Market News - January 27, 2009

Latest Headlines:

• JPY continue its volitily
• US Consumer confidence Figure as expected
• GBP on a positive Trend
• Euro continued to plod higher

Latest Headlines from Financial Times:

• Economic worries weigh on euro
• Hint of growth in demand for raw materials
• Polish companies face hedging losses
• Is the pound really finished?

Forex overview

What is Forex? Forex is an abbreviation of Foreign Exchange (also referred to as FX) and it is the largest financial market in the world.

The Forex market is the place where currencies are traded (currencies are money that is used as an exchange medium). In other words, it is the place where currencies are being sold and bought. In the Forex market all currencies are traded in real time.

Trading with currencies always means that there are two simultaneous transactions taking place. If a currency is being bought, it is also being sold. To better understand this notion, think of currencies as both the goods you are buying AND the method with which you're paying for the goods.

Since the Forex market is the place where currencies are traded in real time, people may trade one currency for another and make a profit off of this transaction. Profits are made when one is able to determine which currency's value will increase by the end of a pre-determined time period (such time periods may be short or long). The Forex market is open 24 hours a day, five days a week and it is based in four major cities: New York, London, Sydney, and Tokyo. The Forex market is open to individuals over the age of eighteen.

While Forex trading may sound daunting, it really isn’t. It can be easily comprehended and understood without prior experience in finance or economy. It is challenging and exciting, thought provoking and manageable, stimulating and filled with opportunities.

Some Forex Basics:

• The first currency listed in a currency pair is called the "base currency".
• The “base currency” is usually the U.S. Dollar. Traders will generally trade the U.S. Dollar against another currency, which is called the “counter currency”.
• Currencies are quoted in pairs. For example: The pair U.S. Dollar and JPY will be quoted in the following way: USD/JPY equals to 2.5 (This means that 1 U.S. Dollar can buy 2.5 JPY).
• When a quote increases, it means that the “base currency” has risen in value and the “counter currency” has weakened in value. For example: If the USD/JPY quote used to be equal to 2.5 but is now equal to 2.6, then this means that the dollar has strengthened (because 1 U.S. Dollar can now buy 2.6 JPY as opposed to the mere 2.5 JPY it could buy beforehand.)

Now that you know a thing or two about the Foreign Exchange market, we invite you to explore eToro—the Revolutionary Forex Trading Platform. You too can make your mark in the Foreign Exchange market. Use eToro as your gateway to the ever-growing world of Forex trading.

Market News January 22, 2009

Latest Headlines:

• Dollar continues to plod higher vs the Euro
• Sterling - Goodbye or Good buy???
• Yen Strong against US Dollar
• Sterling Lowest rate since 1985 against US Dollar

Latest Headlines from Financial Times:

• Economy fears spark plunge in sterling
• Jim Rogers: 'UK has nothing to sell'
• Germans see economic hope amid the gloom
• UK unemployment soars to 1.92m

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Market News - January 20, 2009

Latest Headlines:

• Yen gains to record highs against Pound Sterling
• Sterling; Goodbye or Good buy???
• Yen Volatility picks up
• Dollar stronger against Euro

Latest Headlines from Financial Times:

• Sterling continues to tumble
• UK debt fears fuel plunge in sterling
• Short View: Inaugural optimism
• UK inflation falls by most since 1992
  
  
  

Market News - January 19, 2009

Latest Headlines:

• 09:30 ECB TRICHET'S SPEECH
• Sterling; Goodbye or Good buy???
• Yen Volatility picks up

Latest Headlines from Financial Times:

• Spain loses triple A rating
• Sterling's quantitative fears
• Sterling retreats on fears of quantitative easing
• View of the Day: Dollar honeymoon

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All New - Market News

Market news

Latest Headlines:
US JOBLESS CLAIMS 524K
US CORE PPI -1.9%
ECB CUT RATE BY 50BP
ECB TRICHET'S SPEECH

Latest Headlines from Financial Times:
Euro drifts lower after ECB rate cut

ECB cuts rates to lowest in three years

China's foreign reserve expansion slows

Shift to dollar sees ruble plumb new low

TRADING THE WORLD

World events affect the Foreign Exchange Market. Or rather, world events affect supply and demand forces, which then affect the Foreign Exchange market. World events (political, social, governmental, etc) and other economic factors shift the supply and demand forces constantly, which in return shift the price of one currency in relation to another.

