U.S. Interest Rates on Tap

Following two relatively peaceful trading days, today is filled with news publications from the major economies. Starting at 06:45 and until 09:00 (GMT) traders are advised to follow the news events from the Euro-Zone. Later on, the Crude Oil Inventories will be published at 14:30 (GMT). This indicator tends to have an instant impact on Crude Oil prices, and traders should use it with their trading. Finally, at 18:15 (GMT), the Federal Reserve will announce the U.S Interest Rates for September. This promises to create hefty volatility in the market, which should provide various opportunities for traders to enlarge profits.

USD - The Dollar Falls before Federal Reserve Meeting

The U.S Dollar's weakness resumed, as global investors again embraced risks, reducing safe-haven demand for the U.S. currency, as traders took positions on the first day of the Federal Reserve monetary policy meeting. The U.S. Dollar also weakened on speculation that the Group of 20 leaders, meeting in Pittsburgh starting tomorrow, will call for a reduction in global trade imbalances that may cause further gains in the greenback's counterparts. The greenback traded at $1.4794 per EUR from $1.4790 yesterday, after declining to $1.4842 earlier on, the lowest level since September 22, 2008.

The hard-pressed Dollar had gained some ground Monday as equity markets weakened, with traders tying a decline in risk appetite to caution ahead of the Fed meeting, as well as the summit of Group of 20 leaders at the end of the week. But Tuesday's resumption of risk appetite may reflect views in the market that neither event is likely to produce meaningful changes analysts said.

Market sentiment toward the USD remains bearish. Analysts expect the Fed to signal its ultra-loose monetary policy will remain in place well into next year. Additionally, as the G20 to discusses rebalancing the global economy this will almost certainly further weaken the Dollar. The Federal Reserve is widely expected to leave Interest Rates unchanged. But markets will seek out clues on the Fed's asset purchases. Any sign that the Fed intends to continue its quantitative easing measures beyond this year could send the U.S Dollar to record lows.

EUR - Euro Hits $1.48 for the First Time in a Year

The EUR traded at a 1 year high against a sliding Dollar on Wednesday, as traders took advantage of the U.S. currency's rise the previous day to resume selling ahead of a Federal Reserve monetary policy meeting. The European currency advanced as hopes for a global recovery prompted investors to shift money to higher-yielding currencies from the safe-haven greenback.

In late trading, the EUR was up 0.8% at $1.4796 after options-related demand and strong Asian buying pushed it above $1.48 for the first time since September 2008. European Central Bank (ECB) Governing Council member Axel Weber said on Tuesday recent moves in currency markets were surprising given the Euro-Zone's economic performance relative to other major economies. Traders expect the $1.4870 level may be the next target in EUR/USD cross, with many predicting an eventual move back to $1.50.

The British Pound also gained against the U.S Dollar for the first time in 4 days, as stocks rallied around the world on evidence that the global economic recovery is accelerating. The British currency advanced 1% to $1.6376. The GBP rose 0.2% against the EUR to 90.33 pence, ending a 6 day losing streak. Against the EUR, the British currency rebounded from near the lowest level in more than 5 months after Goldman Sachs Group Inc. recommended selling the common European currency against Sterling.

JPY - Yen Gains as USD Remains Under Pressure

The Japanese Yen extended its gains on Wednesday vs. the greenback as investors unloaded the U.S. currency ahead of meetings by the Federal Reserve and the G20 leaders this week. The currency gained for a 2nd day against the U.S Dollar on speculation world leaders will discuss policies to rebalance global economic growth at the G20 meeting this week. The JPY climbed to 90.82 Yen per Dollar from 91.10, and rose to 134.40 Yen per EUR from 134.76.

The Japanese currency is likely to strengthen further before new Finance Minister Hirohisa Fujii takes office this month; he said a strong Yen was generally good as it boosted the purchasing power of Japan's economy. Fujii subsequently backed away from that comment, but speculation will remain that after sweeping to power last month, the Democratic Party of Japan may try to shift the country away from its reliance on exports and its opposition to Yen strength.

Crude Oil - Crude Rebounds as Inventories are Expected to Decline

Crude Oil prices rose Tuesday to above $72 a barrel, as pressure on the Dollar and expectations for a further drop in U.S. Crude inventories boosted market sentiment. Weekly petroleum data is likely to show that stockpiles of Crude fell again last week, as imports remained low analysts said. Last week, the EIA said Crude Oil Inventories decreased by 4.7 million barrels in the week ending Sept. 11, as imports dropped 2.1% from a week ago.

The move in Crude Oil today is likely to be supported by a fresh wave of selling of the U.S. Dollar. Traders will be waiting for U.S. Crude inventory data from the American Petroleum Institute and the U.S. Energy Information Administration. Also of interest to commodities traders is leaders of the world's most powerful economies will convene in Pittsburgh later this week for the G20 Summit.

