7.06.2009

G8 Meeting to Spur Forex Market Volatility

At the beginning of this week, the forex market appears flatter than usual. Most currencies have leveled off and there appears to be quite a few consolidation trends on the technical charts. No doubt this pressure is building up towards this week's G8 meeting in which the world's financial leaders will discuss economic recovery plans. The participants typically reveal the summit's main talking points to reporters throughout the various meetings which start this Wednesday in L'Aquila, Italy, and the impacts vary depending on the statements.



USD - USD Loses Momentum Ahead of G8 Meeting

The U.S Dollar dipped against the EUR on Friday, reversing some of its sharp gains the previous session following weak U.S. jobs data. On Thursday, data showed the U.S. economy lost a much greater than expected 467,000 jobs in June, pointing to a long, slow economic recovery and causing market sentiment to sour.

Gains in the greenback were also tempered after Russia and India said the global economy is too dependent on the U.S. currency and called for revisions in how $6.5 trillion in foreign-exchange reserves are managed. The impact has been mixed, but the market still appears dollar-positive.

Trading has been extremely thin, due to the U.S. Independence Day holiday, with most major currency pairs staying within very tight ranges. This week, investors will likely focus on the Group of Eight (G8) meeting on July 8-10 for any further debate on currency diversification plans. This may cause the U.S Dollar to come under further weakness this week.

EUR - EUR Recovers Modestly after Thursday's Sharp Fall

The EUR edged higher against the Dollar on Friday, correcting after sharp falls during the late hours of the previous session in the wake of bleak U.S. jobs numbers which dampened hopes for a global economic recovery. Trade was quiet, however, with U.S. markets closed for a public holiday.

The EUR reacted little to the weaker than forecasted Euro-Zone retail sales data and a slight upward revision to the purchasing managers' survey for services in the region. Despite the EUR recovery, the common currency stayed well below a 1-month high above $1.4200 hit earlier in the week, with some analysts saying any gains are likely to be limited due to concerns about the sustainability of any economic improvement.

The European currency has declined for a 3rd day versus the Yen, the longest stretch in 7 weeks. The EUR fell after Russian President Dmitry Medvedev said the world is too reliant on the Euro-Zone currency, damping the appeal of European assets. Also, Germany's IKB Deutsche Industriebank AG said it lost 580 million EUR ($810 million) in the fiscal year ending March 31st as the value of its investments fell. The news is a reminder there are still financial problems in Europe that imply the region may not be so safe, and that may be negative for the EUR, analysts have said.

JPY - Yen Strengthens vs. EUR, Most in 7 Weeks

The Japanese Yen strengthened against the EUR and the Dollar on concern credit market losses will keep increasing in Europe and the U.S., spurring demand for the relative safety of Japan's currency. The Yen strengthened to 133.46 EUR from 134.26 last week, after rising to 133.30, the highest level since June 25th. The currency also rose to 95.39 per Dollar from 96.04. The JPY gained versus all of the 16 most-active currencies as Asian stocks declined, prompting investors to cut holdings of higher-yielding assets.

However, the JPY's gains may be curbed after North Korea test fired its short-range missiles on July 4th, spurring condemnations from the U.S., South Korea and Japan. Analyst said that as long as North Korea is launching short-range missiles that can't reach the territory of Japan, this geopolitical news which often weighs on the Yen, will not affect the price action. Traders said that the key for the financial market is positioning ahead of the G8 summit. The U.S Dollar may come under further weakness this week, and this could support the Yen a little bit higher as well.

Crude Oil - Oil Falls on Firmer U.S Dollar

Crude Oil prices fell as the U.S Dollar climbed against the EUR, limiting investor appetite for assets to hedge against inflation. A rising Dollar usually reduces the attraction of raw materials such as oil. Crude Oil fell to the lowest in 5 weeks, to $64.93 a barrel on a stronger USD and speculation U.S. fuel inventories will increase as the recession curbs demand in the world's biggest energy-consuming country.

The Organization of the Petroleum Exporting Countries (OPEC) has said prices needed to be around $75 to spur investment and it has lowered its output targets by 4.2 million barrels per day since last September to try to support the market. The Oil minister of Kuwait, the 6th biggest producer of the OPEC producers, said yesterday that he wants to see oil prices stay above $60 a barrel and will watch the market closely before deciding on its output at OPEC's meeting in September.

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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!