4X-INFO (FOREX INFORMATION)

Will Mexican Peso Crisis of 1994 repeat itself?

2009-03-09T02:24:00.002-07:00

Having risen to a six-year high against the Dollar in late 2008, the Mexican Peso seemed to have firmly distanced itself from the devastating financial and economic crisis suffered in the early 1990’s. However, all of the factors that were blamed for the earli

er crisis have since re-emerged, leading some analysts to question whether a repeat is possible. According to a report published by the Atlanta Fed shortly after the 1994 crisis: The main fly in the ointment was Mexico’s current account

deficit, which ballooned from $6 billion in 1989 to $15 billion in 1991 and to more than $20 billion in 1992 and 1993. To some extent, the current account deficit was a favorable development, reflecting the capital inflow stimulated by Mexican policy reforms. However, the large size of the deficit led some observers to worry that the peso was becoming overvalued, a circumstance that could discourage exports, stimulate imports, and lead eventually to a crisis.

Sound familiar? A future (hypothetical) report that follows the looming currency crisis will likely point to a similar inflow of speculative capital and a surging current account deficit, which has reached the highest level since 2000. Given that “the size of the deficit may more than double this year as industrial production, foreign direct investment and money transfers from abroad continue to fall,” the likelihood of peso devaluation is rising, regardless of how low the currency has already fallen.

On the one hand, Mexico’s response to the weakened Peso is promising. With the blessing of the US (which played a prominent role in the 1994 crisis), the Central Bank of Mexico has injected Billions of Dollars directly into the forex market, so as to keep up the facade that everything is under control. At the same time, it hasn’t lowered interest rates nearly to the extent of some of its peers, in order to guard against inflation and appeal to investors with comparatively attractive yields.

Unfortunately, there are a couple reasons why both prongs of this strategy will backfire. On the monetary policy side of the equation, investors would actually prefer steeper interest rate cuts. The carry trade is functionally dead, and investors are now primarily concerned with the risk of deflation, which only becomes more likely as a result of higher interest rates. In other words, the consensus is that the Central Bank should stop griping about inflation, and focus instead on stimulating aggregate demand, since the Mexican economy is especially vulnerable due its dependence on (oil) exports to the US. The Central Bank is also likely to fail in its efforts to directly prop up the

Peso, because of the tide of speculators betting against it. To quote the same Atlanta Fed report: A sudden shift of funds out of a currency is called a speculative attack in the economics literature…

Rather than waiting for the central bank’s reserves to run out through a gradual process of curren

t account deficits, speculators who realize that a devaluation is inevitable will attack the currency through massive capital outflows as soon as they command enough resources to force a devaluation. Most analysts have since turned bearish on Mexico, which means the fall of the Peso has become self-fulfilling. Check out the Mexican Peso ETF (FXM), which represents a simple and effective way to bet against (or for, for all of the contrarians out there) the

Peso.

Forex Achieves New Prominence

2009-03-09T02:24:00.001-07:00

The credit crisis has resulted in a collapse in prices for nearly every type of investable asset class (i.e. stocks, bonds, commodities, real estate)- with the notable exception of one: currencies. Of course, this is an inherent quality of forex: a rise in one currency must necessarily be offset by a fall in another currency. While you are probably rolling your eye at the obviousness of this observation, it is still worthwhile to make because it implies that there is always a bull market in forex. Accordingly, capital from both institutions and retail investors continues to pour in to the forex markets, causing daily turnover to surge by 41% (according to one survey), which would imply a total of $4.5 Trillion per day!

Investment banks, especially, are trying to increase their forex business in order to compensate for a decline in other divisions. Said one representative: ”We have probably made more of an aggressive leapfrog in growing our revenue base, which has virtual

ly doubled in 2008 versus 2007. With the situation that has been developing over the past six months, where banks are clearly re-embarking on a new role leading back to basics, foreign exchange has to be one of the products that tops that list.”

Based on New York data, which generally reflects global forex activity, transactions between the Dollar, Euro, and Yen (i.e. not involving outside currencies) now account for more than half of the total.

Contrary to popular belief, however, most foreign exchange transactions involve derivatives, rather than spot trades. In the case of swaps, it is the nominal value of the swap that is reported, which well exceeds the total amount of currency that is exchanged, and thus results in an inflated estimate of total daily turnover. Regardless, all measures point to increasing volume.

One would expect that the increase in both liquidity and the role of derivatives in forex markets would result in a corresponding decrease in volatility. Of course, this is quickly belied by the turbulence of the last six months, in which many currency pairs set daily, weekly, and/or monthly records for fluctuations and volatility.

I recently read an article about so-called “predictive markets,” which use a grassroots approach to make forecasts by “by giving people virtual trading accounts that allow them to buy and sell “shares” that correspond to a particular outcome. Shares in an outcome that is considered more likely to occur then trade at a higher price than those that represent a less likely outcome.” Given that the forex ‘experts’ are almost invariably wrong, I think this idea has tremendous potential to make forex markets even more transparent. Of course, that also means that it will become more difficult to turn a profit, which is why “it’s vitally important to be well-informed when investing in forex so as to enter and exit trades only at levels that are ‘fundamentally’ sound.”

UK, EU Central Banks Follow the Federal Reserve

2009-03-09T02:21:00.000-07:00

Yesterday, both the European Central Bank (ECB) and the Bank of the UK cut their benchmark interest rates to record lows. This is especially incredible in the case of the UK, whose Central Bank over 300 years old! You can see from the following chart that both Central Banks have more than made up for their respectively slow starts in easing monetary policy by effecting several dramatic rate cuts, following the example of the Federal Reserve. The baseline UK rate now stands at .5%, only slightly higher than the Federal Funds rate, and slightly lower than the 1.5% ECB rate.

Given that they have essentially reached the terminus of their monetary policy options, all three Central Banks are exploring further options aimed at pumping money into their respective economies. The Fed has already “announced a program to buy $100 billion in the direct obligations of housing related government sponsored enterprises (GSEs) — Fannie Mae, Freddie Mac and the Federal Home Loan banks — and $500 billion in mortgage-based securities backed by Fannie Mae, Freddie Mac and Ginnie Mae.” As I wrote in a related article, “this was quickly followed by repurchase programs, lending facilities, investments in money market funds, and option agreements, all of which were designed to supplement its ‘traditional open market operations and securities lending to primary dealers.’ The Fed’s efforts also work

ed to ease the liquidity shortage in credit markets abroad by entering into swap agreements with several foreign Central Banks suffering from acute Dollar shortages.” In conjunction with the rate cut, the Bank of the UK, meanwhile, will pump £150bn directly into UK credit markets through liquidity support, buying public and private debt, and asset purchases. “The main purpose of quantitative easing is not to send the money supply into orbit but to stop it from crashing…the broad money held by households has risen at a worryingly slow rate over the past year, and holdings by private non-financial firms have actually

been dropping.” In contrast to the monetary programs of the UK and US, the ECB has thus far refrained from the kind of liquidity support that would necessitate printi

ng new money. Instead, “the central bank will continue offering euro-zone banks unlimited loans at the central bank’s policy rate until at least the end of this year.” The interest rate cuts were announced simultaneously with a spate of macroeconomic data, which collectively paint a bleak picture. Eurozone growth is projected at -2.

7% for 2009 and 0% for 2010. The current unemployment rate at 8.2% and climbing. The thorn in the side of the EU is represented by eastern Europe, where growth is falling at an alarming pace, dragging the EU down with it. While EU member states have pledged to intervene if one of their own falls into bankruptcy, it’s unlikely that they would intervene similarly if a non-EU member state went bust. The UK economy is similarly desperate, having contracted at an annualized rate of 5.8% in the most recent quarter. The wild cards are the real estate and financial sectors, the fortunes of which are increasingly intertwined.

So what do the forex markets have to say about all this? Economists have used the dual phenomena of risk aversion and deflation to explain the interminable weakness in the the Pound and Euro. Everyone is surely familiar with the notion of the US as “safe haven” during periods of global financial instability. The deflation hypothesis, meanwhile, suggests that the ECB (and to a lesser extent, the Bank of UK), fell behind the curve when easing liquidity. The ECB, especially has harped on inflation as a reason for cutting rates more quickly. Given that investors are now more concerned with capital preservation than price inflation, it follows that they would prefer to invest where Central Banks were more vigilant about deflation (i.e. the US).

Personally, I think that the continued declines in both currencies, in spite of steep interest rate cuts, indicates that the deflation hypothesis is bunk, and investors remain fixated on risk aversion. By no coincidence, the temporary rebound in US stocks that took place in January was also accompanied by a bump in the Euro. (See chart below).

I think this mindset is reasonable, but only in the short-term. Given the current economic environment, I don’t think investors (and currency traders) can be faulted for ignoring the possibility that quantitative easing and liquidity programs will have to be funded with the printing of new money, which would be inherently inflationary. Many comparisons are being made with Japan, whose ill-fated quantitative-easing program succeeded only in inflating a bond-market bubble and vastly increasing Japanese public debt. According to one columnist, “it’s hard to argue that quantitative easing ended deflation; high oil prices did that. Meanwhile, the economy cured on its own most of the structural problems such as excess capacity and too much debt associated with the deflationary environment.”

In short, with a medium and long-term investing horizon in mind, I think the ECB’s approach to dealing with the credit crisis is more conducive to monetary stability. Thus, when investors grow weary of the idea of US as safe haven, they will no doubt focus instead on fundamentals. At which point, the ECB will likely be rewarded for fulfilling its anti-inflation mandate, in the form of a stronger Euro.

Strong Dollar Hurts US Businesses

2009-02-14T02:25:00.001-08:00

While the year-long surge in the Dollar has been a welcome development for American consumers and the US government (in terms of cheaper imports and easy credit, respectively), American businesses are not smiling. The strong Dollar has resulted in decreased competitiveness in the eyes of foreign consumers, and consequently, lower exports. For this reason, the US trade deficit has not shrunk significantly, despite a slight down-tick in imports. One must also look at the overseas earnings of American multinational corporations, which are frequently repatriated to the US and booked in Dollar-terms. In fact, as much as 50% of S&P 500 member company profits now come from overseas. Simply, lower exchange rates mean lower profits. In short, investing in the stocks of companies as a proxy for the markets in which they do business is not (as) profitable when the Dollar is strong. The Financial Times reports:

As a result of this greater impact of currency swings, companies are starting to put greater emphasis on trying to hedge their foreign exchange exposure, according to a recent survey from JPMorgan.

