9.16.2009

USD Hits 1-Year Low on U.S Economic Pessimism

The U.S Dollar struck a one-year low against a basket of currencies on Wednesday, as investors reduced dollar holdings on views that the U.S. currency may weaken for now due to pessimism over the U.S. economy. Investors have been selling the greenback across the board as they speculate the Federal Reserve will be forced to keep its Interest Rates low for the time being to support the country's fragile economy. Looking ahead, currency players will watch for the U.S. consumer price index (CPI) for August to be released later in the day. The CPI data has the biggest potential to move forex markets, since a weak figure could lead to lower long-term U.S. interest rates, and that might prompt more Dollar selling.



USD - Dollar Reaches Lowest from Improving Risk Appetite

The U.S Dollar declined Tuesday, pushing the currency to the lowest level in a year and reversing earlier gains versus major counterparts after a pair of economic reports said U.S Retail Sales and Producer Prices rose more than economists expected, encouraging speculation that the economy is reviving.

As the global recovery continues, and risk diversification takes place, traders could see the U.S. Dollar remain under pressure for the upcoming months. Against the Japanese yen the Dollar also gave up earlier gains to trade at 91.07 yen, little changed from 91.02 yen late Monday.

The greenback was also undermined by gains in global stock markets, which reduced the USD appeal as a safe haven. For months, the greenback has tended to move in the opposite direction as equities as investors' willingness to buy riskier assets fluctuates. That trend has shown signs of diminishing in the past month or so, and resuming its more traditional correlation to economic data.

Traders have sold the U.S. currency heavily so far this month as optimism about a global economic recovery diminished safe-haven demand. The prospect of low U.S. yields and concerns about the widening U.S. fiscal deficit fueled Dollar selling.

Today in focus will be a slew of U.S. data to be released later in the day. The U.S. consumer price index (CPI) for August, 2nd quarter current account data, August industrial production numbers and September NAHB housing data are all due.

EUR - Pound Drops versus USD and EUR

The EUR dropped early Tuesday versus the Dollar after the ZEW German Economic Sentiment index showed weaker than expected results; however, the common currency later trimmed its losses, trading at $1.4671, from $1.4614 versus the Dollar on Monday.

The British Pound was the big mover on currency markets, dropping versus the greenback and falling to a 3-month low versus the European single currency after Bank of England (BOE)Governor Mervyn King said the Monetary Policy Committee was considering a cut in the deposit rate paid on some reserves held by commercial banks at the BOE. The GBP fell 0.5% versus the USD to $1.6498. The EUR advanced to its highest level against the GBP since June, trading at 88.94 pence

While a slow news day is expected from the Euro-Zone today, the release of the British Unemployment data at 8:30 GMT might help the Pound to regain some of its losses. The release of the Euro-Zone CPI report might weigh down on the common currency if the number is worse than expected, sparking fears of deflation.

JPY - JPY Down after Release of Encouraging US Data

Japan's currency traded at 133.45 per EUR early morning, from 133.47 yesterday in New York. It traded at 91.02 per USD from 91.05. The Yen is being sold as investors move away from risk averse trading and into higher yielding assets following encouraging economic data from the US which signaled the recession is coming to an end.

The release of the Industrial Production report today at 13:15 GMT is predicted to show an increase of 0.6%, the most since October. This will likely contribute to further sell off of the Yen versus its riskier counterparts.

Crude Oil - Crude Prices Near $71 a Barrel

Crude Oil fell nearly 1% toward $71 on Wednesday, giving up some of the previous day's gains of 3%, as a higher-than-expected rise in oil product stocks outweighed news signaling a U.S. economic recovery.

Though Crude Oil has more than doubled from this year's low of $32.70 hit on January 20, it is trading 72$ below the record high of more than $147 struck in July 2008. Economists expect Crude prices to hover between $60 and $70, as demand has still not recovered to the extent that would help to sustain prices above $70.

The American Petroleum Institute said in its weekly inventory report after Tuesday's close that crude stocks rose by 631,000 barrels last week, against the forecast for a 2.4-million-barrel drawdown. The oil market is currently focusing more on EIA data than equities or the Dollar, analysts have said.

While today's release of US inventory data due at 14:30 GMT is expected to show a drop in stockpiles, a modest drop might not be enough to push Oil on another rally as inventories are still at their highest level.

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British Pound Selling Continues With Unemployment to Set 12-Year High (Euro Open)

The British Pound fell against the US Dollar in overnight trading ahead of a report that is set to show the unemployment rate hit a 12-year high of 5% in August. The Euro Zone Consumer Price Index and Swiss Retail Sales are also on tap.

Key Overnight Developments

• Australia Won't Raise Interest Rates Until Next Year, Says Westpac
• Euro Flat, British Pound Lower Against USD in Overnight Trading

Critical Levels



The Euro consolidated in a narrow range below the US session high at 1.4686 in overnight trading. The British Pound moved lower, slipping as much as -0.4% against the US Dollar.

Asia Session Highlights



Australia’s Westpac Leading Index added 1.1% in July, rising to the highest level in seven months. The index fell -1.8% from a year ago, the smallest decline since October 2008. The metric seeks to forecast how the economy will perform over the coming three to nine months. Westpac chief economist Bill Evans said the upswing in the index over recent months points to “a significant improvement in [Australian economic] growth prospects in 2010.” However, Evans noted that the bank does not expect future growth will be “sufficiently robust” to warrant to raise interest rates before next February, reinforcing the cautious tone of the minutes from September’s RBA monetary policy meeting.

Euro Session: What to Expect



The UK labor market is likely to show continued weakness as Jobless Claims rise by 25,000 in August, pushing the unemployment rate (known in the UK as the Claimant Count) to a 12-year high at 5.0%. More of the same is expected going forward: a survey of economists polled by Bloomberg forecasts the jobless rate will top 9% next year. Continued job losses will trim incomes and discourage spending, threatening the economy’s ability to sustain recent improvements and potentially adding to selling pressure on the British Pound after yesterday’s damaging comments from Bank of England Governor Mervyn King. For our part, we sold GBPUSD at 1.6617.

In the Euro Zone, the Consumer Price Index is set to show inflation shrank at an annual pace of -0.2% in August, confirming initial estimates. To that effect, the reading may already be priced into the exchange rate and, barring unforeseen revisions, looks unlikely not produce a meaningful response from the currency markets. The longer-term view is not encouraging for the single currency, however: while the August reading amounts to a slight improvement from the previous month’s -0.7% contraction, the bottom line is that prices are set to decline for the third consecutive month, threatening to bring economic growth to a virtual standstill if expectations of lower prices in the future encourage consumers and businesses to perpetually delay spending and investment. This leaves the door open for traders to punish the Euro in the months ahead if it becomes clear the currency bloc is heading for a long-term period of sub-par performance and low interest rates.

Swiss Retail Sales are expected to add 0.7% in the year to July, a reading slightly lower than the previous month’s 0.9% result. Shrinking prices have boosted consumers’ purchasing power in recent months, encouraging spending, but continued deflation threatens to work against retail activity if it translates into entrenched expectations of even lower prices in the future. Rising unemployment is also setting up to be a formidable obstacle: the jobless rate surged to 3.8%in August, the highest in over three years, and is expected to hit 5% next year.

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!