USD - Dollar Plummets as Wall Street Rallies
The Dollar plummeted against the major currencies on Monday, as Wall Street rallied. The bullishness in the U.S. stock market also spread to Britain and the Euro-Zone. The Dow Jones rose by over 1%, while the S&P extended its best rally since 1998. Amongst the biggest gainers were banking stocks. The bullish stock market led to a fall in the Dollar across the board, as traders ditched the safe-haven USD for riskier assets in Monday's trading. This was exasperated due to traders wishing to further their profits in stocks as the quarter comes to an end.
The USD slipped about 80 pips vs. the EUR to finish trading at 1.4115. This was helped as Euro-Zone economic confidence increased more than expected this month. The Dollar's behavior was much the same against the Pound, as the GBP/USD pair rose 160 pips to the 1.6634 level. The GBP's strength may have been owed to its dependence on U.S. economic optimism. However, against the JPY the greenback extended its rally for the second day, as investors dropped the "ultra" safe-haven Yen for the "less" safe-haven USD.
Looking ahead today, there is plenty of economic news that is likely to help determine the volatility in the forex market. The releases from the U.S. are set to be the key to today. Traders are advised to pay attention to the Chicago PMI at 13:45 GMT and CB Consumer Confidence at 14:00 GMT. It is also advisable to follow the direction of the equity market, as this could be a key factor in determining the Dollar's strength later.
EUR - GBP Boosted by U.S. Optimism
The Pound recorded a volatile, but bullish trading session yesterday against its major crosses, as it benefited from the optimism from the U.S. The rally in the British stock market was encouraged by Wall Street's rally. What has been much of a pattern recently has seen the Pound rising whenever equities make significant gains in the U.S. and Britain. This may be explained by Britain's dependence on the financial sector. With this sector doing well yesterday in the equities market lent the Pound a boost, helping us understand much of the behavior of the cable.
Both the GBP and EUR posted gains against the USD and JPY. The EUR/GBP was
32 pips lower at 0.8482. It seems that if global economies continue to prove, then we may see this pair continue to approach the 0.8400 level in the short-medium term.
The EUR was also helped yesterday by strong economic confidence figures from the Euro-Zone. This is a further signal that the economic situation in the Euro-Zone isn't as dire as some analysts originally forecast.
Today, there is plenty of data coming out of Britain and the Euro-Zone that is likely to determine the GBP and EUR crosses in today's trading against the major currencies. From Britain there is the release of the Nationwide HPI at 6:00 GMT and Current Account and GDP data at 8:30 GMT. From the Euro-Zone there is the publication of German Unemployment Change figures at 7:55 GMT and the CPI Flash Estimate at 9:00 GMT.
JPY - JPY Tumbles on Waning Safe-Haven Status
The Japanese Yen tumbled on Monday, as the Japanese and global equities recorded significant gains. Investors also lost confidence in the JPY yesterday, as Japan released figures showing that unemployment is at a 5-year high of 5.2%. Japan's government fears it will hit 6% by mid-2010. Much of the JPY's weakness is due to
traders dropping the safe-haven JPY for more risky assets. As of late, this seems to be equities and commodities.
The Yen slid for a second day against the USD by about 50 pips to 95.92. The EUR/JPY cross slipped to135.38 from 133.90. Against the GBP, the Yen slipped 235
pips to 159.63. The Yen's volatile movement is set to continue in today's trading. Later today, this will be even more so with the release of the important Japanese Tankan Manufacturing Index and Tankan Non-Manufacturing Index at 23:50 GMT.
Crude Oil - Crude Oil Surges Past $72 a Barrel
The price of Crude Oil surged passed $72 a barrel yesterday, rising an astonishing $4
to $72.68. This was fueled by 3 dominant factors. Firstly, there was yet another rebel attack in Nigeria, forcing the Shell Oil Company to close one of its refineries yesterday. Additionally, there was a bullish U.S. and European stock market session, leading to a boom in commodities, as investors sold-off safe-haven assets such as the U.S. Dollar.
Yesterday's gains came on the back of some bearishness in Crude in recent days, as the commodity failed to hold above $70 a barrel. Recent reports by the International Energy Agency revealed that demand will wane for the foreseeable future. However, OPEC is unlikely to cut supply in their next meeting in September. If there are more positive economic signs from the U.S. in the next 2 days, then Crude could hit $75 by the end of the week.
Article Source - Rally in Equities Pushes Investors to Riskier Assets
Key Overnight Developments
• Japanese Economy Sheds 440k Jobs, Unemployment Rate Rises
• Australian Lending to Private Sector Unexpectedly Fell in May
• US Dollar Slumps as Stocks Extend Gains in Asian Trading
The Euro and the British Pound advanced in overnight trading, adding as much as 0.4% and 0.6% against the US Dollar, respectively. The greenback fell in overnight trading as Asian stock markets extended the rally seen on European and US exchanges, sapping demand for safety-linked currencies.