US and Japan Should Form "Forex Partnership"

2009-02-14T02:24:00.001-08:00

While continuing to deny the possibility of direct forex intervention, Japan is nonetheless desperate to halt the rise in the Yen. The primary concern of the US government, meanwhile, is not that the Dollar is becoming too valuable, but rather that it will face great difficulty in funding its economic stimulus plan. Perhaps there exists a golden opportunity to simultaneously alleviate both of these quandaries; Japan should be solicited to buy US government bonds. A large-scale purchase of US Treasury securities by the Central Bank of Japan would be tantamount to intervention, and would probably lead to a decline in the Yen, at least against the Dollar. Of course the US would benefit not only by the direct purchase of its bonds, but also by the positive signal that this would send to other institutional investors. Besides, given that China is in no position to increase its holdings of US Treasury securities, Japan represents the best candidate for partnership. The Washington Post reports:

Achieving such a currency adjustment may seem farfetched, but the yen-dollar exchange rate historically has been heavily influenced by the market's perception of the U.S. and Japanese governments' comfort level for the currency relationship.

Chinese Yuan: Up or Down?

2009-02-14T02:23:00.000-08:00

Speculation surrounding the Chinese Yuan has been mounting for months, beginning with a sudden halt to the currency's appreciation and continuing with the insinuation of the Obama administration that China is a currency manipulator. In the context of falling exports and a sagging economy, meanwhile, the Chinese Ministry of Finance has issued a research report encouraging the Central Bank to allow the currency to appreciate. Despite the Central Bank's insistence that it wants a "stable" currency, futures prices indicate a mean expectation that in fact, the Yuan will be nudged downward over the next twelve months. On the other side of the equation are financial analysts, who collectively forecast a slightly stronger Yuan, with one bullish analyst projecting a 3.5% appreciation in 2009, on the basis of selectively culled economic data. Bloomberg News reports:

“The consensus around China has been weak growth and falling reserves. The recent data challenges both views. Lending looks good, money supply looks good, and the PMI balanced to slightly bad from very bad levels."

Korea May Regulate Borrowing

2008-05-31T05:10:00.000-07:00

Over the last two years, South Korea's overseas borrowings more than doubled, to $388 Billion. Nervous, perhaps, that Korean businesses may be overextending themselves, the government is seeking to regulate such activities. Based on the way the forex markets responded to the news, it must be perceived that borrowing abroad is helping the Korean economy. On the one hand, if loans are denominated in foreign currency and must then be converted to local currency, this would exert upward pressure on the Korean Won. On the other hand, this also requires more local currency to be printed, which fuels inflation. Much of the borrowings are being undertaken by shipbuilders who are trying to hedge their exposure to a rising Dollar. The Edge Daily reports:

Some analysts say the forward-trading-linked borrowing is not as big a problem as borrowing to fund consumption would be, but the government is worried that the sharp rise in debt over a short period of time could undermine the local financial system.

RMCN Credit Services

2008-05-15T00:41:00.001-07:00

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The Strong Dollar Myth

2008-05-11T06:29:00.000-07:00

When asked to discuss the official position of the USA with regard to its currency, Treasury Secretary Henry Paulson typically invokes the "Strong Dollar Policy." According to former Treasury Secretary Paul O'Neill, however, this policy is a "vacuous notion." Mr. O'Neill served as Secretary from 2001-2002, during which time he echoed the strong dollar sentiments of his forebears, without apparently ever believing that the US had any ability or intention to influence the value of the Dollar in forex markets. The implications of Mr. O'Neill's comments are such that the rhetoric of Secretary Paulson, as well as a recent warning by the G7 nations, are both wholly empty, and the Dollar's value will continue to rise and fall as determined by the markets. Bloomberg News reports:

O'Neill roiled currency markets when he was in office from 2001 to 2002, at one point with comments in an interview with a German newspaper that the U.S. pursued a policy of a strong economy, rather than currency.

Vietnam Dong to Slide Further

2008-05-10T08:29:00.000-07:00

In the year-to-date, the Vietnamese Dong has fallen by .7%. That may not seem like much, but since the Dong/Dollar exchange rate is approximately 16,000 to 1, every .1% is meaningful. Unfortunately for Vietnam, analysts are predicting that the Dong will fall further, due to a confluence of factors. First, the Vietnamese stock market is tanking; the 42% decline recorded thus far in 2008 makes it Asia's worst performer and unattractive for foreign investors. The second factor is inflation, which is nearing 20% and is directly eroding the value of the Dong. Finally, there are technical factors, such as rising imports and market sentiment that the Central Bank will hold down the Dong to support the export sector. Bloomberg News reports:

"The key concerns are that inflation and excessive domestic growth have been allowed to persist. Those pressures have flipped from dong positive to dong negative.''

BOC Cuts Rate$

2008-05-09T08:29:00.000-07:00

The Bank of Canada has cut its benchmark lending rate by 50 basis points, to 3.0%. The move was widely expected by analysts, although some of them had forecast only a .25% cut. Last week, economic data confirmed a mild rate of inflation in Canada, giving the BOC a green light to ease monetary policy without having to worry about the effect on prices. Despite commodity prices that remain at stratospheric levels, Canada's economy is sagging, due to the subprime crisis unfolding across the border. Some analysts have analogized Canada's situation to the dilemma facing the European Central Bank, which is reluctant to cut interest rates for fear of stoking the fires of inflation. As a result, the Euro has surged 8.5% against the Dollar in the year-to-date, while the Canadian Dollar has fallen. If the BOC opts to cut rates further, the Dollar could retake some of the ground it lost last year. Marketwatch reports:

Against the Canadian dollar, the U.S. dollar is likely to hold support around par, gradually firming back toward C$1.03 ahead of the U.S. Federal Open Market Committee meeting on April 30.

AUD Nears Parity

2008-05-08T08:29:00.001-07:00

The word "parity" is becoming a mainstay of traders in the forex markets. In 2007, it applied to the Canadian Dollar, which had rallied 70% over the course of five years to reach the mythical 1:1 level against the USD. This year, it is the Australian Dollar that is threatening to surpass the Dollar in value. The AUD has always benefited from general USD weakness, but now the focus is shifting to the AUD, itself. The most recent Australian price data suggests that inflation in Australia remains problematic, which could force its Central Bank to raise the benchmark lending rate to 7.5%. In addition, high commodity prices and consequently strong exports should provide demand for the currency. As always, analysts are divided over the likelihood of parity, but that hasn't stopped them from bandying the term about. The Australian Age reports:

Parity was never a "ridiculous suggestion." "But it's probably a bit tougher going because the Australian economy is slowing," says one analyst. "Then again, if you saw a reacceleration in growth, that might be a different story."

Chinks in the Euro's Armor

2008-05-08T08:28:00.007-07:00

2008 has witnessed a rapid appreciation in the Euro, which recently breached the psychologically important $1.60 barrier. Last week, however, the Dollar dramatically reversed course, leading many traders to speculate that the Euro's best days may be temporarily behind it. There are two ideas underlying this theory. First, the Federal Reserve Bank is probably near the end of its tightening cycle, while the ECB has yet to begin. In addition, recent economic data suggests that the Euro-zone economy, which has appeared recession-proof in spite of the credit crisis, may soon falter. The best-case scenario, according to Dollar bulls, would be a loosening of monetary policy in the EU simultaneous with tightening in the US. If such a scenario were to obtain, it would bridge the interest rate differential between the two economies, which many believe is behind the weakness in the Dollar. The Wall Street Journal reports:

If bad news out of Europe starts to accumulate and the Fed stands pat, the dollar’s slide could taper off.

Forwards Gain Retail Appeal

2008-05-08T08:28:00.005-07:00

The anecdotal evidence for surging retail interest in forex is cropping up everywhere. Moreover, investors are no longer even limiting themselves to the spot market, utilizing derivatives to speculate on future exchange rates. In the UK, for example, 10% of investors intending to purchase real estate in the EU are utilizing forward agreements to hedge their exposure to the Euro, which has risen 10% against the Pound since the beginning of 2008. Evidently, prospective home buyers are hoping that the Euro returns to 2007 levels, which would significantly lower the cost of buying property there. However, if the Euro continues to appreciate, such investors could end up losing more than they bargained for. Homes Worldwide reports:

Even the movement in the markets over a couple of days can make the difference between owning a property and no longer being able to afford it.

April Marks Dollar Turnaround

2008-05-08T08:28:00.003-07:00

Earlier this week, the Forex Blog speculated that the tide was turning on the Euro, which had retreated from the $1.60 threshold. Sure enough, the month of April saw the best monthly performance by the Dollar in over two years. The sudden about-face by the Dollar stems from changes in interest rate expectations. Only a couple weeks ago, the consensus among investors was that the Fed would cut rates further at its next meeting; the only point of uncertainty was whether rates would be cut by 25 or 50 basis points.

As of today, however, there is only a 25% chance that the Fed will cut rates at all, if you go by futures prices. Regarding the Euro, investors are no longer so sure that the ECB will hike rates in response to surging inflation. In short, the new consensus is that the US/EU interest rate differential has stabilized. Then there is the economic picture; investors have "chosen" to be pleasantly surprised by the most recent economic data. While the economic downturn still seems inevitable, it may not be as severe as investors had previously feared. Reuters reports:

In contrast to slightly stronger U.S. data, the Ifo German business sentiment index this week showed the biggest monthly fall since September 2001.

