9.17.2009

USD Continues Decline; Slow Economic Recovery Expected

With recent fears over inflation and fiscal deficits, the market surprisingly appears calmer than it should be. The USD has continued its decline, suggesting that either faith in the American economy is fleeting, or investors are increasing their risk appetite and dumping US Treasuries. Either way, the decline in the value of the USD has helped boost energy prices and fueled export growth worldwide. Economic recovery seems to be underway, but many caution that it will still be a long and bumpy ride.



USD - Dollars Falls on Market Optimism

The Dollar dropped to near 1-year lows against most of its major currency pairs yesterday as optimism about the global economy eroded the greenback's safe-haven appeal. By yesterday's close, the USD fell against the EUR, pushing the oft-traded currency pair to 1.4730. The Dollar experienced similar behavior against the GBP and closed at 1.6492.

Traders have sold the Dollar heavily this month as recovery hopes have diminished safe-haven demand. The prospect of low U.S. yields and concerns about the U.S. fiscal deficit also fueled Dollar selling. In addition, market participants increased bets on stocks and commodities, encouraged by better-than-expected U.S. consumer price index (CPI) and Industrial production data yesterday, while Federal Reserve chairman Ben Bernanke said the U.S. recession was most likely over, though he also warned the recovery would be slow.

Today's Unemployment Claims and Building Permits releases are expected to have a strong impact on the U.S currency. Any result could be a surprise, and the Dollar could go either way as a result. In any case, traders are unsure how the market will react to today's data. A weak report could feed risk aversion, boost Treasuries and actually aid the U.S Dollar. Then again, a better than expected result might be seen as a sign of relative U.S. economic strength, and lift the Dollar. Or it could also encourage risk-taking and aid commodities and higher-yielding currencies at the Dollar's expense.

EUR - EUR Rises on Weaker Dollar

The EUR strengthened against most of its major currencies yesterday as gains in stocks and commodities prompted investors to wade into riskier currency trades. The 16 nation currency extended gains to hit a near one-year high against the dollar and closed at around 1.4714. The EUR experienced similar behavior against the CHF as the pair rose from 1.5150 to 1.5195 by day's end.

The EUR was affected by the global stock market rally and the bearish Dollar. The U.S. stock market rally led investors to buy-back into the EUR, as they looked for returns on buying commodity-linked and higher-yielding currencies in Wednesday's trading.

The Sterling extended losses against the EUR and JPY yesterday, after U.K. unemployment jumped to the highest level since 1995 as the recession destroyed work in industries from banking to construction, stoking concerns about the pace of recovery in the British economy. The GBP was also down 0.8% against the EUR at 0.8920.

Looking ahead to today, the most important economic indicator scheduled to be released from Britain is the Retail Sales report at 8:30 GMT. Analysts are forecasting this figure to decrease from its previous reading. Traders will be paying close attention to today's announcement as a better than expected result may boost the GBP in the short-term. Traders are also advised to follow the Trade Balance figures coming out of Euro-Zone at 9:00 GMT, as this result may set the EUR's main currency crosses going into today's trading.

JPY - USD/JPY Hits 7-Month High

The Yen completed yesterday's trading session with mixed results versus the other major currencies. The JPY was broadly unchanged versus the EUR yesterday and closed its trading session around the 133.70 level. The Japanese yen also saw bullishness against the Dollar, closing in on a 7-month high against the U.S. currency after Japan's incoming finance minister said a strong yen had advantages for the nation's economy.

The Japanese market should have a heavy effect on the JPY versus its major currency counterparts, as the Overnight Call Rate will be announced today. The rate is expected to remain unchanged, but traders should pay close attention to the BoJ Press Conference that will follow to look for expectations of Japan's economic future. A bullish statement from the BoJ could lead some traders to believe that it is forecasting a rosier financial climate in Japan.

Crude Oil - Crude Oil spikes on Better Inventory Data

Crude Oil prices experienced another day of appreciation as the oft-traded commodity rose above $72.80 during yesterday's trading session. Oil prices traded up for the second straight day. This has been compounded by a weaker Dollar that has also caused investors to flee to commodities such as Crude Oil.

Moreover, with crude oil inventories in the US shrinking more than anticipated, there is a chance that prices will continue to rise as demand climbs from market optimism and economic growth. These factors point to the notion that Crude Oil's price may stumble across more support in the near future and continue to rise.

Article Source - USD Continues Decline; Slow Economic Recovery Expected
USD Continues Decline; Slow Economic Recovery ExpectedSocialTwist Tell-a-Friend

Swiss Franc in Focus as SNB Announces Rates, Currency Policy (Euro Open)

The Swiss Franc may see volatility ahead as the Swiss National Bank gets set to make their quarterly monetary policy announcement, including an update on their policy of intervention into the currency market to prevent the appreciation of the currency. UK Retail Sales and the Euro Zone Trade Balance are also on tap.

