USD - USD's Bullish Spike at an End?
Last Friday's release of the US Non-Farm Payroll figures drastically altered the forex market with a sharp uptrend for the US Dollar. Ending the week at 1.4181 against the EUR, down from the weekly high of 1.4447, and dropping the GBP/USD rate back towards the 1.6600 level, the greenback is beginning to benefit from positive economic news. Should forex traders go long on the USD? Not necessarily.
As was anticipated by many analysts, when economic recovery comes online, the first result will inevitably be a weakening of the USD versus its currency counterparts. As the world's number one safe-haven investment, the USD must by this definition suffer a significant loss as banks and investors dump their Dollar reserves for riskier assets and portfolio diversification. The immediate effect of the NFP report was a strong bullish movement priced in for the greenback, but the long-term trend will likely be a continuation of the bearishness experienced over the previous two weeks.
While some analysts claim that the recovery began prior to last week, and thus the USD may be reacting positively to favorable economic news, this is less likely to be the case. It may be more likely that global investors saw the sudden decrease in American unemployment as a sign that the US may be a calmer market to invest in, and not just as a safe-haven.
After the hectic news week experienced for the first week of August, this week may appear mild in comparison. With hardly any significant news being released from the United States until at least Wednesday, forex traders are advised to follow the British Pound as it may end up being this week's focal currency.
EUR - EUR Reaches near 2009 High against JPY
The EUR was one of the primary victims of Friday's Non-Farm Payroll release from the United States. After the release, which showed employment shrinking much slower than expected, and witnessing the first drop in the Unemployment Rate since May of 2008, the EUR saw a sharp sell-off with investors' protective strategies adding downward pressure on the EUR as the price fell below significant resistance levels, triggering massive Stop Orders.
Good news for the EUR is that it was not the biggest loser on the day last Friday. It managed to cling to a few of the gains made Thursday against the Pound, and reached a year high of 138.69 against the JPY. While the bearish move experienced against the USD appeared to be a reversal to the EUR's bullishness, many analysts actually claim that this spike merely represents values which had been priced in before the NFP release. Now that the market is on the path to recovery, the safe-haven USD should enter a sell-off phase of its own and push its rival currencies to new highs in the near future.
For the days ahead, forex traders should focus their attention away from the Euro-Zone for their economic news, primarily as there will be very little news coming from Europe this week. Most attention will be placed on Great Britain following its announcement of the increase in quantitative easing from 125B Pounds to 175B. This week's announcements from the UK will no doubt assist traders in determining the direction of the GBP for this week and next.
JPY - JPY Drops from Surging Risk Appetite and Dollar Strength
What most analysts are now calling Friday's biggest loser, the Japanese yen suffered more than any other currency following the release of America's Non-Farm Payroll data. The JPY indeed plummeted to price levels near 2009 lows against the EUR and GBP, prices of 138.69 and 163.08, respectively. Against the USD, the JPY dropped to 97.76, a price level unseen since mid-June.
The surge in risk appetite, and the sudden spike of the USD combined to put insurmountable pressure on the island currency last Friday, causing major breakouts to occur in the moments after the release of the NFP report. With a surprisingly heavy news week for the Japanese currency ahead of forex traders, there is the possibility for this bearishness to continue, since many are expecting positive results which may likely boost the appetite for risk in the market and thus put additional selling pressure on the traditional safe-havens like the JPY and USD.
Crude Oil - Crude Oil Hits 10-Month High, then Tumbles
The price of Crude Oil spiked on Friday, following the sudden surge in market volatility after the release of US Non-Farm Payrolls. Prices climaxed at a 10-month high of $72.81 before tumbling back towards the $70 price level. Much of the market pressure and volatility was correlated with the strength of the US Dollar.
The sell-off of the USD following the report pushed oil prices higher, however, the sudden rapid sell-off of all other currencies directly thereafter led to a surprising surge in the value of the Dollar. Considering the greenback's relationship to commodities, the price of Crude Oil mirrored the movements of the EUR/USD almost perfectly, with a strong upward surge followed by an even more rapid decline. Now that the market appears to have stabilized, the growth pattern forecast by many economists may very well be underway. If predictions are correct, the USD should drop in the coming weeks and oil prices should climb as a result.
Article Source - Dollar Continues to Rise on Jobs Boost
Key Overnight Developments
• Japanese Machine Orders Rise by Most in 14 Months
• Current Account Balance in Japan Surges on Exports
Euro and Pound action against the U.S. Dollar opened the week similarly to each other after labor figures came in stronger than expected for the American country at the end of trading on Friday. Both pairs found themselves trading tangent to the 200-hour moving average with the slow stochastic oscillator suggesting both EUR/USD and GBP/USD rising from “oversold” conditions.
Asia Session Highlights
Japanese Machine Orders, when excluding ships and utilities, June rose by 9.7% in June, beating expectations of a 2.6% increase in the figure. The latest release is the highest of such since April of 2008. Last month’s release saw orders for such industrial needs contract by 3.0%. Most of the increase in demand in June came from abroad, growing 43.8% on the month. The domestic public sector weighed in only slightly. Overall, when including when including orders for ships and utilities, total orders rose only 2.3% with private demand actually slipping by 15.9%. But it is important to strip the metric of boat orders because such expenditures are generally used for military or freighters. Still, it may somewhat worrisome to see such a substantial gap between the headline figure and the figure with the two excluded items. Such a great magnitude in difference may indicate that orders for the two products are generally quite large.
Japan's Current Account Balance, when adjusted for fluctuations in the Yen exchange rate, surged to it's highest level since May 2008 to 1798.8 billion Yen. The news comes as demand for Japanese industrial products from abroad jumped ahead. In fact, the demand for machinery from other countries made a leap of 43.8% in the month alone. In it's third rise in four months, the Trade Balance made a sizable move ahead to 602.2 billion Yen. With a 6.3% increase in its exports, the Asian country may soon be moving out of recession. But much of this good news comes on the back of conditions abroad. The risk here, then, is that if other countries experience a downturn then Japan will surely go down just as quickly.
Home Loans in Australia got a boost in June as well, rising 1.1% after the sharp upward revision of 6.2% in the month prior. Despite posting a 9th straight month of growth, the economy still remains weak. Estimates for the latest figure had called for a much stronger 1.8% increase in the metric. It is thus no wonder that Investment Lending in the same month declined for the first time since February. Perhaps the Australian economy isn’t as resilient as many had originally hoped. May’s such lending was also weaker than initially thought after it was revised down 0.6 percentage points to 1.8%.
Euro Session: What to Expect
The light European calendar offers some insight into the current direction of the region’s economic environment. French Industrial Production, expected to rise 0.2% in July, will be coming off of the largest monthly gain in the figure since November of 2005. This current estimate may be substantially conservative; afterall, the previous month’s expectations called for a 0.2% contraction. Clearly such estimates proved to be poor. Previously released data may also show that French production may be on a spree. The Purchasing Manufacturer’s Index of Manufacturing rose to its highest level since June of 2008. Manufacturing Orders in the country are also expected to rise on the month. Like the industrial production figure, manufacturing orders performed unusually strong in the previous month.
Article Source - Japan's Reliance on the World Pays Off As Exports Jump (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?
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3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
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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!