Turkish Lira Set for Decline

2008-05-08T08:28:00.001-07:00

2007 was a banner year for the Turkish Lira, which appreciated 21% against the US Dollar. However, in the year-to-date, the currency has returned nearly 10% of this gain, making it the third worst performing currency in the world. Turkey generally, and the Lira specifically, are considered by investors as proxies for emerging markets. The global trend towards risk aversion, as well as skyrocketing inflation, are hurting many such currencies. In Turkey, inflation is so problematic (9.4% at last count) that the Central Bank has raised its benchmark interest rate to 15.25%. Ironically, the more the Lira depreciates, the harder it becomes for the Central Bank to control inflation, causing the Lira to slide further as part of a self-perpetuating free-fall. In addition, the country is beset by political uncertainty, as the courts determine whether the nation's current government can stay in office. Bloomberg News reports:

"The recent political developments are likely to complicate policy-making and the investment climate. The deteriorating political backdrop will in turn undermine the prospects for restoring fiscal discipline and reviving the reform agenda."

Fed Lowers Ratess

2008-05-08T08:27:00.005-07:00

The Federal Reserve Bank recently lowered interest rates for the seventh, and perhaps final, time, bringing its benchmark federal funds rate to 2.0%. Since inflation is still hovering around the 4% mark, the Fed will probably be reluctant to lower rates further. Thus, the markets have been given all of the boost that they are likely to receive, and it is "fate" that will determine whether the economy will find its footing. (GDP growth clocked in at an anemic .6% for the last two quarters). The most recent data (including the just-released jobs data) indicate that the economy may be stabilizing, although consumption and the employment situation are still deteriorating. As a result, the National Bureau of Research has yet to officially declare the current economic downturn a "recession," since the picture remains nuanced. The New York Times reports:

The recession-or-not question is now almost entirely academic, Mr. Bernstein contended, given the steady erosion of American spending power and soaring costs for food and gasoline.

Korean Won is Worst in Asia

2008-05-08T08:27:00.003-07:00

In the year-to-date, the Korean Won has recorded the worst performance of any currency in Asia, having recently fallen to a 6-week low. The story is being driven as much by Dollar strength is by Won weakness. US equities have rallied over the last month, as investors may have been overly pessimistic in the previous months regarding near-term US economic prospects. In addition, the Fed has probably lowered interest rates for the last time, whereas the Central Bank of Korea has held its benchmark lending rate at 5% since the summer. This yield differential, which currently favors Korea, may narrow substantially over the coming months, as the Bank of Korea is forced to reckon with slowing growth and rising inflation. Bloomberg News reports:

Growth, at the slowest in more than three years last quarter, is losing momentum, the Bank of Korea said in a report on May 1. Policy makers next meet on May 8 to decide on the benchmark seven-day repurchase rate.

Commentary: The Dollar Conundrum

2008-05-08T08:27:00.001-07:00

The Dollar is currently teetering on the edge of a precipice. Many analysts are predicting that, having recently retreated from a record low against the Euro, the Dollar's best days are still in front of it. On the other hand, the economic data and interest rate pictures remain nuanced, and still favor the Euro on paper. In this article, we aim to sort through this morass, and produce a clear summation of the factors which bear on the Dollar in the short term.

Let's begin with the bullish side of the equation, which is supported by the Dollar's recent upside swing. First of all, while interest rate differentials are currently hurting the Dollar, the Fed is probably near the end of its loosening cycle, while the ECB has yet to begin. The best-case scenario would be a tightening of US monetary policy simultaneous with a loosening of EU policy. Next, there is the economic picture. The most recent GDP data indicates an economy that is still growing, albeit slowly. In addition, the unemployment rate declined in the most recent month for which data is available. The US stock market has regained half the value it lost in the first three months of 2008, and the overall P/E ratio is close to its long-term average, which suggests the markets could appreciate further. Finally, the economic stimulus package that was approved by Congress in March will go into effect this month, as tax rebates worth $150 Billion are distributed to consumers and businesses.

On the bearish side, let's return to the interest rate story. While the future certainly bodes well for the US, the present still favors the EU. US interest rates are currently negative in real terms, and investors have already turned the Dollar into a funding currency for carry trades. Moreover, negative real interest rates implies high inflation. US CPI is hovering around 4.0%, and could continue to climb in proportion with surging food and energy prices. In fact, inflation is now viewed by economists as more problematic than the economy, itself. While US exporters have benefited from the resulting cheap Dollar, US consumers- which account for 75% of the US economy- have not. The economic downturn still has not officially been labeled a recession by the Bureau of Economic Research, but the situation remains tenuous, and the scales could easily be tipped by a few pieces of negative economic data.

The wild card in this mess is housing. In certain regional markets, real estate prices have tumbled by 30%. In other markets, they have hardly budged. While an estimated $350 Billion in subprime debt has already been written down, analysts disagree over the eventual total. Estimates vary from $1 Trillion to less than $350 Billion, which would imply "write-ups" on debt that was erroneously declared worthless. The difference represented here amounts to 6% of GDP, which could mean the difference between growth and contraction, a strong Dollar and a weak Dollar, respectively.

Visa Credit Card Applications

2008-04-10T02:19:00.000-07:00

Today, everyone has a credit card. From teens to corporate professionals to retirees, everyone is enjoying the ease and benefit of carrying CCs. However, before applying for a credit card, there are several factors to consider when deciding what credit card is best for you.

Visa credit card applications makes it real easy for you.
Believe it or not, there is a perfect credit card program out there for anyone. Which of these programs is right for you will depend on several factors, such as:
* Age
* Credit ranking (rating)
* Spending needs (how much money you need)
* Payment structures (how you will pay it back)
* Special interests
* Number of current credit cards
* Income (how much money you make)
Credit cards are also issued through numerous financial groups and organizations. For example, it’s not only banks such as Bank America offer credit cards to their members. Specialty financial organizations such as American Express Financial Group—who offers the American Express card—and Novus—who offers the Discover Card—do as well. The only difference is some organizations may be more competitive about interest rates and qualifications than others.

Which CC is Right for Me?
Before applying for a credit card ask yourself these questions:
- Why do you want/need a credit card? – Maybe you need one credit card with a special interest rate to transfer balances from multiple accounts or perhaps you need a card specifically for business purposes. Being able to earn rewards, cash back or airline miles for your everyday purchases can also be a reason to get a credit card.
- How much do you need to charge at one time? – If the credit card is for business purposes, maybe you need a card with very high or no spending limits. On the other hand, if this is your first card and you are trying to build credit or just want the card for emergencies, then a more modest spending limit may be the better route to go.
- How do I want to pay back the charges? – Decide if you want to pay off the entire balance each month or just a portion over each month. Some cards offer advantages for both paying structures.
- Do special offers interest me? – Many credit cards offer special rebates, support for a specific organization or other member benefits for using their credit cards. Decide if this is important to you when choosing your card.

Managing my credit
Now that you know what type of credit card you want, it is time to manage your credit. A credit card is a responsibility, not a right. Understanding why you want a credit card, knowing how the credit card process works and picking a credit card that works best for you will help you avoid debt management pitfalls. Use your credit card to extend your buying power while keeping in mind that a credit card is not free money. To maintain a good credit rating, you will need to pay your credit card statements in a timely manner, according to your agreed-upon terms of use. Be responsible with your credit and enjoy the benefits credit card possession can bring. If you have questions or concerns about what is the right card for your specific credit or financial need, talk to a professional financial advisor. Take the extra step and be sure you understand everything you need to know before applying for a credit card.

Retail Appeal of Forex Grows

2008-04-10T02:18:00.004-07:00

With average daily turnover of $3 Trillion, the foreign exchange markets are the largest financial markets in the world. Despite boasting such impressive volume and liquidity characteristics, forex is nonetheless considered extremely risky, and thus viewed as the bastion of experienced traders. This is slowly beginning to change, as investors have moved to diversify their portfolios away from the traditional allocation of stocks, bonds, and cash. Investing directly in forex still not recommended by financial advisers. However, there exist alternative strategies, such as buying CDs denominated in foreign currencies and/or securities that are issued by foreign companies and trade on domestic exchanges. These kinds of "indirect" strategies typically take the form of either "single play" or "double play" strategies. With both strategies, investors attempt to profit through cross-border interest rate disparities, but with "double play" trades, investors seek to profit from currency appreciation as well. The New York Times reports:

Mr. Orr advised currency buyers to research foreign nations and their credit risks, determine at the start their own risk-reward ratio and tolerance to volatility, and have exit strategies, while watching their positions constantly.

Central Bank of Japan Appoints Leader

2008-04-10T02:18:00.003-07:00

For several months, the Central Bank of Japan had been leaderless, creating a situation that was politically and economically awkward. Finally, after much debate, Masaaki Shirakawa, a former academic and veteran central banker, was appointed. It is unclear what effect Mr. Shirakawa will have on Japan's economy, which is foundering (for reasons unrelated to the global credit crunch). He is considered highly competent, and analysts have suggested that he could help Japan develop a sensible and focused economic policy, which has been lacking for quite a while. With regard to monetary policy, he is unlikely to either raise or lower interest rates from the current level of .5%. Thus, if he is to return Japan to economic credibility, he will have to use other methods. Nonetheless, analysts are optimistic. The New York Times reports:

Simply having a hand at the central bank’s tiller will do much to restore global confidence in Japan and its ability to manage its $5 trillion economy, economists and former bank officials said.

USD: Where is it Headed?

2008-04-10T02:18:00.001-07:00

The last week has seen a spate of positive developments in the financial markets, including reassurances by several bulge bracket investment banks that their respective capital positions are in strong and in no need of shoring up. As a result, some analysts are speculating that the worst of the credit crunch has already been priced into securities and the USD, and that actual write-downs on subprime mortgage obligations won't match the "Himalaya-like guesstimates." At the same time, job losses are mounting and the unemployment rate recently crossed 5% for the first time in two years. Interest rate futures contracts suggest a 20% chance that the Fed will cut rates by 50 basis points at its meeting on April 30. Then, there is the ECB, which has been vocal about fighting inflation and European financial markets, which have benefited from "domestic" investors diversifying within the EU rather than to the US. Thus, there is no definitive answer regarding where the Dollar is headed in the near-term: everyone seems to have their own opinion. Bloomberg News reports:

The Dollar Index traded on ICE Futures in New York, which tracks the currency against those of six trading partners, dropped 0.2 percent to 72.049, its third straight decline. It was at a record low of 70.698 on March 17.

