present situation argues for a far more forceful monetary response than anything that has been introduced by the European Central Bank thus far, a view that is apparently shared by the OECD. Even so, recent comments from ECB officials have stressed that rates at 1% are “appropriate” for the time being and quantitative easing will be difficult to expand beyond the modest measures announced earlier this month given the internal conflict about the merit of such policies within the central bank. This opens the door for traders to punish the Euro in the weeks and months ahead 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.

In Switzerland, the KOF Swiss Leading Indicator is expected to rebound to -1.75 in June from a record low at -1.86 recorded in April and May. The measure is a composite of six leading metrics from the industrial, retail and wholesale sectors and is designed to project the direction of economic growth in the coming six to nine months. The minor upswing implies that the economy will continue to shrink at least through 2009, albeit at a slightly slower pace. The Swiss National Bank has forecast that the economy could contract as much as 3% this year, the most since 1975.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Selling Possible as German Inflation Shrinks For the First Time in 23 Years (Euro Open)
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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!