7.20.2009

Traders Focus on Commodities as USD Slides

The U.S. dollar has ceded further ground on Monday as concerns about the U.S. economy abated and broadly improved corporate earnings lifted risk appetite and regional stock markets. The weak U.S. dollar had traders pushing up commodity prices. Crude remained relatively steady above $64 a barrel, after rising 2.5% on Friday on positive U.S. housing data that revived hopes of a global economic recovery.



USD - Dollar Declines on Concerns About the U.S Economy

Last week the U.S dollar saw bearish trends against most of the major currency pairs. The Dollar dropped over 200 pips against the EUR and over 300 pips against the Pound during last week's session. The Dollar weakened last week despite rather positive indications from the U.S economy. Economists said that although the earnings and data from the housing sector suggest the U.S. economy is showing signs of a recovery investors are still reluctant to pour capital in to it.

It seems that the positive figures from the U.S economy has lead investors to believe that the world is showing real signs for pulling out of recession. Expectations are that an improvement in the U.S economy situation will be resulted in an improvement in different economies as well, especially the European ones, and this has raised the European currencies against the U.S dollar.

There is little U.S. data to drive the market this week, so the focus will be on Federal Reserve Chairman Ben Bernanke's semiannual monetary policy testimony to Congress. Traders will be seeking clues on whether the Fed will begin unwinding some of the huge stimulus measures it undertook at the height of the U.S. financial crisis.

EUR - EUR Soars against the Majors

The EUR rallied last week against all the major currencies. The EUR's most significant appreciation was against the Japanese yen, as the pair rose over 400 during last week's session. The EUR also marked a bullish session against the U.S dollar and the British pound.

The EUR soared last week as a result of some relatively positive data from the Euro-Zone leading economies. Both the German and the European ZEW Economic Sentiments delivered positive figures, proving that investors and analysts continue to hold their optimistic view regarding the European financial condition. The two reports have failed to reach expectations, yet the final result was still positive enough to strengthen the EUR. The slide of the Dollar also contributed to the rising EUR, and as a result, traders who went long on the EUR last week saw nice profits.

Looking ahead to this week, many interesting economic publications are expected from the Euro-Zone. The data that should affect the EUR the most will probably be from the leading economies such as Germany and French. The Purchasing Manger's Index from the leading economies is expected on Friday, and currently analysts forecast rather positive results for the indices. If the actual results will be similar to predictions, traders might see the EUR continues its bullish trend.

JPY - Yen Bullishness Halts

Last week may have signaled the end of the JPY's bullish trend. The Yen has weakened against all the major currencies including the Dollar, the EUR and the Pound.

During last week, the Bank of Japan (BoJ) has decided to leave the Japanese Interest Rates at 0.10%, which are the lowest rates in the western world. It seems that the Japanese chiefs have managed to weaken the JPY. The Japanese leaders feel that a weak Yen will support the export of the country, and thus will improve the general economic condition. In addition, the Tertiary Industry Activity reports has shown that the change in the total value of services purchased by businesses dropped by 0.1% on June. This means that businesses in Japan are cutting off spending, proving that Japan has yet to pull out of recession. If the BoJ will continue with its policy to depreciate the Yen, and the financial reports from Japan will continue to show negative figures, the Yen could depreciate further.

As for the week ahead, many significant data is expected from the Japanese economy. Yet the most significant report seems to be the Trade Balance, which is scheduled in Wednesday. The report will show the difference in value between imported and exported goods and services during May. Current expectations are for a very positive result. If the actual result will indeed be similar to forecasts, this will mean that the BoJ succeed in supporting the Japanese export, and might strengthen the Yen.

OIL - Could Crude Oil Reach $70 a Barrel?

Crude Oil marked an extremely bullish session last week, rising from $58 a barrel up to $65 a barrel. The bullish trend came mainly as a result of the better than expected U.S data and the weak U.S dollar.

Oil's gains on Friday were boosted by a government report that showed construction of new homes and the issue of building permits in the United States rose more than expected in June, signaling a potential economic recovery.

In addition, the demand for Crud Oil in the U.S has an immense influence on the value of oil, and thus, when positive signals from the U.S economy are likely to create speculations that demand for oil will rise soon.

Looking ahead to this week, traders should continue follow the leading indicators from the U.S economy, as they seem to have a very string influence on Crude Oil prices. Traders should also closely watch for the U.S Crude Oil Inventories report on Wednesday, as this report has proven to have an immediate impact on Crude oil's prices.