Forex Leads Equities

2008-04-10T02:17:00.004-07:00

In recent months, the credit crunch has ignited a global trend towards risk aversion. As a result, a correlation has developed between equities, which serve as a proxy for risk, and certain currencies. The Forex Blog previously covered the link between the S&P 500 and the Japanese Yen, whereby the Japanese Yen moved inversely with the S&P as a decline in risk appetite led carry traders to unwind their positions. Perhaps, this connection can be seen in other currencies. Since the forex markets are open 24 hours a day and are the most liquid financial markets in the world, macroeconomic events are often priced into currencies before they are priced into equities. In addition, carry trading strategies have expanded beyond the Japanese Yen. In fact, the USD is now a decent candidate as interest rates are negative,when adjusted for inflation. Thus, an increase in risk appetite could simultaneously boost the S&P and punish the Dollar!

USD: Worst Quarter in 4 Years

2008-04-10T02:17:00.003-07:00

In the first three months of 2008, the USD notched its worst quarterly performance since 2004, falling over 8%. During the same period, the Dollar lost 10% of its value against the Japanese Yen and 6.4% against a broad basket of currencies. Forex analysts reckon the slide was so steep because investors have taken stock of the US economic situation and have concluded that recession is inevitable. The story is also being driven by interest rates. The Fed has already cut rates by 300 bps in the current cycle of easing, making the benchmark federal funds rate the lowest in the industrialized world, in real terms. Meanwhile, the European Central Bank is giving every indication that it will maintain rates at current levels in order to keep a lid on inflation. As a result, the Dollar could fall further, especially if the Fed continues to hike rates and investors use the currency to fund carry trades. Reuters reports:

[According to one analyst], "And to call a bottom now is still a very risky call. It's too early to say the worst is behind us and the dollar's in for a sharp rebound."

Barclays Introduces Carry Trade ETN

2008-04-10T02:17:00.001-07:00

Through its trademark iPATH line of funds, Barclays Bank recently introduced a new ETN designed to mimic the carry trade. In accordance with this strategy, this note is linked to the performance of the Barclays Intelligent Carry Index, which aims sell low-yielding currencies and use the proceeds to invest in those that offer higher yields. This index holds varying combinations of the so-called G10 currencies, which includes all of the majors as well as the Norwegian Krona and Swedish Krona. Traditionally, carry traders have sold one specific currency (i.e. Japanese Yen) in favor of another currency (i.e. the New Zealand Dollar). By instead purchasing this note, which will trade under the ticker ICI, investors can buy a share of an entire portfolio, optimized expressly for this strategy. Comtex reports:

The index is composed of ten cash-settled currency forward agreements, one for each index constituent currency, as well as a "Hedged USD Overnight Index" which is intended to reflect the performance of a risk-free U.S. dollar-denominated asset.

Fundamentals Harm Emerging Market Currencies

2008-04-10T02:16:00.000-07:00

Since the inception of the credit crunch, one of the themes in forex markets has been the surprising strength of the Dollar. Despite growing economic uncertainty, the US is still viewed as a relatively safe place to invest. On the other hand, emerging markets, especially those with current account deficits, have witnessed capital flight and subsequent currency depreciation. The currencies of South Africa and Iceland, for example, have both experienced declines 20% since the start of this year. Risk premiums had fallen to historic lows prior to the credit crunch, and neither country experienced great difficulty financing its respecive deficits. However, investors are growing increasingly nervous and are shifting capital to countries with stable current account balances. The Financial Times reports:

Goldman Sachs says: "We have long argued that in times of global turmoil suppliers of capital are poised to outperform countries in need of capital. However, it is only since January 2008 that we have seen the current account theme really gain momentum in the FX market."

Bank Collapses, USD Plummets

2008-03-19T06:43:00.001-07:00

Over the weekend, Bear Stearns, a prestigious American investment bank, hurriedly scrambled to find a buyer in order to avoid having to file for bankruptcy. While a buyer (JP Morgan) was ultimately secured, investors remained jittery, as the collapse of this magnitude is virtually unprecedented. When forex markets re-opened on Monday, the Dollar crashed against all of the world’s major currencies, namely the Euro and the Yen. Furthermore, analysts are now beginning to view forex intervention as increasingly likely. It’s still unclear whether the Bank of Japan or the European Central Bank (with or without support from the Fed) would spearhead any such intervention. At the breakneck speed at which events are unfolding, however, no one will be surprised if a plan is quickly cobbled together. The Wall Street Journal reports:

“Were such intervention to be seen, (the euro) could briefly trade down to $1.55, yet unless the (ECB) is prepared to back up such intervention with a rate cut, intervention will be futile,” said [one analyst].

2008-03-10T07:50:00.001-07:00

Together with a syndicate of big banks, Merrill Lynch newly formed ELEMENTS, which unveiled five original currency Exchange Traded Notes (ETNs. Before ML entered the marketplace via ELEMENTS, there were simply two banks offering currency ETF products: Barclays Capital and Rydex, whose funds are proprietary CurrencyShares and iPath, respectively. ETNs disagree from ETFs in that the onetime constitute a debt responsibility whereas the latter constitute a kind of fairness. In use, however, since the danger of nonpayment is comparatively reduced, the two types of securities are functionally equal. Both salary stake somewhat below the benchmark stake rates of the currencies to which they are connected. The five original ELEMENTS ETNs are individually tied to the operation of the Canadian Dollar, Euro, Swiss Franc, British Pound, and Australian Dollar. Index Universe reports: Why would anyone select the original ELEMENTS ETFs? Because they take biannual cash dividend payments to noteholders based on the int

Technical Analysis - The Basics

2008-03-10T07:47:00.000-07:00

Yesterday, the Forex Blog featured a tale that explained how to have money when unpredictability is reduced. The consensus of the clause is that investors must switch their scheme from trading to trending, which requires a readjustment in prospect from short-term to long-term. But given that unpredictability is reduced and that currencies frequently go laterally against each new, how do you recognize which instruction to wager on, and accordingly, when to purchase or trade? The response requires some insignificant technological analysis, involving two of the almost fundamental tools accessible: backing and opposition. These terms constitute approximate cost levels within which a particular currency appears to be trading. The meaning of these levels is normally capricious, and is probably grounded in psychology quite than any genuine mathematics. Furthermore, formerly the form is spotted, the backing and opposition levels frequently get self-fulfilling, keeping the currency rangebound. But, when, for whatever cause, the currency dips below or rises above

USD Spirals to Fresh All-Time Lows

2008-03-03T12:02:00.000-08:00

The reports released today showed no revision in Q4 GDP, unchanged at 0.6% while core PCE prices also held steady for the quarter at 2.7%. However, weekly jobless claims jumped higher to 373k, versus 349k from a week earlier – highlighting continued weakness in the US labor market and shifting focus to next week’s jobs data. Consensus estimates call for the February unemployment rate to creep back up to 5.0% while non-farm payrolls are forecasted to reverse last month’s 17k contraction, instead improving by 35k.
Economic data slated for release tomorrow will see January PCE, personal consumption, personal income, February Chicago PMI and the February University of Michigan sentiment survey. The Fed’s preferred gauge on inflation, the personal consumption expenditures (PCE) price index is likely to remain buoyed in January, highlighting the predicament facing the FOMC in maneuvering monetary policy. Meanwhile, Chicago PMI in February is expected to fall below the key 50-level, dropping to 49.7 from 51.5 in January. The University of Michigan sentiment survey is forecasted to fall to 70.0 in February versus 78.4 a month earlier. However, the risk for a sharper decline remains given the unexpected plunge to 5-year lows in the Conference Board’s consumer confidence survey earlier in the week.
The US data being released continue to bode poorly for the economic outlook, and consequently, for the dollar – which remains mired in a downward spiral across the board. The greenback’s losses against the euro accelerated after breaching the 1.50-level yesterday plunging further to near 1.52 and slumping to a new 24-year versus the Australian dollar around 0.95. Burgeoning fears of an imminent recession and the increased scope for additional aggressive monetary policy easing from the FOMC have given traders the greenlight to dump dollars – plunging to new all-time lows against the euro and Swiss franc.

USD Losses Accelerate

2008-03-03T12:01:00.000-08:00

The beleaguered dollar found no reprieve against the majors, with the accelerated selling pushing the currency to fresh all-time lows against the euro, Swiss franc, 24-year lows versus the Aussie and 3-year lows versus the yen. Underscoring the greenback’s weakness has been the continued deterioration in US economic reports, raising fears of an imminent recession and reaffirming the Fed’s need for further aggressive monetary policy easing over the coming months.
The reports today included January PCE, consumption, personal income, February Chicago PMI and the University of Michigan sentiment survey. Inflation remains firm as the January PCE price index edged higher with the monthly figure ticking up to 0.4% from 0.2% and 3.7% versus 3.5% a year earlier. The core PCE price index firmed to 0.3% m/m and 2.2% y/y. Personal consumption was flat in January and personal income eased to 0.3%, down from 0.5%. Boding poorly for the economy and the greenback was a dismal February Chicago PMI report, which fell sharply to 44.5, far greater than the expected decline to 49.7 from 51.5 from January – beneath the key 50-level. However, the University of Michigan sentiment survey in February fell by slightly less than estimates, declining to 70.8 instead of forecasts for a fall to 70 from 78.4 a month earlier.
Central bank policy decisions and US economic data will dominate the headlines next week. The ECB, BoE, BoC, BoJ and RBA are scheduled to announce policy decisions, with the Reserve Bank of Australia seen tightening rates by 25-basis points to 7.25%. The key highlight from the US will be Friday’s labor report, with the unemployment rate for February expected to edge higher to 5.0% from 4.9% and non-farm payrolls reversing the 17k jobs contraction from January, growing by 35k.

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2008-03-03T09:51:00.001-08:00

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USD Weighed on Bernanke`s Assessment

2008-02-19T12:18:00.002-08:00

Fed Chairman Ben Bernanke said the outlook for the economy has worsened in recent months and that downside risks to growth have increased. He provided a somber assessment of the housing market, labor market and credit conditions, adding that conditions could worsen more than anticipated. Bernanke expects sluggish growth in the near term but anticipates a stronger pace later as monetary and fiscal stimulus trickle into the economy. He emphasized lags in monetary policy and that stance should be assessed in light of medium term forecasts and risks. Further, Bernanke sees overall CPI easing from recent rates and expectations remain anchored. He said the Fed would closely monitor inflation expectations. Bernanke’s comments reinforce market sentiment that the FOMC will maintain its easing stance, saying it would “act in a timely manner as needed to support growth and to provide adequate insurance against downside risks”.

