7.14.2009

Risk Appetite Returns to Trading

The Yen slid against its major currency counterparts and the Dollar posted mild losses against all currency pairs except the Yen following a rally in global equity markets. The rally prompted investors to turn to higher yielding riskier assets and away from the safety of the USD and JPY. With risk appetite the main focus for today's trading and while market conditions remain mixed, traders should follow the vital economic data to be released today from the U.S and Europe as this will provide direction to the market for today's trading.



USD - Dollar Plummets as Wall Street Rallies

The Dollar plummeted on Monday against most of its major currency pairs. The Wall Street rally was initiated by positive comments from analyst Meredith Whitney about the financial Sector. She made her comments on CNBC (business channel), stating that banks shares will make short-term gains of 15%, and financial institutions will post better-than-expected results in the coming weeks. From this point on, Wall Street rallied, which led to risk-taking in U.S. equities and commodities. The result was a weak USD throughout yesterday's trading.

The USD lost 50 pips against the EUR to close at the 1.3974 level yesterday. Much of this behavior was due to investors' risk-taking. The GBP/USD climbed by a dramatic 120 pips to the 1.6244 level. This was partially due to the recent bottoming out of the British housing market. However, the greenback rose 50 pips against the JPY, marking the first daily rise in the pair for 2 weeks. This came about as forex traders dumped the Yen as it has been the number 1 safe-haven currency as of late.

Looking ahead to today, there is much vital data expected to come out of the U.S. economy. These are the Core Retail Sales, PPI (Producer Price Index), and Retail Sales, which are all set to be published at 12:30 GMT. If the results are worse than forecasts then we may see another day of USD bearishness. However, equal to or better-than-expected results may lead to a bullish Dollar going into mid-week trading.

EUR - EUR/USD Climbs Ahead of Economic Sentiment Publication

The EUR climbed against the Dollar on Monday ahead of the German ZEW Economic publication today. This is important as it is a leading measure of the health of the German and Euro-Zone economies. Analysts predict the figure to be 48.0, notably higher than the previous figure of 44.8. This helped the EUR climb against the USD yesterday. This pair also rose due to the equities rally in the U.S. and Euro-Zone. The result of this was traders dropping the USD in many cases for higher-yielding currencies, such as the EUR and GBP.

The EUR/USD climbed by 50 pips to the 1.3974 level, as the EUR recorded a bullish trading session against a number of its main currency pairs. The EUR/GBP rate, however, slipped 35 pips to 0.8601. This comes out as Britain saw sentiment in her housing sector at its highest since late 2007. The EUR saw its first gain against the JPY in several days, as the pair climbed by 120 pips to the 129.98 level due to traders buying into higher-yielding currencies. Additionally, traders realized that this pair had been undervalued in the past 2 weeks.

Today, there is much economic news coming out of both Britain and the Euro-Zone. At 08:30 GMT there is the release of the CPI (Consumer Price Index) and RPI (Retail Price Index) from Britain. At 09:00 GMT we can expect the publication of German ZEW Economic Sentiment and Industrial Production figures from the Euro-Zone. Today's data is vital in determining the levels of the EUR and GBP against their main currency crosses as Tuesday's trading gets under way.

JPY - Yen Collapses Against the Majors

The Yen collapse against the major currencies in Monday's trading session. This came about as global stock markets rallied, led by banking stocks. In turn, traders dropped the Yen for higher-yielding assets. This included currencies such as the GBP and EUR, and commodities such as Crude Oil. The Japanese currency also fell due to Japanese analysts stating that a downward correction for the Yen will soon be under way.

The USD/JPY slid about 50 pips to 92.89. The GBP/JPY pair rose dramatically by 180 pips to 150.89. The Yen's bearish behavior may continue into today's trading, as Monday's pessimistic Revised Industrial Production figures may put additional downward pressure on the JPY. Today, the Yen is expected to take the backseat due to a lack of key economic releases. Therefore, expect much market volatility to dominate JPY trading.

Crude Oil - Crude Oil Rebounds on Positive Sentiment

Crude Oil rebounded above $60 a Barrel yesterday on positive economic sentiment led by the U.S. The price of Crude benefited yesterday, as traders bought into risky assets. Additionally, the weak USD yesterday predictably led to bullish Crude prices. The other reasons for the bullish prices were due to Wall Street's rally and U.S Treasury Secretary Timothy Geithner stating that the U.S. recession will be over within a few months.

Looking to today, there are 2 things that may drive up the Crude prices above the $60.50 mark. These include a weak Dollar, as the price of black gold is in Dollar's; a bearish Dollar usually leads to bullish Oil prices. Also, good economic figures from the U.S. could increase risk-taking, and lead to higher Crude prices as a result. The question now is can Crude Oil extend this long awaited daily gain?

