9.20.2010

Will The Yen's Bearish Momentum Continue?

A very fascinating event took place last week as the Japanese leadership decided to intervene in the national currency's trading. As planned, the Japanese yen fell against all the major currencies. At the moment, Japan is promising to fight the strong yen, and admits that further interventions could take place. Is the yen likely to fall further?



USD - Positive U.S. Economic Data Spurs Demand for Risky Assets and Weakens the Dollar

The U.S. dollar fell against most of the major currencies during last week's trading session. The dollar fell about 400 pips against the euro, and the EUR/USD pair is once again trading above the 1.3000 level. The dollar fell about 200 pips against the British pound as well.

The greenback fell last week as several economic publications signaled that the U.S. economy is recovering. This in turn boosted investor confidence in the global economic recovery. The Unemployment Claims report showed that applications for unemployment benefits unexpectedly fell last week to the lowest level in two months, indicating that the labor market is improving. In addition, the Long-Term Purchases report, released on Thursday, showed that global demand for U.S. stocks, bonds and other long-term financial assets was stronger than forecast in July. Net buying of equities, notes and bonds totaled $61.2 billion in July compared with net buying of $44.4 billion in June. The positive data has boosted optimism for risker assets, and as a result decreased demand for the dollar, which is considered to be a relatively safe investment.

Looking ahead to this week, the most significant release from the U.S. economy looks to be the Federal Funds Rate, which is scheduled for Tuesday at 18:15 GMT. This is in fact the U.S. Interest Rates announcement for the next month. Analysts expect the Fed to leave rates at a record low of less than 0.25%. However, if the Fed will surprise and hike rates, unusual volatility will likely take place as a result.

EUR - Euro Bullish On All Fronts

The euro saw a bullish trend against all the major currencies during last week's trading. The euro gained about 400 pips against the U.S. dollar and about 600 pips against the Japanese yen. Additionally, EUR/GBP went up about 100 pips.

The euro shot up despite several rather disappointing economic releases from the euro-zone. The most significant publication from the euro-zone last week was the German ZEW Economic Sentiment survey. In the survey, about 350 German institutional investors and analysts rate the economic outlook for Germany, which holds the largest economy within the euro-zone. The survey showed that investor confidence fell more than economists had predicted, and in fact, reached a 19-month low in September. The drop in confidence is believed to be the result of budget cuts across the region and slowing global growth.

Despite the negative data, the euro gained against the major currencies. The euro's bullishness however was the direct result of better-than-expected U.S. releases, especially regarding the employment situation. Investors are confident that solid U.S. economic trends will eventually make their way to Europe.

As for this week, a batch of data is expected from the euro-zone, with the most interesting trading day likely to be on Thursday, when several significant economic indicators will be released from Germany and France. Analysts currently have rather gloomy expectations, but if the end results will provide better figures, the euro could strengthen further against the majors.

JPY - Central Bank's Intervention Succeeds In Weakening the Yen

Last week's most significant development in global currencies was without a doubt the Bank of Japan's (BoJ) decision to intervene in the national currency's trading for the first time since 2004. As a result, the yen fell about 150 pips vs. the U.S. dollar, and about 500 pips against both the euro and the British pound.

The Bank of Japan's decision came after the yen reached a 15-year high against the U.S. dollar. The Japanese economy largely depends on its export industry, which is hit hard when the yen is overvalued. Experts say that the BoJ has ordered to sell as much as 1.8 trillion yen ($21 billion). As a result, the yen had its biggest weekly decline against the greenback since April. In addition, Finance Minister Noda said that the government will continue to intervene if necessary, hinting that Japan will take actions to prevent the yen from reaching record highs again.

As for the week ahead, investors are curious as what the long term effects of the BoJ intervention will be. Will the yen continue to weaken, or will investors try to fight off the aggressive sell off? In case the yen will begin to erase last week's losses, traders are advised to ready themselves for additional intervention from the Japanese government.

Crude Oil - Crude Oil Halts Is Fall at $75 a Barrel

Crude oil dropped sharply during last week's trading session. Crude began last week's trading at $77.30 a barrel, and then promptly dropped to as low as $74.05 a barrel. However, the commodity managed to slightly correct its losses, and is currently trading around $75.00 a barrel.

Crude oil prices fell last week after the U.S. announced on Friday the restart of Enbridge's Line 6A pipeline, which carries up to a third of Canada's U.S. bound crude oil shipments. The expected larger amount of supplies has decreased demand for oil, causing prices to fall.

Looking ahead to this week, traders are advised to follow the main publications from the U.S. and the euro-zone, as those tend to have a large impact on oil prices. In addition, traders are advised to follow the U.S. Crude Oil Inventories report, scheduled for Wednesday, as it tends to have an instant impact on the market.

Technical News

EUR/USD

Technical indicators show that this pair, after trading above the 1.3000 level for some time, may be ready for a downward correction. The Stochastic Slow on the daily chart shows a cross has formed above the resistance line, indicating downward movement is likely to occur. The Relative Strength Index on the 8-hour chart is above the 70 level, which means downward pressure is predicted. Traders may want to go short with tight stops today.

GBP/USD

Technical data is showing mixed signals for this pair at the moment. While both the Relative Strength Index and Williams Percent Range on the 8-hour chart show the pair in overbought territory, the Stochastic Slow on the same chart is trading in neutral territory. Indicators on the daily chart are following a similar pattern. Traders may want to take a wait and see approach for this pair today.

USD/JPY

Following the jump this pair made last week, technical indicators are showing it may finally have reached overbought territory. The Relative Strength Index on the 8-hour chart is currently around the 80 level, well above the upper resistance line. Furthermore, the Williams Percent Range on the daily chart is at around -5. Typically, anything above -20 means the pair will face downward pressure. Traders may want to go short in their positions today.

USD/CHF

Technical indicators across the board are showing this pair trading in neutral territory at the moment. Typically, this means that no clear direction for the pair exists at the moment. Traders will want to take a wait and see approach for this pair, as the trend is likely to change later in the day.

Silver

After last week's spike in silver prices, the commodity may have finally reached overbought territory. The Williams Percent Range on the daily chart is around the -5 level, while the Relative Strength Index on the same chart has been trading above the upper resistance line for some time. Forex traders may want to go short in their positions today, as a bearish correction is likely.

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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!