The dollar fell against the euro and sterling, slipping to 1.4647 and 1.9736, respectively. The greenback was unable to sustain earlier gains following better than expected US economic reports as hints of further interest rates cuts from the FOMC weighed on the currency.

The data included weekly jobless claims, which eased to 348k down from 356k a week earlier. Meanwhile, the December trade deficit shrunk by more than estimates, falling to $58.76 billion, compared with calls for a decline to $61.5 billion from $63.12 billion in November. Also, the deficit with China fell to $18.79 billion versus $23.95 billion from November.

Weak US Data Drags USD

2008-02-19T12:18:00.001-08:00

The dollar eased further versus the euro and sterling following another round of weak US economic data, falling to 1.4708 and 1.9722, respectively. A key indicator of consumer confidence fell to its lowest level in 16-years with the University of Michigan preliminary sentiment survey dropping to 69.6, versus 78.4 from January. Industrial output in January crept up marginally to 0.1% versus a flat reading in December. Meanwhile, capacity utilization also increased slightly to 81.5% from 81.4% a month earlier. Also released was the December net capital flows (TIC), which more than halved to $60.4 billion, versus a revised $150.8 billion a month prior.

The string of soft US data reinforces fears that the economy is headed toward a recession, thereby prompting the Fed to aggressively ease rates over the coming months. Fed funds futures contracts reflected a 60% probability for the FOMC to cut rates by 50-basis points to 2.50% at the next policy setting meeting in March.

AUD Rallies on Hawkish RBA

2008-02-19T12:17:00.000-08:00

The dollar is weaker against the euro and Aussie as the US market returns from holiday, falling to its lowest level in 3-months versus the Aussie at 0.9236 and a 2-week low against the euro at 1.4756.

The NAHB housing market index unexpectedly rose to 20 in February, versus 19 a month earlier. Nonetheless, despite the improvement, the index remains mired near record lows. Traders will turn to US economic data slated for release on Wednesday, which include January CPI, building permits, real earnings, and housing starts. Consumer prices in January are largely unchanged, with monthly headline CPI at 0.3% from 0.4% and 4.2% versus 4.1% from the previous year. The core readings are seen at 0.2%, unchanged from a month prior and 2.4% y/y, also unchanged.
The Aussie rallied to its highest level since November against the greenback at 0.9236 following the release of the minutes from the Reserve Bank of Australia’s February meeting – in which the RBA hiked interest rates by 25-basis points to 7.0%. The minutes reinforced market sentiment for further policy tightening over the coming months and revealed consideration from Board members for a more aggressive 50-basis point hike in February. The rationale for a more aggressive move was deterioration in the inflation outlook and “the risk of inflation expectations becoming dislodged had increased”. The RBA added that “a significant further rise in the cash rate could be necessary” on the premise that “the current cash rate in real terms arguably was noticeably below what might be expected given the economy’s circumstances”.

Fed Lowers Rates...Again

2008-02-14T05:35:00.001-08:00

Today, the Federal Reserve Bank lowered interest rates for the second time in as many weeks, bringing its benchmark federal funds rate down to 3.00%. The Fed has now lowered rates by 2.25% since August. The move came as a relief to investors, who now see that the Fed is serious about preventing the economy from slipping into a full-scale recession. However, it remains to be seen whether the rate cuts will provide the necessary boost to the economy or instead prove too little too late. As far as the Dollar is concerned, the rate cuts carry two (conflicting) implications. On the one hand, the economy and stock market could rally, which would likely be matched by a Dollar rally. On the other hand, the interest rate differential between the US and EU is now a 1% and risk-averse investors hungry for yield will be hard-pressed to justify shifting capital to the US. The New York Times reports:

Many economists are far from convinced that even a combination of tax rebates and cheaper money would prevent a recession. And in a sign that bond investors are fretting that the moves could lead to higher inflation, yields on 10-year and 30-year Treasury securities edged up slightly on Wednesday.

USD Drifts Lower, JPY Gains

2008-02-12T05:04:00.001-08:00

The dollar slipped against the euro and sterling at the start of the week, drifting to 1.4576 and 1.9528 amid a dearth of US economic data. Meanwhile, the yen continued to benefit from heightened global risk aversion, edging higher against the euro at 154.29 and sterling at 206.78.

The G7 Finance Ministers meeting provided little news for fx traders, reiterating its stance on China to increase currency flexibility but refraining from singling out the dollar’s weakness. Further, the ministers stressed that exchange rates should reflect economic fundamentals and that excess volatility and disorderly movements are undesirable. The communiqué stated they would “closely monitor developments and take appropriate actions, individually and collectively, in order to secure stability and growth” in the economies.

Why the Fed Cut Rates

2008-02-12T05:03:00.001-08:00

It seems self-evident that the Fed is easing monetary policy because it is trying to stimulate the economy and shore up confidence in capital markets by making credit less expensive. Dig a little deeper, however, and a more nuanced picture begins to emerge. Conspiracy theorists believe that the Fed knows something that investors don't, perhaps that the subprime mortgage situation is more serious than the public is being led to believe. Accordingly, the theory goes, it is trying to prevent a complete collapse of the financial system. Another theory holds that the Fed is cutting rates because it has nothing to lose by doing so. Inflation is still low, from a historical standpoint, and the Fed may be trying to inject liquidity into the financial markets before it is too late. Yet another theory holds that the Fed is deliberately targeting a weak Dollar and high commodity prices, as the former benefits the US directly by narrowing the trade imbalance, and the latter benefits the US indirectly by helping emerging market economies, which are relatively more dependent on commodities. The Chicago Tribune reports:

An increase in exports was one of the positive features of Wednesday's disappointing fourth-quarter report on U.S. gross domestic product. The cheaper dollar is a major factor in export growth, both in terms of current sales and expansion of overseas market share by U.S. manufacturers.

USD Resilient to Dismal Payrolls

2008-02-05T02:47:00.001-08:00

The dollar shrugged off a dismal labor report in early Friday trading – slipping initially following the release, but rallying sharply after traders digested the news. The greenback fell just shy of a fresh all-time low against the euro at 1.4954 before surging to 1.4788 while pushing the sterling beneath the 1.97-level to 1.9655.

The non-farm payrolls for January unexpectedly contracted by 17k, considerably worse than calls for an increase of 80k – and shrinking from an 18k increase in payrolls in the previous month. The unemployment rate, however, improved to 4.9%, drifting from 5.0% a month earlier. Average earnings edged up by 0.2%, but down from 0.4% previously, while the average work week was marginally lower at 33.7 hours. Also released today were January manufacturing ISM, which defied estimates for a decline to 47.3 from 47.7, instead improving to 50.7 and the University of Michigan consumer sentiment survey, improving to 78.4 from 75.5.

Dismal Data Weighs on USD

2008-01-17T16:02:00.000-08:00

The dollar’s recent rebound against the euro and sterling was undermined by weak economic data. The reports released earlier today added to burgeoning fears that the US economy is headed toward a recession. A combination of poor housing data and a disappointing Philadelphia Fed survey set the tone for the trading session, with the greenback initially weaker across the board. The reports also fueled expectations for aggressive policy easing from the Fed beyond the largely priced-in 50-bp rate cut anticipated at the end of the month.

Housing starts for December plunged by over 14% to 1.006 million units, its lowest level in 16-years. Consensus estimates were calling for a drop to 1.14 million units versus 1.187 million units from the previous month. December housing permits declined by 8.1% to 1.068 million units, versus a 0.7% drop in November at 1.162 million units. On a positive note, weekly jobless claims declined to 301k from 322k.

The January Philadelphia Fed survey revealed dismal economic conditions, falling to its lowest level in six-years to -20.9, far greater than expectations for a decline to -1.0 from -1.6 from December. The employment index dipped into negative territory in January to -1.5 from 3.8 in December, its lowest level since September 2003. The new orders component fell to -15.2 in January, a sharp reversal from the 12 reading in December.

USD Recovers

2008-01-11T09:01:00.000-08:00

The dollar stabilized against the majors on Monday following last week’s US data-induced plunge. The greenback climbed to a 4 ½-month high against the sterling to 1.9655 while edging up to 109.72 versus the yen. Sentiment over the direction of global interest rates will dictate currency movements this week, with both the ECB and BoE announcing the results of their policy deliberations on Thursday and Fed Chairman Bernanke speaking on “Financial markets, economic outlook and monetary policy”.

The lackluster US economic reports last week fuelled speculation for a 50-basis point rate cut from the Fed when it meets at the end of the month. However, given the current outlook for inflation it remains to be seen whether the FOMC will move aggressively to stimulate the struggling economy. The coming week will see a barrage of Fed speakers, including Board members Plosser, Rosengren, Poole, Hoenig, Mishkin and Chairman Bernanke. The comments will be closely scrutinized for clues on the scope for additional easing.

Atlanta Fed President Lockhart delivered a somber assessment of the economy, saying the negatives may be gaining momentum and that now is a time of heightened uncertainty. He said that market contacts have expressed serious concern about further market deterioration and spillover. However, he remains troubled by the elevated level of inflation despite expecting inflation to moderate this year. He believes the Fed has been attentive in making appropriate policy responses to the economic situation. Lockhart added that the Fed is balancing concerns about inflation with serious concerns about growth.

Divergent CB Outlooks Drive FX

2008-01-11T08:59:00.000-08:00

The dollar tumbled against the euro, breaching the 1.48-level in the face of sharply divergent comments from each respective central bank’s chief. ECB President Trichet hinted at further tightening on the back of Eurozone economic strength, while Fed Chairman Bernanke offered a somber assessment of the economy and raised expectations for a 50-basis rate cut at the next policy meeting.

Chairman Bernanke said the Fed stands ready to take “substantive action” to support growth and that further easing “may well be necessary” in light of risks to growth. While the December jobs data was disappointing, Bernanke said it would be a mistake to read too much into one report. Nevertheless, he feels the baseline outlook for 2008 has deteriorated and the downside risks are now more pronounced. Further, Bernanke said that inflation expectations remain reasonably anchored.

