Commodity prices Surprise with Bullishness as USD Weakens

With recent market volatility, the price level for a few currencies and commodities have begun to see prices not seen since last year. For instance, the USD fell to its lowest in almost a year during yesterday trading session after gains in global stocks. Gold has also shocked the market lately with continues uptrend, rising above $1000 for the first time since March 2008. With rallies this large, the forex market becomes more predictable, and traders can reap the benefits!

USD - The Dollar Tumbles to 2009 Low

The U.S. dollar fell to a new yearly low against the EUR and dropped against other major rivals Tuesday as investors continued to show a rising appetite for risk. Better economic data from Germany and Britain also supported investors' risk appetite at the margin. The U.S. dollar, seen as a safe-haven in uncertain times, usually tends to fall when hopes of a global recovery rise.

The greenback's weakness came against a backdrop marked by a push higher in equities and improving economic data abroad, as well as renewed questions about the role of the Dollar as the world's premier reserve currency. The greenback was universally sold on reignited concerns about the capacity of the U.S. dollar to retain its global reserve status. The USD even lost ground to another safe-haven, the Japanese yen, suggesting the selling was more than just a shift to risk. The Dollar was down at 92.30 yen, having shed nearly 0.8% on Tuesday.

Renewed concerns about the status of the U.S dollar as the world's reserve currency sparked by a United Nations agency report on Monday and news out of China expressing concern about printing money to fund Treasury purchases have also weighed on the Dollar. The USD was pushed lower by several news headlines with the UN report and the China news, analysts said. All these things are dollar negative. This is a reminder that the U.S. dollar is poised for some weakness in the months ahead.

EUR - EUR Rises Above $1.45 as Risk Appetite Returns

The European currency rose toward a 9 month high against the U.S dollar before a government report forecast to show French industrial production increased, boosting demand for higher-yielding assets. The EUR extended gains versus the Dollar on Tuesday amid a rise in global stocks and commodities. The currency advanced against the Yen for a 5th day as investors forecast consumer confidence in Japan climbed to 40.2 in August from 39.7 in July, boosting demand for higher-yielding assets.

The EUR is also benefiting from uncertainty about the U.S. economy. The Euro-Zone is likely to see a hike in Interest Rates before the U.S. does. The Euro-Zone currency also advanced as economists said the Paris-based statistics office Insee may report factory output in France gained 0.4% in July after rising 0.3% in June. The data is due Thursday.

The GBP saw a big jump, meanwhile, rising 0.9% against the U.S dollar to trade at $1.6530, as U.K. manufacturing output for July came in much stronger than forecast. The British pound dropped against the Yen for a second day amid speculation the Bank of England (BOE) this week will expand its asset-purchase program, adding to signs the economic recovery will be sluggish. The Bank of England is scheduled to announce its monetary policy decision on Thursday with the central bank widely expected to keep Interest Rates unchanged.

JPY - Yen Extends its Bullish Run against the Dollar

The Japanese yen rose against the EUR and U.S dollar before a government report that economists say will show U.K. industrial production grew in July at a slower pace, boosting demand for Japan's currency as a refuge. The Yen also strengthened after the Ministry of Finance said Japan's current-account surplus fell to 1.27 trillion yen ($13.7 billion) in July from a year earlier.

The Yen has already risen above levels expected by major manufacturers for the current fiscal year, and is showing signs of strengthening again. If the U.S dollar falls below 92 yen the impact may be big and such concerns are weighing on stocks, analysts said.

Crude Oil - Oil Jumps above $71 on Eve of OPEC Meet

Crude prices rallied more than 4% Tuesday, as sharp weakness in the U.S. dollar boosted commodities, and as energy traders looked ahead to the upcoming meeting of the OPEC oil cartel. The gains came as the U.S dollar slumped to its lowest level in almost a year against a basket of currencies and gold rallied above $1,000 an ounce, its highest since March 2008.

The Organization of Petroleum Exporting Countries, which accounts for about one-third of the world's oil production, is scheduled to meet Wednesday in Vienna. Analysts expect the cartel to keep its production quota unchanged while pressuring member countries to comply with their current production limits.

Oil prices, which fell 6.5% last week, have been trading in a range between $65 and $75 a barrel since the start of August, with prices swinging on economic data as investors seek clues about the speed of a recovery from the recession. Investors will be on watch for inventory data, delayed by a day this week due to Monday's holiday. The U.S. Energy Information Administration report will be issued Thursday at 15:00 GMT.

