9.25.2009

Dollar, Yen up Ahead of the G20 Meeting

The Dollar snaps a two week decline versus the EUR after disappointing U.S Home Sales data and ahead of the G20 meeting. The USD and JPY are benefiting from the recent surge in risk aversion ahead of the G20 meeting and a concern that the group's leaders will pose stricter regulations on financial markets. The drop in Oil prices, which began Wednesday, only exacerbated yesterday as equity markets tumbled and the Dollar strengthened, putting pressure on the commodities market.



USD - Dollar Rebounds on Return to Risk Aversion

The Dollar came roaring back yesterday against its rivals as poor housing data and falling equity markets sapped traders appetite for risk. Existing home sales numbers were released to an unspectacular reception with the numbers failing to reach their expected targets. Only 5.10M existing homes were sold as compared with economists forecasts of 5.36M. This sent traders running from higher-yielding currencies and into long Dollar positions.

Yesterday's trading was notably volatile, with the EUR/USD climbing in early European trading hours to a daily high of 1.4789, only to end the day at 1.4650 from 1.4721. Driving the early appreciation for the EUR was a lower number of U.S. Unemployment Claims. These gains were later eroded after less than spectacular housing data was released. Against the Yen the Dollar was down as traders looked for the less risky currency. The pair closed at 90.82 from 91.30.

Looking ahead to today's trading, we can expect further volatility of the Dollar. The Group of Twenty (G20) meets for a second day today. Comments made by the global heads of finance can move the market fast so traders should be aware of their impact. U.S. New Home Sales data is due at 2:00pm GMT time. If the New Home Sales is anything like the Existing Homes Sales data from yesterday, the EUR/USD could continue its decline for the second day in a row to finish the week near the 1.4550 mark.

EUR - Pound Crumbles on Currency Comments

The Pound took a thrashing during yesterday's trading as comments by the Bank of England sank the British currency. A report surfaced that Bank of England (BOE) Governor Mervyn King stated a weaker Pound could be beneficial to the U.K. economic recovery. It is assumed the BOE prefers a weak Pound. The weaker currency could help boost British exports, making them relatively cheaper than their foreign counterparts.

Traders immediately began bidding the Pound lower, sinking the GBP/USD to 1.5947 from 1.6353, for a single day decline of 2.5%. The EUR also rose 2% on the Pound as the EUR/GBP ended at 0.9816 from 0.9004, and the GBP/AUD fell to 1.8467 from 1.8803.

If the BOE does prefer the Pound to depreciate, this could create an opportunity for those traders who feel the British currency is not properly valued. Perhaps the BOE sees the possibility for further weakening of the Pound. Will the bank take future action to help artificially deflate the nation's currency?

JPY - Yen Rises on Negative U.S. News

As the rally of riskier currencies puts on the breaks, demand for the Yen is increasing. Yesterday's news of lower U.S. housing data helped slow the rally for riskier assets, thereby boosting the Yen. This trend continues to go unabated, with the USD/JPY rising alongside riskier assets, and falling when risk sentiment diminishes. This was the case yesterday as the USD/JPY fell to 90.82 from 91.30

Traders should be watching today's data releases from the U.S. for today's direction of the Yen. If the negative news will continue further into the day, we could have another pullback of some of the higher yielding currencies. If so the USD/JPY could be looking to drop below the 90.00 support line.

Crude Oil - Economic Data Lowers Demand for Crude

The price of Crude Oil was significantly lower yesterday as poor U.S. housing data and a strong Dollar weighed on the commodities market. Traders took the information as a pullback to economic growth and a sustained economic recovery, thereby reducing demand for the commodity. Oil fell below a significant support line of $66 and finished the day down at $65.85 from $68.36.

Yesterday's 3.6% drop in price was the second day in a row for a pullback in Crude prices. The valuation seems to be taking hints from reported economic data. If this is the case, traders will be wise to follow today's U.S. Core Durable Goods Orders and New Home Sales numbers. We could see Crude Oil trading at $65 by the end of today.

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Currency Markets Look to G20 Summit Outcome to Guide Price Action (Euro Open)

Currency markets will be focused on the outcome of the G20 summit of world leaders in Pittsburg to guide directional momentum. A leaked draft communiqué hinted policymakers were in no rush to withdraw fiscal stimulus, but concerns remain about what measures will be taken against risk-taking in the financial markets.

Key Overnight Developments

• NZ Annual Trade Deficit Shrinks as Imports Fall for Fifth Month
• Bank of Japan Says Recovery After Stimulus, Restocking is “Uncertain”

Critical Levels



The Euro initially sold off but prices recovered late into the overnight session, adding much as 0.2% against the US Dollar. The British Pound continued to be sold, though prices recovered most of the drop in early trading that saw GBPUSD test as low as 1.5918, trading just below 1.60 ahead of the opening bell in Europe.

Asia Session Highlights



New Zealand’s annual Trade Balance deficit contracted to the narrowest in over six years, revealing a shortfall of –NZ$2.37 billion in August following a revised –NZ$2.49 billion result in the previous month as imports fell for the fifth straight month, shrinking -21.6% from a year before. The outcome speaks ill of domestic demand in the smaller antipodean nation, especially considering that the Kiwi Dollar has become considerably stronger over recent months, which should boost New Zealanders’ purchasing power of foreign goods and encourage imports. More of the same is likely going forward as unemployment continues to push higher, trimming incomes and discouraging spending. Indeed, a survey of economists conducted by Bloomberg forecasts the trade gap will shave just -6.6% on average off GDP this and next year, the smallest since 2004. To be fair, however, exchange rate movements take a long time to be reflected in trade figures, so it is possible that the currency’s recent gains may surface to widen the shortfall in the months ahead. The deficit grew –NZ$725 million from July, more than the –NZ$329 million expected, but monthly figures tend to be volatile and looking at annualized readings offers better gauge of trade flows’ direction.

Minutes from the August policy meeting of the Bank of Japan revealed that while policymakers agreed that “overseas economic conditions have stopped worsening,” but expressed concern that the pace and sustainability of recovery after the effects of fiscal stimulus and the inventory restocking cycle run their course “remained highly uncertain.” Members concurred that exports will probably continue to improve for the time being as overseas markets stabilize, but domestic consumption will remain weak as unemployment continues notwithstanding isolated policy-induced spikes in purchases of specific items such as cars and electrical appliances. On inflation, members concluded that year-on-year consumer price figures will remain weak largely because of the correction in high oil costs seen last year. On financial conditions, policymakers said that while funding access had improved for large firms, credit for small enterprises remained limited.

Euro Session: What to Expect



With little of importance on the economic calendar, currency markets will be focused on the outcome of the ongoing Group of 20 (G20) summit of world leaders going on in Pittsburg. Traders’ concerns are two-fold: first, there are worries that policymakers will take recent signs of economic stabilization to agree on a path to withdrawing fiscal stimulus measures, nipping the recovery in the bud; second, it remains unclear what, if anything, will be agreed upon regarding regulations of risk-taking in the financial markets. On the former point, a draft G20 communiqué leaked by Reuters contained language saying leaders will maintain expansionary policies until the global recovery is secured, alleviating at least some concern. Little is known on the latter point, however, and any actions that are perceived to be too strong (which, in fact, would be any kind of broad-based agreement considering the difficulty of building consensus in the G20) are likely to send capital feeing out of risky investments and into safety-correlated assets like the US Dollar and the Japanese Yen.

Article Source - Currency Markets Look to G20 Summit Outcome to Guide Price Action (Euro Open)
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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!