Choas After S&P Downgrades

2007-07-26T04:30:00.001-07:00

14:00 EDT US Markets are feeling the full force of a Standard & Poors downgrade of CDO (Sub-Prime lending debt) and the possible impact of the US housing woes on the economy. The S&P lowered ratings not just in the US recently but also on European Collateralized Debt Obligations in a sweeping move that forces Investment Funds to re-align holdings as per the strict guidelines on the debt ratings of their portfolios. The yield on 2 and 10 year Treasury Notes declined dramatically as the effects of the downgrades took place. Lower yields equates to lower interest rates, and lower interest rates equals a lower value $.

The Economic Week Ahead

2007-07-26T04:29:00.002-07:00

21:00 EDT The Pound, Aussie and Kiwi have punched through the overnight highs to push the $ lower on big volume. There really seems to be no end in sight for the $ demise and with Global Growth forecasts mainly higher for most regions, with the distinct exception of the US, that leaves the Greenback at the mercy of any currency with a strong Business Cycle. 17:00 EDT The US session Commentary has been posted and looks at the real valuation of the US$. 11:00 EDT A review of this week’s important economic releases shows an even spread each day from Tuesday of reports that will justify to many whether or not the $ has been oversold, or maybe it is steadying for the next leg lower. Tuesday: UK Industrial Trends, expected at 7, down from last month, monitors the Manufacturers orders. CAD Retail Sales looking for 0.6% on the Core Rate, a big indicator as to whether the BOC raising rates has slowed the consumer, or are more rate hikes needed. US Richmond Fed looking to post a flat number of 4. Australian CPI, looking for a huge increase in inflation from 0.1% to 1.0%.Wednesday: US Existing Home Sales looking to draw lower at 5.87m units. Crude Inventory numbers are out looking to increase from the -0.5m barrels from last month. US Beige Book will reveal the 12 Regional Fed Members economic outlooks, this is printed two weeks before the FOMC meeting and allows Traders a preview of what is possibly important at the next meeting. New Zealand Interest Rate statement looking to increase to 8.25%.Thursday: UK Nationwide House Prices, confirmation that the Right Move numbers that came out on Sunday lower were reliable. Euro Zone IFO economic survey looking for Business expectation for the current period and the next six months. US GDP numbers looking to increase to reflect the increase in large manufactured goods. US New Home Sales looking to come in at 25 year lows at 900k units. New Zealand Trade Balance. Japanese CPI and Retail Sales both expected to stay flat, or slightly lower.Friday: Swiss Leading Indicators looking to improve to 2.0. US GDP, the overall economic check-up is looking to increase from 0.7% last month to 3.2% this month. The GDP Deflator, the economic activity inflation rate, is looking to print lower at 3.4% from 4.2% last month. US Consumer Sentiment, the final read in the University of Michigan’s survey, looking to come in lower at 91.5, that however is still a very strong read. 10:00 EDT Oil and Gold prices have backed off in trading today, as the consequences of higher energy prices start to pressurize inflation targets. Lower Oil inventory levels and a reduction in OPEC supplies have helped to fuel demand. The effect on CPI and the consumer of higher Oil related bills will not sit well with the FOMC. The US$ weakness is not being helped by both commodities being at such high levels. 04:30 EDT Global Equity Markets have turned positive after the fears of Friday’s sell-off following into this week were delayed , at least for today. 04:00 EDT A session full of movement with the US$ being pulled all over the charts will not be helped by any Fundamental News releases on Monday. The Technical traders have it all their own way and it will be interesting to see where they can move the Greenback. 03:00 EDT Oil and Gold prices have stabilized at $685 and $76, neither price is helping the US$. 07/22/07 21:00 EDT Aussie PPI numbers came in at 1.0% today, more inflationary than had been expected and a signal that the currency may be looking to appreciate much further than many analysts had thought. 26 years of growth have created a desirable Australian $ it seems. 19:10 EDT UK housing numbers are out, the analysts were looking for a decrease in the housing index from 0.8% to 0.5% and it posted at 0.3%. The Index is relevant, timely and reliable and as an indicator of House Price inflation is well respected. The Bank of England will be happy to see a drop in this number after the recent interest rate increase as they look to tackle 60 quarters of inflationary growth numbers. 16:55 EDT Aussie PPI numbers, the rate of inflation at the Factory Gate is looking to increase to 0.8% from 0.0%. All will be revealed at 21:30 EDT. 16:50 EDT The Aussie, Yen and the Pound are the focus of attention after Fridays big moves with the question being asked as to whether they can hold those positions. 16:00 EDT US Markets are feeling the full force of a Standard & Poors downgrade of CDO (Sub-Prime lending debt)…

Cad Retail Smashes Numbers

2007-07-26T04:29:00.001-07:00

US Beige Book Details

2007-07-26T04:28:00.000-07:00

Dollar Slumped on Housing Warnings

2007-07-18T04:59:00.004-07:00

The dollar fell sharply across the board as news about the subprime sector raised worries over the nation’s housing market and the whole economy. US stock market and bond yields were also hit by the housing warnings.

Two large home appliance retailers, Home Depot and Sears, both lowered their sales and earnings forecasts due to weak housing market. The nation’s second largest homebuilder, DR Horton, reported its third quarter orders dropped 40%.

The euro rose 1 cent to an all-time high at 1.3739 versus the dollar. The British pound also strengthened sharply against the dollar, to as high as 2.0273. The yen rebounded against the ailing dollar, down from above 123 to test the 122 level. Should the yen break the key support at 121.80, the correction may extend further to 120.

Dollar Fell on Subprime Worries

2007-07-18T04:59:00.003-07:00

The greenback suffered further losses on Tuesday as more negative news related to the deteriorating subprime mortgage market was reported.
Two world’s largest credit rating agencies, Standard & Poor’s and Moody’s, today warned of ratings cut on over $17 billion risky mortgages debt, most of which are subprime loans. Coupled with profit warnings from homebuilder and home appliance retailers, subprime debt rating downgrading lead investors highly worried about the subprime issue in US housing market and the severe impact it may spread into the broader economy. The euro formed a base at 1.3730 and refreshed record high to 1.3783 versus the dollar. Following yesterday’s rally, the British pound gained another 1 cent to as high as 2.0361 against the dollar.
The euro was also boosted by hawkish comments from the European Central Bank officials. ECB President Trichet reiterated that the bank’s monetary policy remained accommodative, signaling further interest rate increases. ECB executive board member, Jurgen Stark, said today that euro appreciation reflected the strength of economic growth in Europe.

FX Sideways, Awaits Data

2007-07-18T04:59:00.001-07:00

At 12:30 AM Japan May Capacity Utilization (exp n/f, prev –1.6%)
Japan May Industrial Production (exp n/f, prev –0.4%)
At 2:00 AM Bank of Japan July Report
At 5:00 AM Eurozone May Industrial Production m/m (exp 1.0%, prev –0.8%)
Eurozone May Industrial Production y/y (exp 3.0%, prev 3.3%)
Eurozone Q1 GDP q/q (exp 0.6%, prev 0.9%)
Eurozone Q1 GDP y/y (exp 3.0%, prev 3.3%)
At 8:30 AM US Weekly Jobless Claims (exp 315k, prev 318k)
US May Trade Deficit (exp $60.0 bln, prev $58.5 bln)
Canada May Trade Balance (exp C$5.5bln, prev C$5.76bln)
The greenback continues to reel from burgeoning fears that the subprime mortgage debacle will extend into other sectors, aggravating the already slowing
US economy. The currency remains mired near all-time lows against the euro near 1.3750, while the sterling hovers around 26-year highs at 2.0316. The possible downgrades from S&P’s and Moody’s reinforce qualms that the implications of further deterioration in subprime mortgages may have been initially underestimated, with the impact reverberating throughout the financial markets.
US economic data slated for release on Thursday include weekly jobless claims and the May trade deficit. Initial jobless claims are largely unchanged, down marginally to 315k versus 318k from the previous week. Meanwhile, the May US trade deficit is forecasted to edge higher following April’s smaller-than-expected deficit – back up to $60 billion from $58.5 billion. The April report, however, revealed a burgeoning deficit with China at $19.5 billion, and given China’s recent record surplus – we expect the US-China trade gap to expand further and prompting renewed political jawboning for yuan revaluation.

Dollar Weak on Subprime Concern

2007-07-18T04:58:00.001-07:00

The dollar remains under pressure from the deteriorating subprime mortgage market. The euro set a record high at 1.3797 versus the dollar and the sterling hovers around high levels 2.03.
The market was shocked by continuous warnings on the housing sector this week. Large home appliances retailers lowered profit forecasts, and Standard & Poor’s and Moody’s may downgrade credit rating of over $17 billion debt backed mostly by subprime mortgage. According to Bloomberg, mortgage foreclosures rose 56% year on year to 926k in the first half of this year, in June the rise is a scary 87%. This underlines the fact that the US housing market is melting down and the impact may spread into the broader economy.
Economic data from US today came out in line with expectations and did not impact the dollar much. Trade deficit rose from 58.5 billion to 60 billion in May as expected. Weekly jobless claims came out at 308k, better than the estimate of 315k and the prior reading of 318k.

Dollar Steady on Mixed Data

2007-07-18T04:57:00.000-07:00

The dollar climbed up from lows versus the euro and sterling and stabilized after mixed data from US today. The euro stepped back to below 1.38 area after reaching all-time high at 1.3813 versus the dollar. The sterling hovers above the 2.03 level against the dollar.
Early in the morning, a surprisingly disappointing retail sales report pushed the dollar to fresh all-time low versus the euro. US retail sales fell 0.9% in June, far below the estimate of a 0.1% increase. Excluding autos, core retail sales dropped 0.4%, also falling short of a call for a 0.2% rise.
The dollar was steady after robust consumer sentiment released later in the trading session. University of Michigan sentiment index rose to 92.4 in June, up from 85.3 in the prior month. Besides, US business inventories for June came out at 0.5%, beating the estimate of 0.3%.