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Australian Dollar Retreats on Disappointing Retail Sales, Lending Data (Euro Open)

The Australian Dollar fell sharply lower, losing its grip on the 0.86 level against the US Dollar after Retail Sales, Home Loans and Investment Lending figures disappointed, showing that fading fiscal stimulus and rising borrowing costs may be undermining Australia’s economic recovery.

Key Overnight Developments

• Australian Recovery Losing Steam as Retail Sales, Lending Tumble
• UK Consumer Confidence Rose to Highest in Over a Year, Says Nationwide

Critical Levels

The Euro tried to regain a foothold above the 1.45 level but failed to retain bullish momentum to end the overnight session effectively flat. The British Pound drifted a bit higher, adding 0.2% against the US Dollar ahead of the opening bell in London.

Asia Session Highlights

Australia’s Retail Sales unexpectedly fell -1.0% in July, disappointing economists’ forecasts for a gain of 0.5%. Department store sales led losses to slip -3.6%, the most in five months, while food and apparel sales fell -1.9% and -0.6% respectively. The report suggests the boost to spending from the government’s A$20 billion in cash handouts is beginning to dissipate, with retail activity likely to accelerate lower as unemployment continues higher. Indeed, a survey of economists conducted by Bloomberg forecasts the jobless rate, now at a six-year high of 5.8%, will rise to average 6.25% this year and 7.9% in 2010.

Rising borrowing costs may prove to be another hurdle for the nascent economic recovery: while the RBA has kept benchmark interest rates on hold at 3% since February, the cost of borrowing in Australian Dollars for six months or longer in the interbank market has gradually crept higher over recent months. This will act as a barrier to spending and investment, weighing on economic growth. Indeed, Investment Lending and Home Loans both fell in July, the former by the most since January and the latter for the first time in 10 months.

The Westpac Consumer Confidence index offered a bit of a counterbalance to an otherwise negative batch of Australian economic data, growing 5.2% in September to rise to the highest level in over 2 years. However, it is important to note that the Westpac metric bottomed about five months before the trough in economic growth in the fourth quarter of last year, suggesting sentiment is running well ahead of underlying economic conditions.

In the UK, Nationwide Consumer Confidence rose to the highest in over a year in August, printing at 63 versus a revised reading of 61 in the previous month. Details of the survey did yield some ominous signs however: the number of respondents expecting higher incomes and planning major purchases in the next six months both declined. On balance, the sentiment index has largely tracked the FTSE 100 index, with the two now showing a formidable 91.8% correlation. If consumers’ perception of the economy is driven by the stock ticker, their confidence may prove fleeting if shares were to correct downward. For our part, we’ve argued for some time now that equities have done too much, too fast in recent months: global issues finished August trading at levels unseen since 2003 relative to earnings; the world economy grew nearly 3% in real terms that year, whereas virtually every credible forecast calls for the first post-WWII contraction in real GDP growth in 2009, pointing to lackluster revenues and overvalued equities.

Euro Session: What to Expect

The final revision of Germany’s EU-harmonized Consumer Price Index is set to confirm that the annual pace of inflation held flat in August after slipping -0.7% in the previous month. Still, the threat of deflation remains viable for the Euro Zone’s largest economy: a survey of economists polled by Bloomberg suggests CPI will continue shrinking through the third quarter and return positive growth by the end of the year; this may prove to be too rosy considering the role of fiscal stimulus and the inventory cycle in engineering the latest upswing in economic growth as well as the European Central Bank’s apparent inability to offer effective monetary easing. Indeed, the big question for Germany as well as most anywhere at this stage being whether growth will continue after the flow of government cash dries up. Prices could easily slip back into negative territory if output begins to flounder once again, helped lower by a general slowdown in the pace of economic activity as well as downward pressure on input prices (especially that of oil) that is likely to come if recent stabilization is revealed to be little more than a temporary reprieve in a larger down trend.

Turning to the UK, the Trade Balance deficit is expected to narrow to -2.0 billion pounds in July from -2.18 billion in the preceding month. Traders will be watching to see if the headline improvement comes courtesy of a drop in imports, thereby reflecting continued weakness in domestic spending, or a pickup in exports. However, as we noted yesterday when discussing July’s Industrial Production figures, rising overseas sales would like owe most of their gains to global fiscal stimulus efforts and the inventory cycle. Going forward, 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.

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!