Tuning in to what’s happening in the world is a very smart trading strategy as again and again we witness that the Foreign Exchange market undergoes movements soon after major news and/or economic reports are released. The size of the country determines the amount, and the frequency of its news/reports releases, and therefore it may be more useful (at first at least!) to trade currencies of economies that have plenty of releases (such as, for example: USD, EUR, JPY, GBP, CHF).

Useful Information:

Always Remember that the healthier a nation is, the better its economy will perform (and consequently, the stronger its currency will be)!! Health is measured (amongst other factors) by high employment levels, retail sales, capacity utilization, and gross domestic product. It is also measured by low government deficits and by little fluctuation in inflation.

To determine a nation’s health, look for reports on: (The below examples are taken from the US market)

Employment Growth
Gross Domestic Product (GDP)
Trade Balance
Interest Rate decisions
Retail Sales
Durable Goods
Inflation reports
Foreign Purchases report (TIC Data)

What do reports mean? Here are a few examples:

Employment:
Jobless Claims is released weekly and it measures how many people filed for unemployment insurance for their first time. The less people have applied, the better the economy is doing, because unemployed people tend to spend less money, which has a bad effect on the nation’s economy.

US: Nonfarm Payrolls is released monthly and it measures the number of new jobs created (excluding the farming industry). The more new jobs, the stronger the nation’s currency is, because the more people work, the more money they earn, the more money they are likely to spend.

Consumption:
Core PCE Price Index: measures the rate of inflation experienced by people; it reflects the price change in consumer goods and services (excluding Food and Energy). Large price changes have a negative effect on the economy, because they introduce uncertainty, and uncertainty inclines people to spend less.

Retail Sales: is released once a month and measures the value of retail sales. A rising trend means that the nation’s economy is growing stronger, because it means that people are spending more.

GDP (Gross Domestic Product) Annualized: measures the value of all goods and services that are produced by the nation’s economy. A rising trend means that the nation’s economy is growing stronger. It encourages people to invest in the domestic stock and bond markets, and attracts foreign investors.

Trade Balance: measures the value of the difference between imported and exported goods and services. A positive trade balance means that more goods and services were exported than imported. A rising trend means that the nation's currency is growing stronger, because the higher the demand for exports, the higher the employment and production rates in the exporting country. This usually means that foreigners will convert their currencies to purchase the currency of the exporter.

CPI—Consumer Price Index In simple terms, CPI measures the increase of price in a fixed basket of goods and services (such as food, transport, housing etc’). A higher CPI means that the price of the basket has increased and it now costs more to buy the same basket of goods. A rising trend has a positive effect on the economy (and consequently on the currency), because it reflects that people are able to purchase the goods and services despite the price increases.

Real Estate:
US: New Home Sales: The new home sales figure serves as a great indicator for the general direction of the economy. An upwards trend in new home sales suggests that all is well in the construction industry and that the nation’s consumers can afford to make large purchases. New home owners tend to purchase a large amount of goods, while construction companies need to hire workers and buy materials, thus creating a positive ripple effect in the nation’s economy and an encouraging effect on its currency.

US: Pending Home Sales: measures activity in existing (not new) home sales. This includes single-family homes, condos and co-ops. The higher the demand for housing, the better the economy is doing, because people must feel comfortable enough in order to invest in homes. Also, such investments are usually accompanied by purchases—electronic equipment, furniture—and revenues for realtors, both of which are good for the economy.

