9.07.2009

Dollar Expects Low Volatility Today

Today is a quiet news day for the U.S. and Canada, as there are no economic data releases on the calendar today. However, Britain and Euro-zone appear to be releasing the bulk of today's news, which means we may see a day of trading with low liquidity and therefore increased volatility. Day-traders can take advantage of these intense trading days by swinging within the larger-than-normal price fluctuations.



USD - USD Downtrend to Continue; Labor Day Causes Thin Trading

The US Dollar experienced some intense trading sessions last week. Following Friday's Non-Farm Payroll data the USD quickly rose from the better-than-expected results, but ended the day significantly lower against its primary rivals as many investors dumped the greenback in exchange for riskier assets. In fact, the USD dropped against the EUR to above the 1.4300 price level, and the 1.6400 level against the Pound Sterling.

This weekend's G20 Summit also added to the Dollar's bearishness at the start of this week's trading, many analysts have said, as hawkish statements from world leaders has spurred a rally in market optimism and risk appetite. Supporting this notion is the downtrend of the Japanese Yen against all of its rivals, signaling a sell-off in safe-haven currencies - a category which the USD still falls in as well.

With US and Canadian banks celebrating Labor Day, the forex market will be experiencing thin trading today. Without these economic giants pumping liquidity into the market, most current trends will remain as they are for the next day or two, and traders can benefit by jumping into these trends before they finally come to an end.

EUR - EUR Appreciates on Growing Investor Confidence

The EUR gained support last Friday following the US's Non-Farm Payroll data which showed the US jobs sector contracting less than anticipated and enticing traders into riskier assets. The EUR, towards the close of trading last Friday, rose above the 1.4300 price level against the USD, and climbed against the GBP back towards 0.8730, while also clawing its way back to a week high against the JPY, upwards of the 133.40 price level.

Investor confidence in the Euro-Zone has been on the rise for the past few months and September appears to be set for being one of the better months for the 16-nation currency. Some reports have shown this confidence level to have reached a 13-month high, marking this month as the potential turning point in the global recession. The recent strength of the EUR supports this notion as it has begun to appreciate against all of its primary currency rivals.

As for today, the Euro-Zone and Britain will be the leading economies today considering that the US and Canada are on holiday to celebrate Labor Day. With low levels of liquidity, current trends will likely continue, but news about Germany's manufacturing sector could put a damper on recent EUR strength if it comes out much worse than expected.

JPY - JPY Takes a Dive from Positive US Employment Reports

While gaining in value steadily over the past two weeks against all of its primary currency counterparts, the JPY faced a severe downturn at the end of last week's trading. Dropping as low as 93.15 against the USD, 133.45 against the EUR, and even as low as 153.00 versus the GBP, the JPY has taken a hit as a result of the growing market optimism following Friday's employment reports from the US and Canada.

With these two massive economies missing from the market today due to the Labor Day holidays in both, the EUR and JPY may in fact be today's leading currencies. However, with the expected low level of liquidity, and lack of significant economic events, the current downtrend for the JPY will likely continue throughout the trading day. Traders still have an opportunity to enter this trend at a relatively early stage and make healthy profits.

Crude Oil - Crude Oil Price Consolidating Towards Volatile Movement

Despite the drop in the value of the US Dollar last Friday, the price of Crude Oil has actually depreciated to $68 a barrel. This commodity currently trades inside a consolidation trend with a target level of $67.50 as the breaking point. With USD traders pricing in a downward move for the greenback, it is only natural to expect a corresponding upward movement from Crude Oil in the days ahead.

As for today, however, the forex market will likely remain inside of its current trends due to the low levels of liquidity being anticipated as a result of the bank holidays in the US and Canada. As a result, the current consolidation trend being experienced in the price of Crude Oil will likely continue, with a small downtrend in the works for today's early trading hours.

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G20 Pledges to Coordinate Stimulus Exit Plans to Limit Market Volatility (Euro Open)

Finance ministers and central bankers from the G20 nations pledged to coordinate plans to exit expansionary fiscal and monetary policies in a bid to limit destabilizing volatility in the interest rate and currency markets at a summit in London, but cooperation looks less likely as the economy improves.

Key Overnight Developments

• New Zealand House Prices Rose for Fourth Month in August, Says QV
• G20 Pledges to Coordinate Stimulus Exit Plans to Limit Market Volatility
• Euro, British Pound Diverge Against US Dollar in Overnight Trading

Critical Levels



The Euro traded higher to start the trading week, adding as much as 0.3% against the US Dollar. The British Pound diverged from the single currency, slipping downward to test as low as 1.6366 against the greenback.

Asia Session Highlights



New Zealand’s House Prices advanced for the fourth consecutive month, adding 0.7% through August according to Quotable Value (QV), a government valuation agency. In annual terms, prices fell -2.8% from a year before, the smallest decline in 13 months. QV valuation manager Glenda Whitehead said that, “The housing market is strongly driven by confidence and that appears to be returning.” Indeed, Westpac’s measure of consumer sentiment rose to the highest since the fourth quarter of 2007 in the three months through June. Rising home values may create a perception of growing wealth among property owners, helping to boost consumer spending and by extension spur overall economic growth. New Zealand Finance Minister Bill English has said the economy will begin to expand again in the second half of this year. On balance, however, this may prove of little help to the New Zealand Dollar considering the central bank has pledged to keep interest rates low for now, saying they will remain “at or below current levels” until the latter part of 2010.

Finance ministers and central bankers from the Group of 20 nations (G20) concluded a summit in London with a pledge to keep expansionary fiscal and monetary policy in place for as long as need be to ensure the durability of the nascent economic rebound that has been seen over recent months. Most critically, policymakers agreed to some global coordination as countries eventually begin to unwind stimulus measures to limit volatility in interest rate and foreign exchange markets. However, building consensus on such issues as bank regulation and executive compensation is already proving difficult in the absence of imminent economic meltdown, and agreeing on a coordinated plan to withdrawing stimulus seems like it will be more daunting still, threatening sharp swings in government bond yields and the corresponding currencies.

Euro Session: What to Expect



The Euro Zone Sentix Investor Confidence indicator is expected to print at -13.7 in September, showing pessimists outnumber optimists by the narrowest margin since in 14 months. The metric hit a record low in March and has tracked European equities higher ever since, now showing a hefty 92.3% correlation with a Morgan Stanley index reflecting the average performance of EZ-based stock exchanges. Interestingly, it appears that the formation of major tops and bottoms in equities have preceded similar developments in the Sentix by about one month, meaning price action had shaped investors’ outlook as presented in the survey rather than the other way around. To that effect, it would appear that the reading offers little insight into the future direction of risk appetite and so is unlikely to make a lasting impression on currency markets.

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!