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Forex Markets to Trade with Risk Appetite, Goldman and J&J Earnings in Focus (Euro Open)

Forex markets are likely to look past the data docket to follow risk trends in European hours, with second-quarter earnings reports from Goldman Sachs and Johnson & Johnson likely to prove particularly market-moving. The UK Consumer Price Index and German ZEW Survey of investor confidence are also on tap.

Key Overnight Developments

• UK Housing Market Seeing ‘Wholesale Shift in Sentiment’, Says RICS
• Australian Business Confidence Positive for the First in 18 Months

Critical Levels



The Euro kept near familiar levels in the overnight session, oscillating within 40 pips below the 1.40 level. The British Pound tested as high as 1.6293 but reversed course to yield a largely flat result ahead of the opening bell in Europe.

Asia Session Highlights



The Royal Institution of Chartered Surveyors (RICS), a UK property professionals’ organization, said that just 18.1% of real estate agents reported falling house prices in June, a far better result than economists expected and the lowest since September 2007. Looking at the details of the survey, 14% of respondents said prices rose while 56% said prices remained the same; 30% said prices had fallen from the previous month. RICS chief economist Simon Rubinsohn noted “a lot more optimism” and referred to the recent data flow as a “wholesale shift in sentiment”. The report adds to building evidence that the UK economy is stabilizing after output shrank by the most since 1958 in the first three months of this year. Indeed, London-based think tank NIESR has reported the economy probably shrank just -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, near-term buying interest in the British Pound is far from guaranteed by improving economic indicators considering the sterling remains close to 91% correlated with the MSCI World Stock Index, suggesting a turn lower in risky assets will bring the UK unit along for the ride.

National Australia Bank’s Business Confidence gauge printed in positive territory in June, registering at 4 and showing that optimists outnumbered pessimists among the over 400 companies polled for the report for the first time in 18 months. NAB chief economists Alan Oster sounded notably less than optimistic however, saying much of the improvement can be “put down to the prospect that ‘Armageddon’ had been avoided”. Oster added that “Business conditions appear to have rebounded to a level roughly similar to that reported prior to the collapse of [Lehman Brothers] in September.” The government’s generous fiscal aid package has surely helped as well: Prime Minister Kevin Rudd and company have distributed over A$12 billion in cash handouts this year and set aside A$22 billion for infrastructure projects. A similar dynamic pushed consumer confidence to the highest level in 19 months in July according to Westpac Baking Corp. Clearly, the big question going forward is if current momentum can be maintained after the current euphoria subsides and the flow of stimulus cash dries up. On balance, the outlook is far from rosy: the labor market continues to suffer, erecting barriers to a meaningful rebound in domestic demand, while the latest trade data reveals lackluster overseas demand for coal and iron ore, Australia’s top export commodities.

Euro Session: What to Expect



The UK Consumer Price Index is expected to show that the annual pace of inflation fell to 1.8% in June, the first time that prices slipped below the Bank of England’s 2% target rate since September 2007. The leading producer price index fell more than economists expected last week, opening the door for a downside surprise this time around as well. The BOE acknowledged in their latest inflation report that “CPI inflation is likely to drop below the 2% target later this year” and still opted to keep monetary policy unchanged at this month’s meeting. 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. 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. Separately, the DCLG House Price measure is set to show property values fell -12.6%, the smallest drop since February.

Turning to the continent, Germany’s ZEW Survey of investor confidence is expected to see the headline figure rise to 47.8 in July from 44.8 in the previous month, the ninth consecutive improvement and the highest reading since May 2006. The broader Euro Zone ZEW result is set to follow a similar trajectory, rising to 44.0 in July. Still, improvements in the metric are unlikely to offer much near-term support to the Euro: the ZEW reflects the forward-looking perspective of the poll’s respondents, meaning the reading tends to lead the single currency by a significant margin such that the trend in the closely watched Expectations component of the report has corresponded inversely with major tops and bottoms in the exchange rate. Indeed, the ZEW began to trend lower in the beginning of 2006 and bottomed out in July of last year; the same end-points mark the boundaries of the last major uptrend in EURUSD that saw the pair test record highs above 1.60. If the same dynamic continues to hold, traders can expect the European unit to set a bottom as the ZEW tops out, a scenario that seems unlikely for the time being considering how much ground remains to be covered before the economy regains firm footing. In fact, according to the International Monetary Fund (IMF), the Euro Zone as a whole and Germany in particular stand apart from most industrialized countries in being expected to see GDP contract in 2010.

Overall, risk sentiment is likely to usurp the limelight once again in European trading hours. Second quarter earnings announcements from Goldman Sachs and Johnson & Johnson late into the session are likely to be of particular significance, with traders looking to Wall St to set the pace for where risky assets go in the days ahead. Indeed, forex markets largely oscillated in overnight trading despite hefty gains across Asian stock exchanges with the upswing in confidence already priced in during US hours.

Written by Ilya Spivak, Currency Analyst
Article Source - Forex Markets to Trade with Risk Appetite, Goldman and J&J Earnings in Focus (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!