U.S Consumer Confidence will determine Today's Trend

Today's U.S. Consumer Confidence data release is set to dominate the trading between the Dollar and its major currency pairs. A number of other factors are also likely to impact the forex market today, such as the British BBA Mortgage Approvals at 8:30 GMT. The results of today's data are likely to determine the USD's trend going into rest of the week's trading.

USD - The U.S Dollar Strengthens Against Most Rivals

The greenback rebounded versus major currencies Monday, from a string of recent declines after signals at the weekend that most key central banks backed a policy of keeping their Interest Rates low for the foreseeable future.

Analysts continue to anticipate that at some point signs of strength in the U.S. economy will be read as positive for the nation's currency, ending an inverse relationship since the credit crisis began, where negative news triggered safe-haven buying of the U.S Dollar. That relationship still held back the Dollar's gains on Monday.

The USD also advanced yesterday vs. the EUR and Japanese yen as Wall Street surrendered earlier gains and traders repositioned themselves ahead of U.S. consumer and Housing data due this week. Solid U.S. data and an upbeat assessment on the economy from Federal Reserve Chairman Ben Bernanke over the weekend earlier pushed investors to take on riskier investments at the expense of the low-yielding Yen and Dollar.

EUR - Sterling Pressured; Hits 11 Week Low vs. the EUR

The EUR erased its gains versus the Dollar yesterday as Treasury yields fell and the European Central Bank (ECB) policy makers warned against succumbing to optimism with regard to the economic situation in Europe. The EUR also reversed again versus the Japanese yen after the Euro-Zone industrial orders came in much higher than expected.

But investors are keen to see how the Euro-Zone economy fares, especially after higher-than-forecast purchasing managers' index readings last week. Traders expect Germany's Ifo survey of business sentiment to be the key event for the European currency this week.

The British pound dropped yesterday against 14 of the 16 most-traded counterparts on speculation the Bank of England will depress yields on gilts, making the U.K.'s assets less attractive to foreign investors. The Sterling declined yesterday to an 11-week low versus the EUR as much as 0.6%, the weakest level since June 8th. Analysts have said that the EUR was pushed past a key options barrier at 87 pence, setting up further gains in the pair, while traders said expectations for persistently low UK Interest Rates were weighing on the British currency.

JPY - The Yen Advances as Stocks Extend Losses

The Japanese yen was broadly firmer on Tuesday as investors took a pause from a recent rush to stocks and higher-yielding currencies, with focus shifting to U.S. data later in the day for clues on an uncertain economic recovery. The low yielding Yen tends to gain when stocks and higher-yielding currencies fall or when weak economic data highlights a long and uncertain road for global recovery.

The JPY rose against all of the 16 most-active currencies after Atlanta-based SunTrust Banks Inc., Georgia's biggest lender, said U.S. financial institutions may report more credit losses as commercial real estate falters. Worries are re-emerging that regional and local banks in the U.S. may be facing more loan losses, hence causing risk aversion and buying of the Yen.

Crude Oil - Oil Trades Near 10-Month High on Economic Optimism

Crude Oil prices rose Monday, briefly touching their highest level in 10 months, as optimism about a rebound in the global economy boosted energy prices. The gains came alongside strength on Wall Street, where the stock market also briefly touched 10-month highs before pulling back slightly after a 4 day rally.

Commodities markets have tracked stocks indexes closely in recent months as dealers view equities as a leading indicator of economic performance. Oil dealers said many investors were also using commodities as a hedge against the U.S Dollar, particularly oil, as OPEC producers work to restrain supply.

However, Crude reduced its earlier gains in afternoon trade as U.S. stocks turned lower. With demand remaining weak and supplies standing abundant, the crude market could be ready for a quick and sharp downward movement.

