7.09.2009

USD Declines vs. The Yen On Economy Concern

The U.S dollar slid 0.8% against the Yen for a second day on speculation the G-8 leaders may question the greenback's status as the world's reserve currency. Leaders from the G-8 most-industrialized nations are meeting in Italy today to tackle shrinking economies and rising unemployment even after the U.S. pledged $12.8 trillion to end the recession.



USD - Greenback Retakes Ground Against the Japanese Yen

The U.S. dollar climbed broadly on Wednesday as risk aversion rose on uncertainty about the global economy and U.S. corporate earnings. The greenback was up 0.6% against the EUR at $1.3840, and advanced vs. the British pound to $1.6046 from $1.6072 yesterday when it fell to $1.5985, the lowest level since June 8.

The U.S dollar rallied after the Federal Reserve Chairman Ben Bernanke's speech yesterday, in which he stated that the central bank may extend its emergency-loan program for securities firms into next year, thus spurring confidence among investors. Another support for the USD was the unexpected drop in Oil prices. Crude Oil was traded in yesterday's session $6 lower than the previous day. The Dollar also found some support on Thursday as Japanese importers and investors, including retail investors, hunted bargains in foreign currencies.

However, the U.S. dollar fell more than 3% against the Japanese Yen yesterday to its lowest level since February, as investors continued to shun risk and unwind carry trades. The USD was last down 3.1% against the Yen at 91.99 yen after going as low as 91.82 yen. During Thursday's Asian session however, the U.S dollar has managed to reclaim some of the ground it lost against the Yen in the previous session.

EUR - The EUR Hits its Lowest in 6 Weeks Against the Yen

On Wednesday, the EUR saw mixed results versus most of its currency pair counterparts. The EUR underwent a bearish trend against the USD, declining close to a 100 pips. Against the Japanese yen on the EUR fell more than 3% yesterday to 127.95, its lowest since mid-May, as investors shunned risk and unwound carry trades.

The Sterling hit a 1 month low against the Dollar, extending its losses after weak industrial output data the previous day reinforced doubts about a UK recovery.
The British pound declined for a 5th day versus the U.S dollar, trading as low as $1.6048, on speculation the Bank of England will increase its asset-purchase program at a monetary-policy committee meeting tomorrow, boosting the supply of the U.K. currency.

The Bank of England will stick tomorrow with its current plan to spend as much as 125 billion pounds in newly printed money to boost the economy, according to economists' predictions. The GBP may fall to a 2 month low against the Yen in coming weeks after it dropped below a support level at 154.08 yen, according to analysts.

JPY - Yen Rallies the Most in 7 Months on Safety Demand

The Japanese yen hit its highest levels in more than 4 weeks against the Dollar on Wednesday as an uncertain outlook for the global economy curbed investors' risk appetite. The JPY advanced versus the EUR as concern U.S. corporate earnings will drop led traders to cancel bets Japan's currency would weaken as the global economy recovered.

The Yen typically rises during times of financial turmoil because Japan's trade surplus means the nation doesn't have to rely on overseas lenders. Japan's currency has climbed as much as 5.5% to 70.96 versus the Australian dollar, the biggest intraday advance since Feb. 10, and appreciated as much as 5.3% to 11.16 versus the rand on speculation the weak U.S. earnings outlook and a drop in stocks will reduce demand for higher-yielding assets.

OIL - Crude Down for 6 Day as U.S Data Raises Demand Concerns

Crude Oil prices declined more than 4% Wednesday to a 7 week low, falling for the 6th straight session, as U.S. oil inventories dropped 2.9 million barrels to 347.3 million last week, the lowest since January, an Energy Department report showed yesterday. The losing streak is the longest since the 6 sessions ended on Dec. 5. Crude has now slumped 14% this month, as investors question whether supply-and-demand fundamentals are sufficient to justify Oil's recent rally above $70 a barrel.

The Organization of the Petroleum Exporting Countries's (OPEC) 2009 World Oil Outlook added to the gloom as it said world demand for Oil may take years to recover from the slump in 2009 because of economic weakness and demand destruction.
The cartel said consumption of its crude would not return to 31 million barrels per day (bpd), the level it averaged in 2008, until 2013.

