8.05.2009

USD's Bearishness at an End? Today's News May Tell

With a chain of bearish trading sessions, the US Dollar has been bouncing the forex market up and down lately. With increased risk appetite and growing market optimism, market conditions are allowing traders to pull away from the safety of the USD. On the other hand, however, today's housing, manufacturing and employment data from Britain and the United States will provide enough market news to halt current trends and create short-term reversals, or push current trends even further. If we see negative data across the boards, the USD may very well return to a bullish posture as risk aversion returns.



USD - USD Bearish Sentiment Continues Prior to Employment Data

While the aggressive Dollar sell-off which started Monday stalled slightly Tuesday, the USD continues trading near the weakest level against the EUR this year ahead of the release of the Non-Farm Employment Change report, which is predicted to show U.S. companies eliminated fewer jobs in July, reiterating that the recession is coming to an end. The Dollar is trading at 1.4410 per EUR as of this morning, and is at 95.00 Yen, down from the 95.37 Yen seen on Monday.

Investors' risk appetite persists as the flow of better than expected economic data continues. Tuesday's release of the Pending Home Sales report showed an increase of 3.6% in June, which was much better than the 0.7% expected by economists. This shows that the housing market, which was at the center of the turmoil, is stabilizing, signaling an impending economic recovery in the U.S.

Looking ahead to today, the release of the ADP Non-Farm Employment Change report at 12:15 GMT, and the ISM Non-Manufacturing PMI at 14:00 GMT, is expected to have great affect on Dollar sentiment; with better than expected results likely intensifying the current bearish trend for the USD.

EUR - Signs of Global Recovery Continue to Boost the EUR

While the EUR lost tiny amounts of its gains since Monday, it still maintains most of its bullish momentum. Tuesday afternoon, the EUR was at $1.4400 from a 2009 high of $1.4445 seen Monday afternoon. The Pound was at $1.6936 from $1.6928.

The rally continued despite stock markets remaining flat throughout most of the day as investors continued seeing strong enough signs of a global recovery and maintained demand for riskier currencies.

Looking ahead to today Britain will dominate the news releases from Europe with the Halifax HPI due to be released at 6:00 GMT and the Manufacturing Production and Services PMI at 8:30 GMT. Better than expected results might be able to push the Pound above $1.7000.

For the EUR, $1.4500 should be the goal, as breaking this level might spur another rally; with no major news releases from the Euro-Zone, the EUR movements will largely depend on news releases from the U.S., Britain, as well as equity markets.

JPY - Yen's Bearish Sentiment Continues

The Yen received a slight boost Tuesday as a drop in global equities ahead of the New York session spurred demand for the safety of the Japanese currency. However, following a release of better than expected U.S Pending Home Sales data the optimistic mood returned, as did demand for riskier assets.

A late rally in the stock markets further enhanced risk appetite and the sell-off of the JPY. The Yen traded at 137.08 against the EUR and was little changed at 95.22 versus the Dollar.

With the release of several economic indicators today which are expected to show continuous improvement in global economic conditions, the bearish sentiment on the JPY is likely to continue.

Crude Oil - Crude Prices Rise as Stocks Rally for 4th Consecutive Day

Crude Oil for September delivery rose as much as 45 cents, or 0.6%, to $71.87 a barrel following a late rally in U.S stocks after pending sales of existing homes increased more than forecast in June. Oil also benefited from the weak USD as Oil prices tend to have an inverse relationship with Dollar strength.

A drop in the U.S. currency boosts the appeal of commodities as a hedge against inflation. Furthermore, the release of U.S Crude Oil Inventories today at 14:30 GMT is expected to show a decline in Crude stockpiles. Along with this inventories data, oil price movements will continue to depend largely on equity levels since this rally largely depends on equities maintaining their current momentum.

