USD - Dollar Falls as Labor Day Holiday Takes Its Toll
The U.S. Dollar fell against a number of its major crosses due to U.S. markets being closed. Looking at Monday's trading as a whole, the Labor Day holiday in the U.S. took its toll on the American currency. In early trading yesterday, the USD fell to a near 2 week low vs. the British Pound. This was after Kraft Foods stated that it made an offer to buy British chocolate maker Cadbury. Despite the low trading volume on Monday, it seems that risk appetite was high, and high-yielding currencies became more attractive. The Dollar Index dropping by 0.2% to 78.00 yesterday is evidence of this.
The USD/JPY cross fell by 25 pips yesterday to the 92.85 level, as many traders ditched the U.S. currency for the Yen due to the improving global economy and the thin trading of Labor Day. The Australian Dollar hit a 1 year high vs. the U.S. Dollar on Monday. The AUD was helped due to rising Gold and Crude Oil prices as of late, which Australia's currency is highly dependent. In addition, Australia's currency is in much greater shape than that of America. The Canadian Dollar made some inroads into the greenback. By the end of yesterday's trading, the EUR/USD pair closed unchanged at 1.4332.
Looking ahead to today's trading, there is the U.S. Consumer Credit figures at 19:00 GMT. The other releases that are expected to affect the main USD crosses are the British Manufacturing Production at 08:30 GMT, the German Industrial Production result at 10:00 GMT and Canadian Building Permits figures from at 12:30 GMT. The volume today is likely to be high following yesterday's bank holidays in both the U.S. and Canada. We might see the EUR/USD and GBP/USD close over 100 pips away from the opening. If you want to make big profits today, buy into the USD's crosses now.
EUR - EUR Trading Dominated By Optimistic Data
On Monday, EUR trading was driven by German Factory Orders rising for the 5th consecutive month in July by a higher than forecast 3.5%. This was much needed confidence for Europe's largest economy. Major benchmark indexes rose in all the western European markets. The German DAX climbed by 1.5%, and the British FTSE 100 added 1.7%. Despite the positive figures from Germany, Europe's biggest economy is still a long way away from returning to desirable levels. It can be said that the recent G20 Meetings helped return confidence to the European currency.
The EUR snatched a 3rd consecutive day of gains against the British currency, as the pair rose by 30 pips to close at the 0.8777 level. This was largely due to German industrial data helping the EUR, which was much needed boost for the European currency. The EUR/USD cross finished trading unchanged at the 1.4232 level. This was owed to the U.S. Labor Day bank holiday. The GBP/USD pair rose in earlier trading yesterday, but ended up 60 pips lower at the 1.6343 level. The GBP declined yesterday, due to an equity market rally, which led to traders dropping the cable.
Today, there is much economic news that is expected to determine the value of the both the EUR and GBP. There is the British Manufacturing Production at 08:30 GMT, the German Industrial Production at 10:00 GMT, and the British Nationwide Consumer Confidence at 23:01 GMT. There is likely to be a continuation of much of Monday's trends. However, the volatility may increase a lot, as regular trading returns to the forefront. It is advisable to buy into the main EUR, GBP, and CHF crosses, as today's trading kicks in.
JPY - JPY Expected to Slide
The Yen fell to its lowest level in a week vs. the EUR. However, the EUR/JPY eventually finished yesterday's trading 30 pips lower at the 133.18 level. In the coming days, it seems that the Japanese currency may slide as global equities are expected to rise. Analysts expect this to reduce demand for the JPY as a safe-haven. This behavior was already seen on Monday, as the JPY dropped vs. the AUD and the NZD.
The recent election victory of the Democrat Party has led to much speculation amongst investors that the JPY may slide in the coming weeks and months. Many people believe that this inexperienced party will increase taxes too high, and will be unable to handle Japan's finances well. Therefore, these analysts conclude that there may be a downward spiral of the Japanese currency in the near future.
Crude Oil - Crude Oil Eyes OPEC Meeting
Crude Oil finished trading virtually unchanged at $68.12. This behavior was largely owed to the U.S. markets being closed on Monday. Therefore, there was lower than usual volatility in both the forex market and the commodity market. Furthermore, in mid-trading many investors ditched Crude Oil for equities, which was initiated by the announcement of the attempted takeover bid by Kraft Foods of Cadbury.
OPEC is set to meet on Wednesday 9th September, and is expected to maintain the production target of 24.845 million barrels a day in Vienna, according to Kuwaiti Oil Minister Sheikh Ahmed Al-Sabah. As trading volume returns back to normal today, there is likely to be very high fluctuations in the price of Crude Oil. Traders will be keeping one eye on tomorrow's OPEC meeting, and another eye on USD strength.
