USD - Dollar Extends its Gains against the EUR and Pound
The U.S. Dollar extended its gains against the EUR and Pound yesterday. The Dollar Index, which tracks the USD vs. its 6 most traded currencies, such as the EUR, Pound and Yen, showed a 0.4% increase to 79.31 on Monday. This added to last week's rise of 0.8% in the index. Monday's USD trading behavior was due to last week's better than expected unemployment, manufacturing, and consumer confidence figures. Adding to the USD's gains yesterday was the increased speculation that in the long run, the U.S. economy is likely to grow at a faster pace than the Euro-Zone, Britain and Japan.
The realization that the USD is much undervalued against the EUR was one of the main reasons for the extension of the USD's bullishness vs. the EUR yesterday. The pair fell by 70 pips to 1.4130 at yesterday. The greenback also made great inroads into the British Pound yesterday, as British banking woes reemerged, and deflation fears kicked in. This led to a massive slide in the GBP/USD pair by 235 pips to 1.6475. The USD also rose against the Canadian Dollar, as the CAD slid on the much weaker metals and energy sectors yesterday, which Canada's economy is highly dependent upon.
Looking ahead to today, we can expect much volatility in the forex market following yesterday's bullish trend in the USD. Today, unlike yesterday, the U.S. will be present when it comes to economic news. The major news events to drive USD trading today are the release of Prelim Nonfarm Productivity and Prelim Unit Labor Costs data both at 12:30 GMT, and Wholesale Inventories at 14:00 GMT.
EUR - Pound Slides on Fears of Worsening British Economy
The Pound slid dramatically against it major currency pairs yesterday, as fears increased over the health of the British economy. The Bank of England's (BoE) decision to increase quantitative easing last week, and the collapse of British banking and energy stocks on Monday raised fears that the British economy may yet again fall into the abyss. With regards the Euro-Zone, the EUR fell on the assumption that Europe's economy will grow at a slower pace than the U.S. This resulted in higher demand for the USD yesterday, adding to the EUR's losing streak.
The EUR/USD pair plummeted to the 1.4170 level yesterday. This came about as the latest misfortune for the EUR against the USD possibly signals that the best is over for the European currency. This comes about as German banks face the threat of corporate downgrades. The GBP/USD pair fell by a massive 235 pips yesterday, as the British economy is fairing worse than the U.S. at the current time. It seems that the behavior that we see now in the forex market signals that conditions may be favoring a possible Dollar rally in the medium term against the GBP and EUR.
Today we may see a further bearish move for both the EUR and GBP against the most traded currencies. This is provided that economic conditions continue to favor the USD. There are plenty of economic news events today that may determine this. These include the Trade Balance and the DCLG HPI figures from Britain at 08:30 GMT. Coming out of the Euro-Zone are the German Final CPI and German WPI at 06:00 GMT, and the French Gov Budget Balance at 06:45 GMT. These figures are likely to determine the EUR and GBP crosses in todays trading.
JPY - JPY Soars against the Major Currencies
On Monday, Japan recorded a better than expected increase in Machinery Orders in June, the first increase in 4 months. However, other data showed that the Japanese economy was still in dire straits. Despite this, the Yen gained against its most traded currencies yesterday. For example, the GBP/JPY cross fell by 280 pips to the 159.74 level. This occurred as a decline in global equity markets led to a decline in riskier currencies, such as the GBP. Also, yesterday's gains mark a correction from the bullishness we have seen in the GBP/JPY and USD/JPY crosses in the past few weeks.
Today, there is yet another opportunity for the Yen to build on its recent gains as the global economy destabilizes yet again. This is despite the fact that growth is expected to return to the U.S. economy in the 3rd quarter. There are 3 vital news events coming out of Japan that are expected to drive JPY trading for much of the day. These include the Monetary Policy Statement, Overnight Call Rate and the BOJ Press Conference. The results of these publications may see the JPY go bullish yet again today against the greenback, British Pound and EUR.
Crude Oil - Crude Oil Slips Below $71
Crude Oil slipped 40 cents to $70.70 a barrel yesterday, as the Dollar rebounded against the EUR, which in turn reduced the need for commodities as an alternative investment. Crude's fortunes were further dampened yesterday, as there was a slump in equities in both the U.S. and Europe. Additionally, commodities also suffered in yesterday's trading. One of the main reasons for this was the strong USD, which is highly important, as Crude Oil itself is priced in Dollars.
The black gold may be helped today, if we see a fall in the value of the USD. Playing on Crude Oil's downside too is the fact that demand can't keep up with prices. Moreover, it seems that the price of Oil may have been overvalued as of late, and a slight correction in the market may take place in order to determine the real value of this commodity.