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British Pound Volatility Threat High as Currency Markets Focus on BOE Minutes (Euro Open)

The British Pound may be in for a volatile session ahead as the release of minutes from this month’s Bank of England monetary policy meeting top the economic calendar in European hours. Currency markets were active in overnight after New Zealand GDP unexpectedly expanded and the Chinese central bank deputy governor sounded off against the US Dollar.

Key Overnight Developments

• Currency Surges as New Zealand GDP Unexpectedly Grows in Second Quarter
• USD Drops After PBOC’s Hu Says Dollar-Reserve System Must Change

Critical Levels

The Euro trended higher against the US Dollar in overnight trading, testing as high as 1.4842. The British Pound also advanced, adding as much as 0.4% against the greenback. We continue to hold a short GBPUSD position, initially targeting 1.6112.

Asia Session Highlights

New Zealand’s Gross Domestic Product unexpectedly added 0.1% in the three months to June, snapping five consecutive quarters of losses. Economists were forecasting a -0.2% result ahead of the release. The economy shrank -2.1% from a year before, less than the expected -2.6% decline. The Reserve Bank of New Zealand was among those calling for a contraction when Governor Alan Bollard said the bank expected to “keep [interest rates] at or below the current level…until the latter part of 2010” at the monetary policy announcement earlier this month, and traders seemingly took today’s release to mean the time table will now accelerate. Indeed, a Credit Suisse gauge of priced-in rate hike expectations for the coming year jumped 13 basis points to a record high and the New Zealand Dollar surged to a fresh 2009 high against a trade-weighted basket of top currencies.

The US Dollar Index (an average of the greenback’s value against six major counterparts) spiked to a fresh yearly low after the Chinese central bank’s deputy governor Hu Xiaolian wrote in a paper posted on the G20 website ahead of the group’s summit in Pittsburg this week that the current crisis was due in part to the Dollar’s role as global reserve currency. Hu, who is also the former director of China’s foreign-exchange authority, went on to say that the world stands at risk of an asset bubble and potentially another crisis akin to the current one if the global monetary system is not changed.

Euro Session: What to Expect

The release of minutes from this month’s Bank of England monetary policy meeting headline the economic calendar in European hours. The announcement itself produced no surprises with interest rates left at 0.5% and the magnitude of quantitative easing unchanged at 175 billion pounds. Just five days later, however, BOE chief Mervyn King gave resoundingly dovish testimony to House of Commons Treasury Committee, saying poor credit growth remains a direct drag on demand and revealing that policymakers are considering cutting the interest rate they pay on bank deposits to encourage idle reserves to be channeled into lending. The latter comment in particular sent the British Pound tumbling, with traders clearly caught off guard as the BOE was seemingly preparing for more, not less, monetary easing despite the recent uptick in leading economic indicators. This creates strong potential for sterling volatility as the markets dissect tonight’s release for any clues on how serious King and company are about the deposit rate idea and when (if ever) such an outcome may be expected. For our part, we speculated ahead of the September 10 rate announcement that the bank was preparing the markets for a change in policy after the asset-buying scheme largely failed to affect lending to the real economy. Indeed, although Mervyn King has said that the BOE was “beginning to see its impact on the supply of broad money,” the M4 measure of money stock grew at an annual pace of just 12.6% in August, the slowest in a year, while central bank’s own data showed net lending shrank for the first time in at least 16 years in July.

Separately, the British Bankers Association’s measure of Loans for House Purchase is set to show that mortgage approvals rose by 40,500 in August, the most since February 2008, hinting at stabilization in the property market. Earlier this week, a report from Rightmove Plc showed that UK house prices fell the least in a year in September, saying “confidence is up, stock is down and the number of people searching is high.” However, as we noted earlier, the rebound may have a hard time retaining traction with consumer sentiment apparently tracking equities and therefore is vulnerable to a (long overdue) correction in risky assets while unemployment continues to rise, with a survey of economists polled by Bloomberg calling for the jobless rate to top 9% next year.

Turning to the continent, a handful of Purchasing Manager Index releases are expected to come in broadly positive. In Germany, the manufacturing sector is expected to expand for the first time in 14 months while the pace of expansion in the service industry picks up to the fastest since April 2008. Manufacturing will likely continue to shrink in the Euro Zone as a whole but the rate of decline is set to moderate to the slowest since the sector first began to contract in May last year. The improvement can likely be attributed to the continued rebuilding of inventories after firms cut production and exhausted their stocks of goods last year and through the first quarter of 2009 amid the global economic downturn. Still, Industrial New Orders are expected to shrink -25.9% in the year to July, suggesting the pace of demand contraction will remain within the range noted since November of last 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.


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!