Asia Session Highlights
Japan’s labor market continued to deteriorate in May: the economy shed a staggering 440k jobs, pushing the Jobless Rate to 5.2%, the highest in over 5 years. Meanwhile, the ratio of available vacancies to job-seekers fell to 0.44, the lowest since records began in 1963. Continued job losses will weigh on disposable incomes and trimming spending. Indeed, retail trade came to a standstill in May while minutes from the last meeting of the Bank of Japan has said that consumption is likely to remain weak as the “employment and income situation becomes increasingly severe.” While Household Spending unexpectedly rose 0.3%, the first increase in 15 months, the improvement is unlikely to be sustainable and likely owes to the temporary boost from the government’s record-setting $25 trillion yen stimulus package as well as the rebound in share prices (the Nikkei benchmark index has surged 42% to date since early March).
Separately, the Nomura/JMMA Manufacturing PMI figure rose for the fifth consecutive month in June, printing at 48.2. A reading below the 50 “boom-bust” level that suggests the manufacturing sector continues to decline, but at the slowest pace since January. It is quite telling that companies continue to cut jobs even as PMI figures improve, suggesting any improvements in recent data owe to inventory adjustments rather than a meaningful recovery. The dismal outlook for global trade in 2009 and 2010 means that export-oriented Japanese firms are likely to keep output level low and labor forces lean, making any sustainable rebound in GDP growth a distant prospect for the world’s second-largest economy.
Australia’s Private Sector Credit unexpectedly shrank in May, falling -0.1% versus forecasts of a 0.2% expansion. The annual pace of credit growth fell to 3.9%, the lowest in over 15 years. Loans to businesses fell -0.7%, the most since December 2008, hinting that companies are delaying expansion plans and suggesting that unemployment will remain a concern in the months ahead. Indeed, a survey of economists conducted by Bloomberg calls for the jobless rate to hit 5.9% this year and top 7% in 2010.
Euro Session: What to Expect
The final revision of UK Gross Domestic Product is expected to reveal the economy shrank -2.1% through the first quarter, a greater contraction than the originally-reported -1.9% decline. In annual terms, GDP is expected to have shrunk at a pace of -4.3%, the fastest in at least 53 years. The most recent GDP forecast from NIESR, a think tank, suggested the turmoil may slow in the second quarter of the year, predicting that March was “the trough of the depression, with output rising in April and May.” A validation of such an outlook in the forthcoming data would surely lift a great deal of pressure from the shoulders of policymakers who have effectively exhausted most stimulus options. Indeed, the government is unlikely to offer much more of a boost with the fiscal gap expected to reach a whopping 14% of GDP by next year, while the central bank has already slashed rates to a meager 0.5% and embarked on quantitative easing. On balance, consensus economic growth forecasts suggest that the UK will trail behind the US but outpace the Euro Zone through the end of 2010, suggesting the Bank of England will follow the Fed but lead the ECB in lifting interest rates as the recovery takes hold. All told, this points to a bearish bias for both GBPUSD and EURGBP in the months ahead.
Turning to the Euro Zone, a preliminary estimate of the Consumer Price Index is expected to show that prices shrank at an annual pace of -0.2% in June, the first negative reading on record since the creation of the single currency in 1991. The latest PPI report supports continued pressure on consumer prices, with forecasts calling for wholesale inflation to shed -5.6% in the year to May. Entrenching expectations of lower prices threatens to commit the currency bloc to a long-term period of stagnation as consumers and businesses are encouraged to wait for the best possible bargain and perpetually delay spending and investment. German labor-market figures are also on tap, with expectations calling for the EZ’s largest economy to shed 45k jobs in June to push the Unemployment Rate back to a 16-month high at 8.3% after the metric slipped to 8.2% in the previous month. Job losses will weigh on consumer spending, the largest contributor to overall economic growth, keeping a lid on any substantive recovery in GDP growth in the months ahead. The prospect of deepening recession and an increasingly credible deflationary threat have boosted expectations that the European Central Bank will cut interest rates later this week, with overnight index swaps suggesting the market now sees a 56.5% chance of a 0.25% reduction.
Rounding out the session, the UBS Consumption Indicator that aims to forecast the trend in private spending in the coming 3-4 months is likely to fall to a fresh 4-year low in May as the pace of unemployment continues to push higher, ticking up to a seasonally-adjusted rate of 3.5% in the same period for the first time since March 2006.
Written by Ilya Spivak, Currency Analyst
Euro, British Pound Gains Threatened with Key GDP, CPI Data on Tap (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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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.
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Why to trade on Forex?
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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!