7.10.2009

Dollar Under Downward Pressure as G8 Summit Takes Its Toll

U.S. Dollar came under much downward pressure on Thursday as the main developing countries led by China increased talk on replacing the USD as the global reserve currency. This helped the greenback plummet against its main currency pairs throughout Thursday's trading. The Dollar also went bearish as traders returned to risk appetite, as U.S. Unemployment Claims rose less than expected; Britain kept here Interest Rates unchanged, and global equity markets rallied.



USD - USD Falls on Sudden Return to Risk Appetite

Thursday's trading session saw a reversal of the recent risk aversion sentiment that followed last week's weak U.S employment data. The Dollar Index fell for the first time in six days, losing 1.1% to 79.85, as risk appetite revived and investors moved back into equities, riskier currencies and commodities. Yesterday, the Dollar fell sharply against the Pound, Yen, and EUR.

The market was little changed after the release of the U.S. jobless claims data, which showed claims for state unemployment benefits unexpectedly tumbled last week to their lowest level since January. With a relatively light week in terms of economic data releases investors turned primarily to the stock markets for direction.

Traders should follow the release of the U.S. Trade Balance at 12:30 GMT, as well as the Prelim UoM Consumer Sentiment and Treasury Secretary Timothy Geithner's speech at 14:00 GMT. These news events are set to give insight to the health of the U.S economy. Worse than expected results may reverse yesterday's trend and push investors back to risk aversion. It is also advisable for traders to follow the last day of the G8 Summit, as any more negative talk of the Dollar, could lead to another bearish day for the U.S. currency.

EUR - EUR Gains as European Equity Markets Rally

The EUR was at $1.3974 Thursday, up from $1.3894 in yesterday's opening. The EUR also gained against the Yen to close at 129.90 Yen, up from 129.41 Yen. The Pound climbed as much as 1.9% to $1.6380 against the Dollar, the biggest intraday gain since June 9th.

With a revival in risk appetite Thursday, the Dollar retreated sharply against the EUR and the Pound. China's intent to pursue its discussion about developing alternative reserve currencies to the Dollar put further pressure on the Dollar against the EUR. The Pound's extensive rise came after the Bank of England voted to keep its Interest Rate unchanged at 0.5%, and made no change to the scope of its asset purchase program, despite market expectations of expansion.

However, the EUR has been facing difficulties maintaining its gains versus the Dollar in the past few weeks. Despite a light news day from Britain and the Euro-Zone today, traders should follow the French Industrial Production release at 6:45 GMT and the British PPI Input at 8:30 GMT. Better than expected results may intensify the recent return to risk appetite.

JPY - Yen Tumbles as Global Financial Crisis Eases

The Yen declined against most of its major currency counterparts Thursday, as concerns over the pace of the global economic recovery eased. The JPY traded at 92.93 per USD Thursday. The Yen finished trading at 129.90 from 129.41 per EUR, after declining 1.1% yesterday. However, it reached 127.02 on July 8, the strongest level since May 18.

The Yen weakened as traders returned to risk appetite, pushing the EUR and GBP higher. The Yen typically rises during times of financial trouble since Japan's trade surplus reduces the nation's reliance on overseas assets, which lends the currency its safe haven status. In light of the recent bounce in risk appetite, it appears that the Yen's recent rise may have been exaggerated as there is no real data to support it. Therefore, the Yen's losses are likely to continue throughout today as well.

Crude Oil - Crude Oil Holds Above $60 a Barrel

Crude Oil prices managed to climb hold above $60 a barrel after dropping to a 7 week low of $59.25. Oil prices were fairly stable yesterday, as the Dollar weakened against most major currency counterparts. This in turn spurred demand for commodities. Oil prices also received a boost after the release of the initial U.S. jobless claims report showing a drop in new jobless claims to the lowest level since January, and another report showed car sales in China surged.

It is expected global Oil consumption will fall in 2009. Thus hopes for recovery in demand are starting to shift to China, particularly its auto market, which according to reports rose 36% from last year. This puts the country on track to overtake the U.S. as the world's biggest auto market this year. Nonetheless, with U.S. stockpiles of gasoline and distillate fuels continuing to climb, according to the Energy Information Administration and an expectation for China's Oil demand to also fall this year, it is possible the drop in Oil prices has not yet reached its end.

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US Dollar Corrects Higher, Japanese Producer Prices Fall Most on Record (Euro Open)

The US Dollar capitalized a quiet calendar and muted action on Asian stock exchanges, correcting higher overnight after yesterday’s selloff. Japan’s Corporate Goods Price Index fell by the most on record, hinting at the return of deflation to the world’s second-largest economy. June’s UK PPI is on tap in European hours.

Key Overnight Developments

• Japan’s Corporate Goods Prices Fall Most on Record
• Euro, British Pound Inch Lower in Overnight Trading

Critical Levels



The Euro trended lower in overnight trading, moving down -0.3% against the US Dollar ahead of the opening bell in Europe. The British Pound also saw selling pressure, testing as low as 1.6270, but prices recovered above the 1.63 mark late into the session. A light calendar and a muted session on Asian stock exchanges allowed the greenback to correct a bit higher after yesterday’s selloff.

Asia Session Highlights



Japan’s Domestic Corporate Goods Price Index measuring the trends I the cost of goods purchased by Japanese businesses fell at an annualized rate of -6.6% in June, the most on record, reflecting lower energy costs. Indeed, the price of coal and petroleum fell by a whopping -39.4% from the previous year. The data hints at downward pressure on consumer prices in the months ahead as manufacturers pass on lower production costs via cheaper finished goods. CPI posted the largest drop in 7 years in May, with continued losses amounting to a return of deflation in the world’s second largest economy. This threatens to keep a lid on a meaningful rebound in economic activity for the foreseeable future as consumers and businesses are encouraged to wait for the best possible bargain and perpetually delay spending and investment.

Euro Session: What to Expect



June’s UK Producer Price Index report is set to show that output prices fell at an annual rate of -0.8%, the most in over seven years. The metric foreshadows downward pressure on consumer prices as lower wholesale costs are reflected in the final price tag. The Bank of England has acknowledged this, noting in its latest inflation report that “CPI inflation is likely to drop below the 2% target later this year” as lower food and energy prices offset upward price pressure from a cheaper British Pound. Yesterday, the central bank kept rates unchanged at 0.5% and deferred any changes in their 125-billion quantitative easing program until August.

However, 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. The disparity in growth forecasts is also notable: the IMF expects the UK economy will grow 0.2%, a survey of economists conducted by Bloomberg points to a 0.9% result, while the OECD says growth will be flat in 2010. If reality proves to side with the pessimists in the days ahead, slower output growth could well translate into a steeper than expected decline in inflation, calling for the BOE to step up easing efforts.

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!