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US Dollar Falls on Stock Gains as CIT Avoids Bankruptcy, Commodities Rise (Euro Open)

The US Dollar tumbled as Asian stock exchanges surged 2.4% to on news that US lender CIT will avoid bankruptcy while commodities advanced, boosting financial and resources-linked issues and trimming demand for the safe-haven currency. German Producer Prices are on tap in European hours, with expectations calling for the biggest decline in 22 years.

Key Overnight Developments

• UK House Prices See Smallest Decline in a Year, Says Rightmove
• Australian Producer Prices Fall More Than Expected on Stronger Currency
• US Dollar Falls on Stock Gains as CIT Avoids Bankruptcy, Commodities Rise

Critical Levels



The Euro pushed sharply higher in overnight trading, adding 0.6% against the US Dollar. The British Pound mirrored its continental counterpart, testing above the 1.64 level. The greenback tumbled as Asian stock exchanges surged 2.4% to on news that US lender CIT will avoid bankruptcy while commodities advanced, boosting financial and resources-linked issues and trimming demand for the safe-haven currency.

Asia Session Highlights



UK House Prices grew 0.6% in July after falling -0.4% in the previous month according to Rightmove, an online listing of for-sale properties. In annualized terms, prices fell -3.1%, the smallest decline in a year. Rightmove commercial director Miles Shipside said buyers interest was rising on “growing confidence that we’ve passed the bottom”, adding that the number of people looking at property listings on Rightmove’s website is “much higher than we would expect” for this time of year. Still, Shipside warned that a robust recovery is far from imminent: “With only seven [major] lenders remaining in the lending game, including three government-backed institutions that are prioritizing their balance sheets over new lending, we are set to bump along the bottom for some time yet.” That said, loans for house purchases have steadily moved higher having hit a record low in November 2008, printing at the highest level in a year in May. On balance, rising unemployment may prove to be the largest barrier to a sustained rebound in real estate prices: the jobless rate is expected to top approach a whopping 9% by the end of this year, trimming incomes and hindering Briton’s ability to pay their mortgages. This is likely to boost repossessions, flooding the market with fresh supply and sending property values downward.

In Australia, the Producer Prices Index fell more than economists expected, shedding -0.8% in the second quarter to bring the annual pace of wholesale inflation to 2.1%, the lowest in 5 years. A stronger Australian Dollar was the likely catalyst behind the result: the Aussie added a whopping 10.4% in the three months through June, making imports cheaper in terms of the domestic currency. Slower PPI growth foreshadows downward pressure on consumer inflation in the months ahead as cheaper wholesale costs are passed on via a lower final price tag. This bolsters the case for additional rate cuts from the Reserve Bank of Australia. Indeed, RBA Governor Glenn Stevens said as much even as the bank kept rates unchanged in July, noting that “the outlook for inflation allows some scope for further easing of monetary policy.”

Euro Session: What to Expect



German Producer Prices are set to fall at an annual pace of -4.1% in June, the most in over 22 years. The reading implies continued downward pressure on consumer prices in the months ahead, threatening to push CPI into negative territory for the first time since 1986 as lower wholesale costs filter into the final price tag. The onset of deflation in Euro Zone’s largest economy 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.

The European Central Bank has seemingly struggled to formulate an effective policy response thus far. Jean-Claude Trichet and company have focused on banks as the vehicle through which to make money cheaper and put a floor under falling prices, promising unlimited lending to the region’s financial institutions including an unprecedented 442 billion euro in 12-month bank loans as a means of de-facto monetary easing. The bank will also implement a 60 billion bond-buying scheme. To the ECB’s credit, borrowing costs have indeed moved lower: although the bank publicly maintains target interest rates at 1%, it has allowed the average cost of overnight lending (referred to as EONIA) to drift far below that. Indeed, borrowing in Euro has been consistently cheaper than doing so in British Pounds since late June, even though the Bank of England’s stated interest rates are substantially lower at 0.5%. However, the lower cost of credit between banks has not translated into lending, and so has offered little stimulus to the overall economy. Indeed, loans to Euro Zone businesses and households grew just 1.8% in May, the lowest since records began in 1991. Banks may be choosing to hang on to cash as a buffer against $1.1 trillion in as yet unrealized losses linked to the subprime mess, according to the IMF, as well as the fallout from looming defaults and/or devaluations among the EU’s newly-minted central European members. In any case, deflation is all but certain to take firm hold of the currency bloc if the ECB does not ensure that looser monetary conditions translate beyond the interbank market.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Falls on Stock Gains as CIT Avoids Bankruptcy, Commodities Rise (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!