Greenback Extended Loss

2007-07-07T00:39:00.005-07:00

The greenback extended its loss across the board on Monday as concerns over subprime mortgage meltdown and the Fed future policy move continue to weigh on investors sentiment. The dollar hit a 26-year low versus the British pound at 2.0172, while dropped to a 7-week low against the euro and the pair is on the way to attempt a multi-year high at 1.3680 set in late April.

The European Central Bank and the Bank of England will hold monetary policy meeting this Wednesday and are widely expected to hold interest rates at 4.00% and 5.50% respectively. There is still some speculation that the BOE may lift rates and surprise the market again. Both of the banks are likely to issue a pretty hawkish statement on the economy and inflation to set stage for at least one more rate hike in the second half of the year.

Earlier in the session, the dollar was little changed after a report showed US manufacturing ISM index for June came in at 56 as expected, slightly above the previous reading of 55. The market tomorrow will look to Swiss CPI, US durable goods orders, US pending home sales, and US factory orders.

USD Struggles, GBP 26-yr High

2007-07-07T00:39:00.003-07:00

At 10:00 AM US May Pending Home Sales (exp 0.2%, prev -3.2%)
US May Factory Orders (exp -1.2%, prev 0.3%)
US May Durable Goods Orders (exp -2.8%, prev -2.8%

The dollar continued to lose ground against the majors ahead of anticipated monetary policy tightening from the ECB and BoE later in the week. The greenback fell to its lowest level in 26-years versus the sterling at 2.0194 and relinquished the 1.36-handle against the euro. With the European Central Bank and the Bank of England both largely expected to raise interest rates by 25-basis points and the Fed seen remaining on hold for the remainder of the year, traders have rewarded the currencies with hawkish central banks.

Despite the holiday-shortened week for the US market, the calendar is complete with key economic reports. In the session ahead, data slated for release consist of May pending home sales, factory orders and durable goods orders. The May pending home sales are seen increasing by 0.2%, improving from a 3.2% decline in the prior month. The factory orders’ reading is expected to fall by 1.2% versus a 0.3% increase from April. Meanwhile, May durable goods are seen unchanged from the previous month, holding steady at -2.8%. The key focus however, will be Friday’s labor report, providing a gauge on how resilient the jobs market is to the continued slowdown in the US economy.

Pound Holds Near 26-Yr High, Awaits BOE

2007-07-07T00:39:00.001-07:00

The greenback continues to trade under pressure against the euro and sterling on Tuesday. The British pound hovers near the 26-year high at 2.0194 touched in the European session, while the euro stays around 1.36 versus the dollar.

The market is pretty bearish on the dollar and is currently concerns more about the global interest rate differentials than economic data. The dollar was little changed after a run of mixed US data this morning. US pending home sales unexpectedly declined 3.5% in May, raising worries about the housing market in the US. Factory orders dropped 0.5% in May, better than an estimate of –1.2%. Durable goods orders fell 2.4%, slightly better than the forecast of –2.8%.

US financial markets will be closed for Independence Day on Wednesday and therefore the currency market is likely to be slow due to relatively low trading volume.

UK CIPS index rose to 57.7 in June

2007-07-07T00:38:00.005-07:00

The UK's services sector, which accounts for nearly three quarters of the whole economy, rebounded in June after two muted readings.
The June business activity purchasing managers' index from the Chartered Institute of Purchasing and Supply came in at 57.7, higher than May's 57.2 and beating expectations of economists.

The employment sub-index climbed to 54.5 from 54.1. Meanwhile, business expectations improved, rising to 73.7 from 72.0.

Euro-Zone retail sales down 0.5% in May

2007-07-07T00:38:00.003-07:00

Retail sales volume in the 13 countries that share the euro slowed more than expected in May.
The volume of retail trade fell 0.5% on the month but rose 0.4% on the year, said Eurostat. This was a sharper fall than expected. Economists had predicted that sales volume would fall 0.3% in May.

Eurostat also revised down its estimates for sales growth in April to a 0.1% decline on the month and 1.5% growth on the year, having previously calculated that sales grew 0.2% on the month and 1.6% on the year.

Pound Extended Gains, Eyes on BOE & ECB

2007-07-07T00:38:00.001-07:00

Major currency pairs trade in narrow ranges today due to US Independence Day.

The British pound extended its gains versus the dollar on speculations that the Bank o f England may surprisingly lift interest rates to 5.75% on monetary policy meeting ended Thursday morning. The currency reached as high as 2.0205 against the dollar on Wednesday.

The euro stands firmly above the 1.36 handle versus the dollar. Euro-zone services PMI increased from 57.3 to 58.3 in June, indicating manufacturing activity growth quickened. While another report showed retail sales in the euro-zone increased less than expected in May. The market will focus on the European Central Bank interest rate announcement tomorrow morning. It is widely expected that the ECB will keep rates at 4.00% unchanged. ECB Governor Trichet will give a speech at the post-meeting press conference at 8:30 EST. Should he speak in hawkish tone about inflation, the market will take this as a signal for further rate increases, which will give the euro a boost. In the past, analysts usually look for the word “vigilance” in his word to assess the central bank’s attitude towards inflation control.

FX Quiet, Awaits ECB, BoE

2007-07-07T00:37:00.001-07:00

At 1:00 AM Japan May Leading Indicator (exp n/f, prev 18.2)
Japan May Coincident Indicator (exp n/f, prev 65.0)
At 4:30 AM UK May Manufacturing Production m/m (exp 0.3%, prev 0.3%)
UK May Manufacturing Production y/y (exp 0.9%, prev 1.3%)
UK May Industrial Production m/m (exp 0.3%, prev 0.3%)
UK May Industrial Production y/y (exp 0.3%, prev 0.4%)
At 6:00 AM Germany May Industrial Production m/m (exp 0.5%, prev –1.2%)
At 7:00 AM Bank of England Monetary Policy Decision (exp 5.75%, prev 5.5%)
At 7:45 AM ECB Monetary Policy Decision (exp 4.25%, prev 4.0%)
At 8:15 AM US June ADP Payrolls (exp 100k, prev 97k)
At 8:30 AM Canada Building Permits (exp 5.6%, prev –8.4%)
ECB President Trichet’s Press Conference

The dollar continues to trade on weak footing versus the majors, mired near 26-year lows against the sterling and around the 1.36-level against the euro. Central Bank monetary policy announcements will garner the lion’s share of market attention in the coming session, as traders eagerly await the rate decisions from the European Central Bank and the Bank of England. The sterling remains favored, hovering near its highest level in 26-years as markets anticipate further tightening from the BoE over the coming months to combat lingering inflationary pressure in the economy.

The US economic calendar for Thursday is light, seeing only the release of the June ADP payrolls report – which is forecasted to remain largely unchanged up 3k to 100k. Traders will also analyze the ADP payrolls as a proxy to Friday’s more important US jobs report. The June non-farm payrolls figure is expected to decline to 120k, from 157k in May. Meanwhile, the unemployment rate is forecasted to remain unchanged at 4.5%.

$ Rebounded on Robust ISM

2007-07-07T00:36:00.002-07:00

The greenback rebounded against its major rivals following the stronger-than-expected non-manufacturing ISM index. The index rose from 59.7 to 60.7 in June, beating the estimate of 58. The euro dipped below 1.36 handle versus the dollar, while the yen weakened to reach 123.00 against the dollar.

Earlier, US ADP report showed the economy added 150k jobs in private sector in June, far more than the forecast of 100k and a reading of 97k in the prior month. The weekly jobless claims came out at 318k, slightly higher than the forecast of 313k. The market will focus on the non-farm payrolls for June to be released by the Labor Department tomorrow morning for more clues on the nation’s labor market.

The European Central Bank kept interest rates unchanged at 4.00% as expected. ECB Governor Trichet did not use the word “vigilance” to describe the bank’s attitude towards inflation control, pushing the euro lower modestly. It is already a done deal that the ECB will raise rates at least once on its October policy meeting.

Market$ Await US Jobs Data

2007-07-07T00:36:00.001-07:00

At 4:30 AM UK May Industrial Production m/m (exp 0.3%, prev 0.3%)
UK May Industrial Production y/y (exp 0.3%, prev 0.4%)
UK May Manufacturing Production m/m (exp 0.3%, prev 0.3%)
At 7:00 AM Canada June Unemployment Rate (exp 6.1%, prev 6.1%)
Canada June Jobs-Change (exp 17.0k, prev 9.3k)
At 8:30 AM US June Unemployment Rate (exp 4.5%, prev 4.5%)
US June non-farm payrolls (exp 120k, prev 157k)
US June Avg Earnings (exp 0.3%, prev 0.3%)

Correction: UK industrial & manufacturing production were included in yesterday’s preview but are scheduled for release today.

The major currency pairs consolidated in a narrow range during the quiet Asian session, with the dollar mired near its lows across the board. The greenback continues to struggle near 26-year lows versus the sterling around 2.0124 and creeps closer toward its all-time low against the euro near the 1.36-level.

FX Awaits US Data, FOMC

2007-06-30T02:41:00.001-07:00

At 8:30 AM US Weekly Jobless Claims (exp 318k, prev 324k)
US Q1 GDP (exp 0.8%, prev 0.6%)
US Q1 core PCE (exp 2.2%, prev 2.2%)
At 2:15 PM FOMC Monetary Policy Decision (Exp 5.25%, Prev 5.25%)

Garnering the lion’s share of market attention today will be the FOMC monetary policy decision, due out in the afternoon at 2:15 PM. While the Fed is widely expected to leave rates unchanged at 5.25%, traders are eager to decipher the accompanying statement – particularly for any acknowledgement of the continued deterioration in the housing market stemming from the sub-prime debacle. Further, the overall outlook for inflation will be closely scrutinized as markets continue to assess the likelihood for a possible shift to an easing stance over the remainder of the year. We’re not anticipating any significant alterations from the previous statement, except for a minor comment on the sub-prime market and more specifically, reassuring markets’ fears of any spillover and discounting the situation as more of an isolated incident.

US economic data due out in the coming session will see the final reading for Q1 GDP, expected to edge up to 0.8% from 0.6% and the Q1 core PCE price index, seen unchanged. Weekly jobless claims are expected to slip to 318k, compared with the prior week at 324k.