Key Overnight Developments

• Japanese Service Demand Rises to Highest Since February
• NZ Manufacturing Shrinks at Faster Pace as Orders Plummet
• Bank of Japan Holds Rates at 0.10%, Raises Economic Forecast

Critical Levels



The Euro advanced in the overnight session, testing as high as 1.4734 to the US Dollar. The British Pound initially moved downward, touching as low as 1.6468, but recovered late into the session to trade little changed ahead of the opening bell in Europe.

Asia Session Highlights



Japan’s Tertiary Industry Index grew slightly more than economists expected, adding 0.6% in July to show that demand for services has rebounded to the highest level since February. The result likely owes to continued support from the government’s record-setting 25 trillion yen stimulus package. Indeed, government spending accounted for the bulk of economic growth in the second quarter. The question now facing Japan as well as most other developed countries is what happens when the flow of public funds invariably dries up. On balance, unemployment continues to push higher, trimming incomes and hinting at turn lower in spending (including that on services) in the months ahead.

New Zealand’s Business NZ Performance of Manufacturing Index fell to 48.7 in August from 49.6 in the previous month, showing the pace of contraction in the industrial sector quickened for the first time since May. The sub-index measuring New Orders led the metric lower, dropping by -5.1 points to register the largest decline in 9 months, while output shrank the most since February. The report follows news that manufacturing sales dropped the most on record in the second quarter, adding yet more weight to last week’s comments from Reserve Bank of New Zealand Governor Alan Bollard, who said the stronger New Zealand Dollar puts business profits “under pressure” and warned that “If the exchange rate were to continue its recent appreciation…the sustainability of the present recovery will be brought into question.”

The Bank of Japan unanimously agreed to keep interest rates unchanged at 0.10%, as expected, but policymakers raised their forecasts for economic growth as economic conditions begin to “show signs of recovery”, calling for growth to begin to rebound in the second half of the 2009 fiscal year (the 12 months ending April 2010). The bank still sees downside risks to the economy, however, saying fiancial conditions continue to be “severe” while consumption remains weak and capital spending is still falling. Policymakers made no changes to their asset-buying and lending programs. On balance, BOJ Governor Maasaki Shirakawa concluded that “risks to the economy are still on the downside [with the outlook] attended by a significant level of uncertainty.”

Euro Session: What to Expect



The Swiss Franc may see volatility late into the European session as the Swiss National Bank makes their quarterly monetary policy announcement, including an update on their policy of intervention into the currency market to prevent the appreciation of the currency. As with most major central banks, there is little doubt that the SNB will leave benchmark interest rates unchanged. Rather, traders will focus on any updates to policymakers’ commitment to keep a lid on the value of the Swiss Franc with direct intervention into the currency markets. Consumer prices printed a bit better in August, rebounding from the low set in July, and a similar moderation in Producer Prices earlier this week foreshadows slightly better results for the headline inflation gauge in the months ahead. Still, it is surely much too early to say that the specter of deflation has dissipated, so the SNB is unlikely to do a complete about-face on exchange rate policy. To that effect, the markets will look for a more nuanced hint at the bank’s bias going forward, such as an upward revision of inflation expectations. The 1.50 level in EURCHF seems to have been the threshold of the SNB’s comfort zone, and traders would be wise to watch the behavior of the cross vis-à-vis this juncture ahead of the policy announcement.

UK Retail Sales are expected to rise 2.7% in the year to August, snapping two months of consecutive gains in the annual growth rate. The metric has seen atypical volatility over recent months as rising unemployment grappled with rebounding asset prices and government stimulus for dominance over consumer sentiment. Looking ahead, we see the downside scenario as more plausible. Fiscal support is inherently limited with the UK budget deficit already set to average close to 13% of GDP though 2010, threatening the country’s sovereign credit rating. Meanwhile, global equities are looking increasingly overdone having finished August at the highest level relative to earnings since May 2003. The upward trend in unemployment looks far more permanent, however, with a survey of economists polled by Bloomberg expecting the jobless rate to top 9% by the end of next year. This will trim incomes and discourage spending, weighing on retail activity in the months ahead.

The Euro Zone Trade Balance surplus is set to expand to 6.4 billion euro in July, the most in over two years. Exports figures may prove disappointing, however: industrial production fell more than economists expected in the same period while the currency has been pushing higher in trade-weighted terms since late April, now up over 5.6%, making European-made goods comparatively more expensive and thereby less attractive to foreign buyers. A drop in imports seems like a much more plausible driver for an improvement in the headline figure, especially considering the sharp decline in Swiss industrial output reported earlier this week. As we have previously noted, manufactured goods top the list of Swiss export commodities, so the drop in production is indicative of lackluster demand in key overseas markets, where the top three Euro Zone economies alone account for close to 50% of demand.

Written by Ilya Spivak, Currency Analyst
Swiss Franc in Focus as SNB Announces Rates, Currency Policy (Euro Open)
Swiss Franc in Focus as SNB Announces Rates, Currency Policy (Euro Open)SocialTwist Tell-a-Friend

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!