What is Forex?

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The Foreign Exchange market, also referred to as the "FOREX" is the biggest and largest financial market in the world. It has a daily average turnover of US$1.9 trillion- just imagine that amount of money! Don't you want to join this trillion-dollar industry?

FOREX is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). So basically, FOREX is trading.

There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency.

The other 95% is trading for profit, or what you call speculation. Investors frequently trade on information they believe to be superior and relevant, when in fact it is not and is fully discounted by the market.

On one side of each speculative stock trade is a participant who believes he has superior information and on the other side is another participant who believes his information is superior.

For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid- meaning its in cash or convertible to cash) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors.

A true 24-hour market, FOREX trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - real time- day or night.

The FOREX market is considered an Over The Counter (OTC) or 'interbank' market. This is because the transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange compared to stocks and futures markets.

Source: TheForexNews.com

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Currency Traders Show Clear Hesitation Ahead of Critical Week of Event Risk
Monday, 03 December 2007
By David Rodriguez, Currency Analyst

The US Dollar remained largely unchanged ahead of what promises to be a busy week in currency trading markets, with several central bank rate decisions and key US payrolls data almost guaranteed to drive volatility across major currency pairs. Limited economic event risk made for quiet Monday price action, while similarly lackluster price movements in the Dow Jones Industrial Average left risk-sensitive currencies largely unchanged. A mildly positive US ISM Manufacturing report and a largely unsurprising speech by Treasury Secretary Henry Paulson on the current housing crisis were unable to force major moves in domestic asset classes. Indeed, it seems as though the majority of traders remained to the sidelines ahead of the incredibly busy week of global economic event risk.

A morning Institute of Supply Management Manufacturing survey result was the only notable economic data release through the New York morning, with a marginally above-forecast result doing little to shift sentiment on the state of domestic industry. Manufacturing sector growth remained relatively flat through the month of November, with the headline ISM index remaining above the crucial contraction/expansion 50.0 mark at 50.8. Highlights on the data included a significant jump in Manufacturing Prices Paid—reaching their highest levels since June on a jump in raw materials costs. Net production bounced into positive territory after a brief drop below the 50 mark in October. Yet the mild improvement in output was not enough to bolster employment, with the Employment index reaching its lowest levels since March. Clearly, such results bode poorly for outlook on Friday’s key Non Farm Payrolls data, but markets await Wednesday’s ADP Employment Change and ISM Services numbers to clarify expectations for the payrolls report.

Other notable economic developments came from a US Treasury Secretary Henry Paulson speech to a forum on US housing—outlining the Treasury’s response to the threat of further housing market crisis. The government official revealed official plans to cooperate with mortgage lenders and creditors to forestall a fresh wave of house foreclosures in the domestic real estate sector. Yet the scarcity of specific details on the Treasury’s plans made it difficult to assess the true economic impact and cost of such official consumer bail-outs. Subsequent market indecision left domestic equities relatively unchanged, but a subsequent drop may make for the first daily decline in five trading sessions.

The Dow Jones Industrial Average has thus far failed to build on previous upward momentum, shedding 25 points to 13,324 through time of reporting. Though the losses were relatively shallow, a 0.5 percent decline in the highly diversified S&P 500 suggested that the pullback was widespread. The tech-heavy NASDAQ Composite shed a similar 0.6 percent just an hour ahead of the New York Stock Exchange close.

Source: DailyFX.com

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CPI Data props up the Dollar
December 17, 2007
The dollar strengthened against the euro on Friday on the strong CPI data that trimmed expectations for further interest rate cuts by the Federal Reserve. It was the largest daily increase against the euro in almost three years.

The dollar rallied against major currencies for the third consecutive week, bolstered by a string of US economic reports showing higher-than-expected growth in consumer spending and higher inflation. The data eased some concern that the credit crisis would pull the US economy into a recession.

US consumer price inflation rose to 4.3 percent for the month of November, while the core rate excluding food and energy prices rose to 2.3 percent for the year.

Both retail sales and producer prices for November beat market expectations and strengthened the view that the US economy is getting strong gradually.

Data from the Commerce Department showed US retail sales rose 1.2% in November, the strongest pace since May.

According to the release by US Labor Department, initial jobless claims fell by 7,000 to 333,000 in the week ended Dec 8, while the four-week average of initial claims decreased by 2,000 to 338,750.

The Federal Reserve had cut its benchmark interest rate by a quarter of a percentage point on Tuesday, as widely expected is also supported the long tern view in dollar.

The Fed on Wednesday announced a new plan to increase liquidity and ease the global credit crunch situation, by injecting billions of dollars in cash to the financial system in the next few weeks. This would be done in association with the European Central Bank, the Bank of England, the Swiss National Bank and the Bank of Canada.

Medium Term Outlook

1.4841 may act as the major support for the dollar. If dollar sustains below 1.4841 against the euro, more recovery can be expected. Active trading below 1.4530 is the sign of further strengthening of the dollar. Next resistances are 1.4400 and 1.4280. 1.4600 is a support. Continuation of the weakness in dollar can be expected only above 1.4841.

In the spot trading dollar closed at 1.4422 (1.4627) against the euro; after trading in the range 1.4659 – 1.4408.
Last day DEUR traded in the range 146.56 – 144.34 and closed at 144.34.
Intra-day trading ranges; supports are 144.07, 143.73. Resistances are 145.47, 146.08.

Source: CommodityOnline