US: Housing Starts measures how much construction began on new residential buildings. The higher the number, the better that nation’s currency, because it indicates that the construction industry is healthy and that people are investing in it.

Manufacture:
US: ISM Mfg Index measures the activity of purchasing managers in the manufacturing sector. A rising trend means that the nation's currency is growing stronger. Purchasing managers are good indicators since they have access to a company’s performance, which oftentimes goes hand in hand with overall economic performances.

Industrial Production measures the value of output produced by factories, mines, and utilities. A rising trend means that the nation's currency is growing stronger, because high values indicate that large amounts of product are being manufactured and sold, and hence that people earn and spend money.

Producers Price Index examines differences in the selling prices of goods and services within Euro-zone producers. Since producers tend to increase retail prices as a result of higher production costs, PPI may be counted as an indicator for inflation. A higher PPI may result in higher interest rates determined by the European Central Bank. A falling PPI points at declining prices, and thus hints at an upcoming economic recession.

Durable Goods Orders: measures the value of goods with a life expectancy of more than 3 years, purchased by consumers looking for domestic manufacturing. This indicator predicts how busy the manufacturers are likely to be, since they need to work to fill the orders. Therefore, a rising trend will have a positive impact on the nation's currency.

Rate Announcements:
UK: BOE Announcement — the Bank of England (BOE) Monetary Policy Committee (MPC) votes every month on where to set the nation's short-term interest rate.

EU:ECB Announcement — the European Central Bank (ECB) Governing Council votes every month on where to set the union’s short-term interest rate.

US: FED Announcement — the Federal Open Market Committee (FOMC) votes eight times a year.

Shortly after each vote, the outcome is released (the BOE Announcement; the EU:ECB Announcement, and the FED Announcement). It is accompanies by a brief commentary on the economic conditions that effected the outcome. Interest rates depend mostly on inflation. The objective is to keep prices stable, so when inflation rises above an annualized rate of 2%, banks will usually raise interest rates in order to bring prices down. High interest rates attract foreign investors, who increase the demand for that nation's currency. This is to say that a rising trend in interest rates has a positive effect on the nation's economy.

FOMC Meeting Minutes:
The Federal Open Market Committee (FOMC) Meeting Minutes give people insight into the decisions that have been made with regard to interest rate and policy shifts.

Surveys:
EU: ZEW (Zentrum für Europäische Wirtschaftsforschung) Survey provides the opinions of financial experts with regard to the economic outlook for Europe. Every month the difference between investors that expect a growth in the economy and those that expect a decline is measured.

US: Chicago PMI measures the health of the Chicago business environment. Every month purchasing managers respond to a survey with regard to their organization's activity (whether it is higher than, the same as, or lower than it was in the previous month) in terms of output, purchases, employment, inventories, orders, and prices.

NET TIC—Treasury International Capital (TIC) Reviews the flow of money market funds (such as stocks, bonds etc’) to and from the United States. The key figure, expressed in millions of dollars, represents the difference between American spending of foreign securities and foreign spending of American securities. This is a major indicator of the American economy and gives insight into foreign demand for American investments and dollars. For example, if the US purchased $5 billion in foreign securities and foreigners purchased $20 billion in long-term US securities, then the net reading would be $15 billion.

Consumer Confidence: measures consumer attitudes towards economic conditions, how they evaluate future economic prospects. Higher readings suggest consumer optimism; this is to say that consumers are optimistic about economic prospects. As a result consumers tend to purchase more, which in return stimulates the economy.

Consumer sentiment: Measures consumer attitudes concerning both the present situation and future expectations. It's derived from a monthly 500-person survey conducted by the University of Michigan. Higher sentiment levels are a leading indicator of rising consumer spending, which accounts for two-thirds of the economy.

A few more things worth knowing:

In general it can be said that news releases that follow expected reports do not cause strong market movements. Differences between the market expectations and the news release may cause market volatility which in turn might lead to a developing trend in a specific direction. Such opportunities are usually short-lived; they may last for only a few minutes or even a few seconds.