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Australia's Stimulus Plan May Be Losing Steam as Service Demand Shrinks (Euro Open)

The boost from Australia’s A$12 billion in cash handouts to consumers may be losing steam as sharp drops in sales and new orders led the service sector to shrink in July following yesterday’s unexpected drop in retail sales. UK Industrial Production and Euro Zone Retail Sales are on tap in European hours.

Key Overnight Developments

• Australia’s Trade Deficit Unexpectedly Shrank on Exports Rebound
• AiG Says Australian Service Sector Shrank in July as Sales, New Orders Fell
• UK Consumer Confidence Rose to Highest in a Year, Says Nationwide

Critical Levels



The Euro continued to oscillate in the familiar 1.4370-1.4430 range that has confined the pair since Monday’s New York session. Likewise, the British Pound continued to trade sideways between 1.6880 and 1.70.

Asia Session Highlights



Australia’s Trade Balance deficit unexpectedly narrowed in June, revealing a shortfall of –A$441 million, a notably better outcome than economists’ projections of a –A$800 billion result. The result was all the more dramatic given that May’s outcome was revised to show a deficit of –A$737 million, far larger negative reading than the –A$556 million originally reported. Exports grew for the first in four months to add 1.5%, driven primarily by sales of metals, machinery and transport equipment. Yesterday, the Reserve Bank of Australia opted to keep interest rates on hold at 3% for the fourth consecutive month citing, among other things, that “exports are notable for their resilience”. A survey of economists conducted by Bloomberg has forecast that the external deficit will cut just -3.24% off overall economic growth this year, the smallest negative contribution since 2001.

Countering positive cues from trade data, the AiG Performance of Service Index fell to 44.1 in July, revealing activity in the sector is once again contracting having expanded for the first in 15 months in June. Double-digit drops were recorded in inventories (-20.1%), deliveries (-15.2%), sales (-13.9%) and new orders (-11.3%). AiG chief executive Heather Ridout said the path to recovery will be “a long, hard slog”. The result follows yesterday’s unexpected drop in retail sales, adding to early signs that the stabilizing effects of the government’s A$12 billion in cash handouts to households that has propped up consumer sentiment in recent months may be starting to abate.

In the UK, Nationwide Consumer Confidence rose to 60 in July, the highest reading in over a year. The details of the report were not nearly as encouraging as the headline figure, however. The percentage of survey respondents expecting a pickup in employment in the next 6 months fell to 20% while 60% said they were expecting “not many” jobs to be available. This amounts to the worst set of labor market expectations among polled consumers since those recorded in April. Such attitudes may become more widespread as the jobless rate continues to push higher, weighing on consumer spending and dashing hopes of a meaningful economic recovery in the foreseeable future.

Euro Session: What to Expect



The annual pace of decline in UK Industrial Production is expected to moderate for the fourth consecutive month, with output shrinking -11.4%. Manufacturing Production is set to contract at the slowest pace since February, down -12.1% in the year to June. More of the same is likely ahead: July’s manufacturing PMI unexpectedly ticked into expansionary territory for the first time in 15 months, suggesting a further rebound is to be expected. However, as we mentioned in our British Pound Weekly Forecast, these readings are unlikely to prove particularly market-moving considering traders have likely already priced in the stabilizing effects of the ample global fiscal boost and inventory restocking that is driving current improvements into the exchange rate. Indeed, the question to be answered from here is what will happen after the flow of government cash dries up and the inventory cycle runs its course.

In the Euro Zone, Retail Sales are expected to decline -2.2% in the year to June, a modest improvement from the previous month’s -3.3% contraction. However, the reading still clearly falls along the down trend that has guided receipts lower since December 2006. Further, a downside surprise is not out of the question considering the unexpectedly dismal German retail sales result for the same period that was revealed earlier this week. Germany is the largest economy in the Euro Zone and lackluster activity there may well drag down region-wide performance. Evaluating the longer-term outlook, any sustained return to growth in retail spending is sure to be marginal at best with the unemployment rate set to hit 9% for the first time in 5 years in 2009 and surpass 10% in 2010 according to European Commission estimates.

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!