USD - Dollar Rises on Increased Risk Aversion
The U.S. Dollar rebounded while U.S. stocks retreated yesterday after initial gains were overshadowed by cautious outlooks on the economy from corporate executives and Federal Reserve Board Chairman Ben Bernanke. As a result, the USD finished yesterday trading session 100 pips higher against the GBP at the1.6410 level. The greenback also saw bullishness against the EUR and closed at 1.4175.
U.S. government debt prices rose sharply on Bernanke's comments that an easy money policy would likely be needed for an extended period. Moreover, risk appetite had increased in the past few days after stronger-than-expected U.S. corporate earnings. The latest to report higher-than-expected quarterly results was manufacturer and Dow component Caterpillar Inc. yesterday.
Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Crude Oil Inventories report at 14:30 GMT. Traders will be paying close attention to today's announcement as it has the potential to boost the USD in the short-term. Traders are also advised to follow Federal Reserve Board Chairman Ben Bernanke's testimony at around 14:00 GMT. This testimony is very important as it is very likely to impact the Dollar's volatility. Traders are advised to watch closely, as this is likely to set the pace of the USD going into the rest of the week's trading.
EUR - EUR and GBP Erase Gaines on all Fronts
The EUR weakened against most of its major currency rivals yesterday on concerns CIT Group Inc. may file for bankruptcy, renewing demand for a refuge. By yesterday's close, the EUR fell against the JPY, pushing the oft-traded currency pair to 133.17. The EUR experienced similar behavior against the CHF and closed at 1.5160.
The British Pound also fell against the U.S Dollar as a report showed the U.K budget deficit climbed in June to the highest per month since records began in 1993, fueling concern the government will struggle to find buyers for its assets. The drop pushed the GBP down from near the highest level this month against the Dollar. The budget shortfall rose to 13 billion Pounds from 7.5 billion a year earlier. Gilts reversed earlier declines after Federal Reserve Board Chairman Ben S. Bernanke told Congress that policy makers will keep Interest Rates “exceptionally low.”
Today, there is plenty of economic news coming from the Euro-Zone that will determine the GBP and EUR levels by the end of today's trading. From the Euro-Zone, there are the European Industrial New Orders, and French Consumer Spending figures. From Britain, the most important news will be the MPC Meeting Minutes and CBI Industrial Order Expectations figures. All these news events will be important in helping set the strength of the GBP and EUR in this week's trading.
JPY - Yen Strengthens on Bernanke Testimony
Japan's currency rose against most of its major counterparts after Bernanke mentioned that at some point the Fed “will need to tighten monetary policy” to counter the emergence of an inflationary problem. The Yen also advanced from near a 2 week low against the U.S dollar on speculation Japanese exporters bought the currency after its 1.8% decline last week.
Traders today have very little fundamental news emanating from Japan as the only indicator being released is the trade balance report. Analysts forecast the figure to increase from its previous reading. This indicator typically generates small amounts of volatility. However, the USD and the GBP appear to be clutching the reins of today's market. Traders would be wise to note its future direction as it usually carries a heavy impact on the other currencies.
Crude Oil - Oil Stabilizes after Steady Appreciation
Crude Oil slid down slightly, to just above $65 a barrel, on Wednesday, after data showing an unexpected rise in U.S. crude stocks underscored worries about persistently weak demand from the world's top oil user. The U.S. crude oil stockpiles rose unexpectedly last week as domestic refining activity slumped, the American Petroleum Institute (API) said on Tuesday. However, firm equity markets and a weak Dollar could lend some support to Oil, analysts say.
Crude prices climbed 8.7% for the past week as investors bought futures on expectations of higher fuel demand. Optimism that the worst of the global recession is over followed gains in U.S. leading economic indicators and as financial service companies said earnings climbed.
Article Source - Greenback Rebounds from 6-Week Low
Key Overnight Developments
• Australian Inflation Falls to the Lowest in a Decade
• Euro, British Pound Turn Lower in Asian Trading
The Euro traded lower in the overnight session, losing as much as -0.4% against the US Dollar. The British Pound followed suit, testing as low as 1.6391 against the greenback.
Asia Session Highlights
Australia’s Consumer Price Index printed in line with expectations with the annual pace of inflation falling to 1.5% in the second quarter, the lowest in a decade. Continued downward pressure on consumer prices looks likely as tumbling wholesale costs filter into the final price of products. Australian Treasurer Wayne Swan said “inflation is expected to remain subdued over the near term as the effects of the global recession continue to impact on the domestic economy.” This bolsters the case for additional rate cuts from the Reserve Bank of Australia in the months ahead. 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
Germany’s IFO Survey of business sentiment is expected to rise for the seventh consecutive month in July, pointing to continued improvement in firms’ 6-month economic outlook. Still, the reading is expected at 90.1, a print below the 100 “boom-bust” threshold, suggesting conditions are still deteriorating albeit at a slower pace. Some recovery is to be expected as the government’s 82 billion euro fiscal boost filters into the broad economy, but the big question in Germany as well as most anywhere at this stage is whether growth is sustainable after stimulus cash dries up. As it stands, the latest economic forecast from the International Monetary Fund (IMF) reveals that the Euro Zone will stand apart from other industrialized economies in seeing economic growth continue to contract in 2010, pointing to a comparatively slower return to higher interest rates that will keep the Euro on the defensive against most major currencies.
Minutes from the July meeting of the Bank of England are unlikely to prove particularly market-moving this time around, with traders unlikely to be treated to anything that has not already been priced into the exchange rate. The bank made no changes to benchmark interest rates or the quantitative easing program, saying they will “review the scale” of their unconventional easing measures in August as they release their quarterly inflation report. From here, next week’s GDP report is likely to be the key to the market’s expectations on the future direction of monetary policy. Initial cues are favorable: 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. 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”, a sentiment that has been echoed by the Shadow Monetary Policy Committee (a group of independent economists that meet at the London-based Institute of Economic Affairs). On balance, British Pound price action is likely to continue taking its cues from risk appetite, with the sterling’s trade-weighted average value now 87.8% correlated with the MSCI World Stock Index.
Written by Ilya Spivak, Currency Analyst
Article Source - British Pound to Look Past Bank of England Minutes, Trade on Risk Sentiment (Euro Open)
What is Forex?
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 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.
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!