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Currency Markets Quiet as Obama Says Bernanke to Be Nominated for 2nd Term (Euro Open)

Currency markets took little notice as US President Barack Obama announced that he will nominate current Federal Reserve Chairman Ben Bernanke to another term when the central bank chief’s term in office. The final revision of Germany’s second-quarter GDP figures and Switzerland’s Employment figures top the calendar in European hours.

Key Overnight Developments

• New Zealand’s Inflation Outlook Bolsters Case for Interest Rate Cuts
• Euro, British Pound Yield Flat Result as Bears Fail to Keep Momentum
• US President Obama to Nominate Fed Chief Ben Bernanke To 2nd Term

Critical Levels

The Euro tried lower in overnight trading, testing as low as 1.4274, but rebounded just above the 1.43 mark late into the session to yield an effectively flat result ahead of the opening bell in Europe. The British Pound followed a nearly identical dynamic, tipping a low of 1.6383 before running back up to 1.6420, the same place where it started after the close in New York.

Asia Session Highlights

The Reserve Bank of New Zealand released the Inflation Expectation report, revealing that consumer prices are expected to remain below the 2% target level in a year from the third quarter but rebound to 2.3% into the second half of 2011. Although 1-year GDP growth projections turned positive for the first time in six months, wages are set to grow at a record-low 1.7% in the same period and 2.3% in 24 months, the lowest estimate in over a decade. Forecasts of rising unemployment are surely the culprit here: unemployment expectations were revised higher yet again, now calling for the jobless rate to hit 7.2% by September 2010 and 6.7% by the same time in the following year.

As we have previously argued, the likelihood of a low-inflation environment in the near to medium term gives the Reserve Bank of New Zealand scope to lower interest rates. Such a move would help to decouple the local currency from overall trends in risky assets, helping to trim the formidable current account shortfall as well as offer some additional stimulus at a time when the government has cancelled additional fiscal measures amid concerns about the nation’s public debt, both of which recently forced downgrades of new Zealand’s sovereign credit rating by both Fitch and Moody’s.

Currency markets took little notice as US President Barack Obama announced that he will nominate current Federal Reserve Chairman Ben Bernanke to another term when the central bank chief’s term expires in January. Obama had taken atypically long to make the announcement, causing some market-watchers to suspect he will look to install someone closer to the administration into the key position. On balance, the move points to continuity in US monetary policy for the time being, though little can be reasonably assumed given the extraordinary measures taken by Bernanke and company in recent months to check the fallout from the credit crisis that erupted last year and the global recession that followed.

Euro Session: What to Expect

The final revision of Germany’s second-quarter Gross Domestic Product is expected to confirm that output grew 0.3% in the three months through June, the first positive result after four consecutive quarters of losses. The annual rate of contraction is also expected to be confirmed at -5.9%, the first improvement in the year-on-year metric since the end of 2007. Despite the seemingly positive tone of the headline figure, the comparative picture of German growth is far from favorable. A survey of economists conducted by Bloomberg suggests that the Euro Zone’s largest economy, and by extension the region as a whole, will underperform most industrialized countries at least through the end of next year. The most pronounced differentials are seen against commodity-linked counties (Canada, Australia, and New Zealand) as well as the United States. A slower pace of economic growth will mean that Europe lags behind the curve as central banks begin to raise interest rates at the onset of the global recovery, a prospect that bodes ill for the single currency.

In Switzerland, Employment is expected to have contracted at an annual pace of -0.1% in the three months to June, the first negative reading since the third quarter of 2003. The unemployment rate hit 3.7% in July, the highest in over three years, and official government forecasts suggest that it will top 5% by the end of 2010. Job losses will trim on incomes and discourage consumption, weighing on overall economic growth. Against this background, UBS will release the July edition of its monthly Consumption Indicator, a measure intended to foreshadow spending trends and thereby overall economic growth by approximately 3-4 months. The metric rose for the first time in three months in June, but UBS cautioned that the future environment “remains difficult” with unemployment “likely to increase significantly in the coming months”.

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.


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!