Article Source - Forex Market to Move on News Coming from Europe and Canada
Key Overnight Developments
• Japan: Current Account Shows Continued Exports Slump, Merchant Sentiment Falls
• Australian Business Confidence Rises to Highest in Nearly Six Years, Says NAB
The Euro traded sideways in the overnight session, with prices confined to a narrow 15-pip range above 1.4330. The British Pound followed suit, oscillating in a choppy 40-pip range below 1.6360.
Asia Session Highlights
Japan’s Current Account balance registered at 1.3 billion yen in July, up from the 1.2 billion registered in June. Still, the overall trend continues to point lower: the surplus shrank -19.4% from year earlier as exports fell -37.6%, driven lower as the global economic downturn translated into weaker foreign demand for Japanese cars and electronics. More of the same is likely going forward: although manufacturing has rebounded over recent months, spurred by global fiscal stimulus efforts (including “cash for clunkers” programs in the US and Germany that target autos) and a restocking of inventories, the International Monetary Fund (IMF) has said in its latest world economic outlook that advanced-country exports will rebound just 1.3% after falling by a staggering -15.0% in 2009.
Separately, the Eco Watchers survey revealed that Japanese merchant sentiment declined for the first in eight months in August. The forward-looking Outlook component of the report fell for the second consecutive month, suggesting rising unemployment is starting to overwhelm the effects of aggressive fiscal stimulus on consumer spending.
Australia’s Business Confidence surged to the highest in nearly six years in August according to the National Australia Bank. The bank abandoned its previous forecast calling for the economy to shrink this year, now saying output will gain 0.6% in 2009, while chief economist Alan Oster said the outcome “clearly points to continuing strong growth in demand in the third quarter.” Oster added that sharp improvements in confidence “erode the case for maintaining emergency lows in interest rates.” Details of the report are less encouraging than the headline figure, however. The upswing looks to have been driven by a jump in the Profitability sub-index, which began to rebound along with industrial commodity prices (Australia’s chief export sector) at the beginning of the year. Commodities could reverse lower in the months ahead as China, Australia’s largest trading partner, begins to rein in expansionary economic policy. This would reflect detrimentally on profitability and send the overall confidence metric lower. Indeed, sub-indexes tracking Forward Orders and Export Sales both declined in August for the first time in three months.
Euro Session: What to Expect
Switzerland’s Unemployment Rate is expected to rise to 4.1% in August, the highest in 11 years, pointing to mounting headwinds for consumer spending and thereby overall economic growth. In fact, the jobless rate may actually be understating the total impact of the current downturn on consumers’ spending power as many firms looked to cut costs by switching a portion of the workforce to a “short-time” schedule, which amounts to fewer hours and thereby smaller paychecks. Naturally, this trims disposable incomes and adds to already formidable disincentives to consume. Although exports are heavily represented as a component of Swiss economic growth, domestic demand is still by far the most important driver of activity, contributing about 60% to total output. The government has forecast that the economy will shrink -2.2% this year and rebound just 0.1% in 2010.
Germany’s Current Account surplus is set to narrow to 10.0 billion euro in July, down from 13.3 billion in the previous month. The outcome falls firmly within the downward trajectory that has been in place since the surplus peaked in the third quarter of 2007. As with Japan’s trading terms, this corresponds closely to the cyclical peak in US personal consumption of durable goods (Germany’s top export sector). Rising unemployment suggests it will be some time before a meaningful pick-up in American consumers’ demand for big-ticket items, meaning sales should remain lackluster for German exporters. Indeed, economists polled by Bloomberg predict that the external sector will contribute an average of 4.1% to overall economic growth this year and in 2010, the smallest in 6 years. To that effect, expectations of continued moderation in Industrial Production (set to print down -15.8% in the year to July versus -18.1% in the previous month) may not have much staying power in the months ahead.
The pace of decline in UK Industrial Production is set to slow for the fifth consecutive month, with forecasts calling for output to shrink -10.1% in the year to July. As with similar developments in Japan and Germany, the improvements over recent months have been driven by global fiscal stimulus efforts and the inventory cycle. Going forward, however, it remains to be seen if the rebound will continue absent a meaningful recovery in private demand as countries unwind expansionary policies and restocking is completed.
Turning to risk trends, equity index futures are trading 0.6% higher ahead of the opening bell in Europe, pointing to likely gains for the Euro, the British Pound and the commodity currencies at the expense of the safety-linked US Dollar.
Article Source - Euro, British Pound May Gain Against US Dollar as Stock Futures Rise (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.
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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.
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Good luck to everyone!