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British Pound in Play with Bank of England to Announce Interest Rates (Euro Open)

The interest rate decision from the Bank of England highlights the economic calendar in European hours, though any meaningful change in monetary policy seems unlikely this time around. German inflation and current account figures are also on tap.

Key Overnight Developments

• Australian Economy Sheds 21.4K Jobs, Unemployment Rate Rises
• US Dollar Retraces Lower as Stocks Tread Water in Asian Trading

Critical Levels



The Euro edged higher in overnight trading, retesting the 1.39 level. The British Pound followed suit, adding as much as -0.5% against the US Dollar. The greenback’s weakness seemed to be corrective after strong gains in NY-session trading and came in line with muted trading on Asian stock exchanges.

Asia Session Highlights



Australia’s economy shed 21,400 jobs in June, the most in a year, sending the Unemployment Rate to 5.8%, the highest since October 2003. Employers cut -21.9k full-positions while filling just 0.4k part-time vacancies. Continued labor market weakness is likely going forward as lackluster global demand weighs on sales of coal and iron ore, Australia’s top export commodities. Job losses will discourage consumption and hold back overall economic growth, bolstering economists’ expectations that GDP will shrink -0.5% in the second quarter after unexpectedly expanding in the three months to March. Although consumer confidence jumped to the highest level in 19 months in July according to Westpac Banking Corp, the improvement likely owed to the hefty A$12 billion fiscal stimulus package and sentiment could fall off sharply as the flow of government cash dries up. The Reserve Bank of Australia kept interest rates unchanged at 3% earlier this week but Governor Glenn Stevens noted that there is still “scope for further easing of monetary policy” as weakening demand for labor drives wages lower and puts downward pressure inflation.

Euro Session: What to Expect



The interest rate decision from the Bank of England highlights the economic calendar in European hours, with all 54 economists surveyed by Bloomberg expecting the bank to keep borrowing costs unchanged at 0.50%. Overnight index swaps suggest the market consensus is in agreement, with traders pricing in virtually no chance of a change in the benchmark rate. An expansion of the current 125 billion pound quantitative easing program also seems unlikely for the time being considering early signs of stabilization in leading economic indicators that have emerged over recent weeks. Most recently, London-based think tank NIESR reported the economy probably shrank -0.4% in the second quarter, the slowest pace of decline in a year, while consumer confidence rose to the highest level since October 2008 in June. Still, the British Chamber of Commerce has urged policymakers to expand their asset-buying scheme by 25 billion pounds, saying a recovery is “not guaranteed”; the call for further easing has been echoed by the Shadow Monetary Policy Committee, a group of independent economists that meet at the Institute of Economic Affairs. For his part, BOE chief Mervyn King has said that the return to economic expansion will be a “long, hard slog”. On balance, current GDP projections suggest UK GDP growth will trail that of the US by 0.9% but outpace the Euro Zone by 0.35% on average through the end of 2010, suggesting the BOE will follow the Fed but lead the ECB in raising interest rates as the current turmoil abates, implying a bearish long-term bias for both GBPUSD and EURGBP.

The final revision of Germany’s Consumer Price Index is expected to show that the annual inflation rate came to a standstill in June. Leading indicators point to continued weakness ahead: producer prices have fallen to the lowest in over two decades, foreshadowing lower consumer prices ahead as lower wholesale costs are reflected in the final price tag. This suggests inflation is set to dip into negative territory in coming months, threatening the Euro Zone’s largest economy with the onset of deflation. Such a development is all but certain to take the currency bloc as a whole along the same trajectory, threatening to commit the region to long-term stagnation as consumers and businesses are encouraged to wait for the best possible bargain and perpetually delay spending and investment.

Separately, Germany’s Trade Balance surplus is set to shrink 9.0 billion euro from 9.4 billion in the previous month. The broader Current Account surplus which includes cross-border capital flows as well trade in goods and services is set to narrow to 3.7 billion euro, the lowest in fourth months. A survey of economists conducted by Bloomberg calls for the external sector to contribute just 3.1% to overall economic growth this year, the lowest in five years, as lackluster global demand continues to weigh on overseas sales of German products. Indeed, exports are expected to add just 1.5% in May after falling by a whopping -5.0% in the previous month, putting overall outbound volumes at the lowest level since May 2005.

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!