Markets in which constant movements occur will usually not be as strongly affected by news releases. A quiet market may move more significantly because of a news release.
DON’T FORGET : No matter how many current events you follow and news releases you absorb, and no matter how familiar you are with the Foreign Exchange market and its trends--Trading always involves a risk!!!

Very Strange.....U.S. Unemployment Stats Actually Boosts the Dollar

Well yesterday was an interesting day for the Forex. You never really can tell what is going to happen. All we really know is that something will, good or bad. In this case it was both. They released the economic data reports ie; the US Non-Farm Payrolls and the numbers were not very good.

In December, the U.S. lost 524,000 more jobs. And as bad as that is, earlier speculation had the markets preparing for much larger losses. The unemployment rate also moved up to 7.2%. With that in mind, you would think the US dollar would lose ground against other currencies. But that was not the case.

In fact, following yesterday's unemployment announcement, the dollar made serious gains against the Euro and the Swiss franc. The dollar also gained some ground on the rest of the major currencies. Very strange indeed. You would think a bad economy wouldn't be good for a nation's currency. But apparently the market is reacting to one simple thing.........If the US goes down, so does the rest of the world. 

In the coming months, President Obama might mean well, and we all hope he does, but it's very unlikely his stimulus package will have much effect on how the U.S. dollar actually behaves in the first half of 2009. That's because such efforts will probably prove ineffective at altering the fundamental forces that drive the economy and the markets in general. Obama's stimulus won't be much different from previous government bailout efforts, at least as far as spending goes. The fact is, his plans to put money into infrastructure are not concrete. No pun intended.

Chances are the money won't go toward the immediate and most necessary interests that would normally be defined by the free market. At the end of the day, consumers are not going to go on spending sprees when and if they get their stimulus checks. Chances are they will just hang onto it and not spend it or invest it at all. In fact spending is way down and thats bullish for the dollar. 

So what can we expect from all of this? Well most likely it will mean the return of inflation. Especially with all the new money that is being thrown around at everything from banks, automakers and possibly even the porn industry, if you can believe that one. Not kidding by the way. Larry Flynt, owner of Hustler Magazine has actually approached congress for a bailout of the porn industry. Who will be next to ask for handouts?

President Obama's speech on Thursday where he says the US will "spend it's way to prosperity" may cause investors to wonder why the dollar hasn't tanked yet and why gold prices haven't risen through the roof. Many people see rising prices returning before any recovery of the global economy is possible. There is no way around that. Everyone can agree that the US economy is

in deep trouble, that much is obvious. But given the size of the US economy it needs to be given more credit in regards to its ability to turn things around. 

The recent spending patterns of US consumers have caused many around the world to be worried for the future. Countries across the globe have based their economies on supplying US consumers with goods and materials. If the US consumers do not buy them, it has a ripple effect globally. This is causing governments around the world to pump even more money into their own ecomomies. But no matter how much money you throw at this, consumer attitudes have changed. Nobody wants to take on more debt and all of these "stimulus" packages will prove to be ineffective in changing those attitudes. People are not spending and you cannot make them do so. You can only buy so many cars, homes, furniture etc. It is a cycle that repeats itself from time to time and will do so in the future.

Cycles like this are necessary in order to get the US  economy back on track. Unfortunately as the US slows down, so will the rest of the world. We will all just have to ride it out together and plan better futures for ourselves and our families. We also need to learn to take charge of our finances on a personal level. It is quite clear that handing our money over to investment bankers or equity brokers is not the best idea. Thats why I recommend everyone to get involved with Forex. Learn how to trade currencies and you will be protected from these cycles. If the US dollar is crashing, move your money into Euros or Swiss Francs. If something happens to those currencies, just move your money again. In fact, you can increase your wealth substantially just by doing that. How do you think the billionaires became billionaires? Using Forex. And the best part is you can do it instantly, online as soon as the need arises. 

Have a great week!

Regards,

Brian Jerome