Article Source - Dollar Rallies vs. Most Rivals but Loses against the Yen
Key Overnight Developments
• Australian Business Confidence Rises to Two-Year High
• Bank of Japan Says Conditions Are Improving
• China Exports Surge on Rise in U.S. Demand
Euro price action remained mostly calm throughout the day after five consecutive sessions in which the currency lost value against the U.S. Dollar. Losses on the pair may be coming to an end after inching closer toward upward sloping support dating back to the lows on 06/16, 07/08, and 07/30. At the time of this publishing the British Pound
Asia Session Highlights
New Zealand purchases made with either credit or debit cards rose by 0.8% in July after a month in which they fell by 1.0%. When adjust for seasonality effects, such transactions rose by 1.2%. Most of the activity came from the non-retail and consumables industries. This marks the fifth time in six months that the metric rises. As such, the trend for purchasing goods with electronic cards has been upward. A closer look reveals that New Zealanders have actually been reducing their reliance on credit. July marked the 10th straight month in which the annualized percentage of card purchases were based on credit declined.
Australian Business Confidence rose to a two-year high as global activity saw demand for Australian-made goods unexpectedly jump. Indeed a National Australian Bank survey of business confidence rose to an index level of 10 from a level of 4 in July. Marked by an impressive June, which saw the trade deficit shrink on a 1.5% gain in exports, businesses may be feeling a bit more optimistic about their future state. Reserve Bank of Australia seems to be sharing some of the sentiment. At their latest meeting on July 04, the bank stated that "economic conditions in Australia have to date not been as weak as expected a few months ago." Indeed, they also revised their growth estimate significantly upward by 0.5% after initially expecting the economy to contract by 1.0%.
China’s Exports surged ahead 10.5% in July from the month prior. The yearly figure, however, continued to decline from that of June. Overall, the trade balance actually improved to $10.63 billion from $8.25 billion. Business with the United States continued to improve for a second straight month as exports to the country jumped 14.21%.Despite the resurgence in export activity Consumer Prices in the nation declined more than expected by 1.8% vs 1.6%, marking the seventh straight month in which deflation gripped the economy.
Not surprisingly, the Bank of Japan left its policy rate at 0.10% by unanimous vote.The statement accompanying the release made it a clear point that “Japan’s economic conditions have stopped worsening.” They cited improvements in exports and production after Machine Orders rose 9.7% with such orders from abroad surging 43.8%.Overall exports had risen 6.3% as well. Despite the initially positive tone in the statement, the bank noted that there would likely be an acceleration in the rate at which prices decline.They did, however, state that a significant reason for the year-over-year decline in prices was due to the historically high cost of oil last summer compared to the price of the commodity at the present time. The Bank of Japan offered no new insights as to any possibly redirection in the manner that they conduct their monetary policy.
Euro Session: What to Expect
Germany will be releasing the final revision of July’s Consumer Price Index. Preliminary data showed that such prices declined 0.1% in the period, but had contracted 0.6% in the 12 months leading up. Wholesale Prices, however, will be more closely watched. The consensus forecast expects the price of raw goods to have declined by 9.7% in the year through July. A sharp move down is very likely after Retail Sales plummeted in the month prior. Expectations for the figure had called for an increase in such spending of 0.5%, but in reality, consumers reduced their expenditures by 1.8%. Decreases in the amount of inventory sold would lead store owners to also decrease the demand for the consumer goods they wish to sell. As such, one might expect production of these items to decline as well. Such a dynamic might then lead the sellers of wholesale goods to decrease their prices in an effort to induce manufacturers to purchase such materials while they’re still affordable. Furthermore, July saw employers within Germany shed 6,000 jobs after expectations had called for an increase of 43,000 of such positions. The downward pressure exerted on the broader price scheme by a country with dwindling working population will likely be seen in tomorrow’s data release.
The Visible Trade Balance for June is expected to have slightly improved from its current deficit into one that is not as wide. A move to a £6200 million deficit would be the best of such cases since May 2006. UK House Prices, according to the Department of Communities and Local Government (DCLG) are expected to have slowed the pace of deterioration in the year through June. We might, however, see the mentioned pace decline by even more than that which is expected by a survey of economists. During the Asian session we saw the RICS House Price Balance beat expectations by a significant amount. While forecasts called for this figure to decline by 10.0% (which still would have been better than the previous decline of 17.6%), the realized figure was published at -8.1%. This surprisingly optimistic result may spill into the DCLG figure.
Written by Luis Gil, DailyFX Research
Article Source - Wholesale Prices Expected to Decline Sharply, Euro May Follow (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.
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