UK Inflation Takes Centerstage

2007-06-16T15:27:00.000-07:00

At 1:00 AM Japan May Confidence Index (exp n/f, prev 47.4)
At 4:30 AM UK May CPI m/m (exp 0.3%, prev 0.3%)
UK May CPI y/y (exp 2.6%, prev 2.8%)
UK May RPI m/m (exp 0.4%, prev 0.5%)
UK May RPI y/y (exp 4.3%, prev 4.5%)
UK May RPI-x m/m (exp 0.4%, prev 0.5%)
UK May RPI-x y/y (exp 3.3%, prev 3.6%)
UK April Trade Balance (exp –7.0 bln stg, prev –7.04 bln stg)
At 5:00 AM E-13 April Industrial Production m/m (exp 0.2%, prev 0.4%)
E-13 April Industrial Production y/y (exp 4.4%, prev 3.7%)
At 2:00 PM US May Federal Budget (exp $-70.0 bln, prev $42.91 bln)

GBP Edges Higher Ahead of Inflation Reports
Cable recovered the 1.97-level in early Tuesday trading with several key indicators of UK inflation due out later in the session. Markets will try to discern how aggressive the Bank of England will be over the coming months to rein in inflation as CPI continues to hover well above its 2% target. The barrage of reports today consist of May CPI, RPI, RPI-x and April trade balance.

Dollar Rose Above 123 Yen

2007-06-16T15:26:00.000-07:00

EST Exp Prev
00:00 Japan Bank of Japan Monetary Policy Decision 0.5% 0.5%
01:00 Japan BoJ June Monthly Report n/a n/a
01:00 Japan April Leading Indicator n/f 20.0
08:30 US Q1 Current Account Deficit $201.0 bln $195.79 bln
08:30 US May Real Earnings 0.1% -0.5%
08:30 US June NY Fed Manufacturing Survey 10.8 8.03
08:30 US May CPI y/y 2.6% 2.6%
08:30 US May CPI-x y/y 2.3% 2.3%
08:30 US May CPI-x m/m 0.2% 0.2%
08:30 US May CPI m/m 0.6% 0.4%
09:00 US April TICS n/f $67.7 bln
09:15 US May Capacity Utilization 81.6% 81.6%
09:15 US May Industrial Production m/m 0.2% 0.7%
10:00 US June University of Michigan Survey prelim 88.0 88.3

The dollar rose above a technical resistance at 123 versus the yen on Thursday. After breaking the key level at 122.20 yesterday, the pair initiated an upward trend with next target at 123.50.

The Bank of Japan is widely expected to leave interest rates unchanged at 0.5% on it policy meeting tonight. US interest rate futures indicated that traders have already priced out a chance of a Fed rate cut within the year. The US bond yield premium over Japan equivalents widened further, pushing the dollar trade higher versus the yen.

MRPL hedging policy to soften forex shock

2007-06-06T15:20:00.001-07:00

NEW DELHI: Fluctuations in the foreign currency market has forced Mangalore Refinery & Petrochemicals (MRPL) to devise a risk-management policy to hedge its annual forex receipt of over $6 billion (over Rs 24,000 crore).

There has been risk of adverse movement in the foreign currency vis-à-vis rupee, hence the
oil company is considering to implement a forex policy soon based on a draft prepared by Ernst & Young (E&Y).

According to the draft policy, constitution of a foreign exchange risk management committee (FRMC) is proposed. FRMC will approve hedging activities including approving currencies and instruments. Proposed instruments are; spot, cash spot and tom; forwards, plain vanilla currency options, zero-cost option structures and currency and interest rate swaps. Additional instruments could be added with the approval of FRMC. It is also proposed that any activity that is speculative in nature would not be allowed.

“Hedges will initially permitted only against the underlying exposures. The hedge position shall at no time be in access of the outstanding forex exposures,” the draft said. Members of the proposed committee would be director (finance), one member from outside the finance department (of at least vice-president level), deputy general manager (finance & accounts), senior manager (international trade), back-office incharge and a representative from the internal audit department (with observer status). It is also proposed to set up a finance department (forex) to look after front office and back office operations.

The company had already undertaken a mock exercise in 2006-07 for the crude oil imports, product exports, and buyers credit, a company source said. The net result of hedging was a loss of Rs 96.87 crore. Summarising the conclusion of the mock exercise, a company source said that the total exposure in the period (April 2006 to March 2007) was of $6,856 million.

Exports of $2,537 million took place in the period while imports was of $3,967 million. Buyers’ credit was to the tune of $352 million. Forward premium paid in risk management was Rs 42.14 crore, while forward premium received in the process was Rs 9.75 crore.

Summarising the benefits of institutionalising a forex policy, a source said it would help in addressing all forex risk centrally. It will also help in creating an ability to take “informed decision to protect margins that can be hurt by adverse movement in foreign currency.”

Stand Out With Forex Yellow Pages

2007-06-06T15:19:00.001-07:00

It almost goes without say that in today's world of trade and commerce, an organization must do all it can do stand out and be noticed. Forex trading is no exception; and with Forex Yellow Pages, organizations will have the kind of exposure they need to be noticed and thus attract potential investors and traders. The fact that the forex market is the biggest one in the world, with more than 2 trillion dollars being bought and sold everyday, only adds further importance to the need to stand out and be noticed amidst the competition.

Convenience is also another advantage that forex related companies get. Anyone who has a computer with an internet connection can participate in forex trading today. It has become a borderless world with the internet and it is simply impossible to be able to target everyone who is interested in forex trading. Forex Yellow Pages again solves this problem as it saves forex related companies from figuring out where, how, when, and to whom they should advertise. In essence what Forex Yellow Pages does is that it brings people to the company and not the other way around, consequently saving companies from spending thousand of dollars in advertising.

Forex reserves rise

2007-06-03T01:02:00.001-07:00

Mumbai, June 1: Forex reserves increased by $952 million to $204.934 billion during the week ended May 25 against $203.982 billion during the week ended May 18. The reserves had decreased by $9 million during the week ended May 18. Foreign currency assets increased by $953 million to $197.438 billion during the week, according to the figures released by the Reserve Bank.

Tata appeal

Mumbai, June 1: Ratan Tata today asked the private sector to focus on social development of the country. “We must not forget the fact that there are numerous people living below the poverty line, especially in rural areas,” he said.

Mining pact

Calcutta, June 1: Coal India Ltd and Damodar Valley Corporation have entered into a pact to develop manufacturing facilities for underground mining machinery and material handling equipment. They also aim to revive the Mining and Allied Machinery Corporation, Durgapur.

Bharti move

Ludhiana, June 1: Bharti Enterprises will enter general insurance business in the second half of this year in a joint venture with Axa Group.

Realty JV

New Delhi, June 1: DLF has entered into an agreement to float a joint venture with Fortis Healthcare to set up hospitals across the country with about Rs 6,200 crore of investments.

Forex reserve to have more Euros

2007-06-03T01:00:00.000-07:00

China plans to increase the ratio of Euros in its foreign exchange holdings given the stability in the European Union (EU) economic growth and in the value of the European single currency, said a central bank vice governor on Thursday.

However, China has no plans yet to reduce the proportion of US dollar assets in its coffers, Wu Xiaoling told an economic forum in Brussels, the Shanghai-based Oriental Morning Post reported Friday.

China's forex reserves reached US$ 1.2 trillion at the end of March and about 70 percent of the holdings are believed to be in US dollar assets, especially US treasuries.

To address the trade imbalance with western countries, China could take measures to stimulate domestic consumption and improve the flexibility of the Chinese currency.

"If we intend to solve the problem of imbalanced trade, we will first increase the flexibility of the yuan exchange rate, but that will not be the main means," Wu said.

The downturn is over - if there ever was one

2007-06-02T15:51:00.001-07:00

Our quarterly Global Scenarios hit the streets today with a relatively upbeat message. We have long argued that the ISM index would bottom out around the 50 level in Q1 and recover during the rest of 2007. It now seems that this movement has come more quickly and more strongly than we anticipated. The outlook for global industrial activity therefore looks bright for the rest of the year. The US downturn had little impact on the rest of the world - in fact it was the rest of the world that rubbed off on the US.

But the fundamental reason why the US looks like making a comeback in H2 is not so much the rest of the world growing strongly as the recession in the US housing market being on its last legs. The latest data show that construction is already stabilising and looks set to stop dragging down GDP growth as early as Q3. Since homebuilding has been the main reason for the US growing below trend in recent quarters, this means that the economy is probably headed back to abovetrend growth even now in mid-2007.

This is good news for global growth - but bad news for the central banks because, as we have stressed here many times before, there is little capacity left in the global economy.

The U.S. dollar crept higher this morning

2007-06-02T15:50:00.000-07:00

The U.S. dollar crept higher this morning following news that U.S. job creation in May was greater than expected, with 157,000 new jobs, further reduced expectations that the Federal Reserve will cut benchmark interest rates this year. The payrolls report was the latest in a string of better-than-expected readings of the U.S. economy which have underpinned the dollar in recent sessions. Additionally, U.S. manufacturing index (ISM) for May rose to its highest since April 2006 with a reading of 55.0. A Commerce Department report showed U.S. core consumer prices, a key measure of inflation which strips out food and energy costs, inched up a less-than-expected 0.1 percent. The dollar remains near 4 month highs against the yen and held to 7-week highs versus the euro. Positive dollar sentiment was supported by comments from Federal Reserve Board Governor Randall Kroszner who said U.S. economic growth should rebound in the course of 2007 and that the main threat to the economy was inflation.

The Euro remained confined to the weaker end of its recent ranges against the U.S. dollar following strong economic data releases out of the U.S. Euro zone policymakers also sounded a hawkish note, with European Central Bank Governing Council Member Klaus Liebscher saying the ECB would remain strongly vigilant and Vice President Lucas Papdemos saying such vigilance is of the essence. The single currency was little changed on purchasing managers' data showing expansion in the eurozone manufacturing sector slipped unexpectedly to its weakest rate in 15 months. Focus remains on the European Central Bank??™s next policy meeting, which gets underway next Wednesday, where expectations remain for a rate hike of 25 basis points.

With no major economic data out of the U.K. today, the British pound edged lower against the dollar following U.S. jobs data. The market is pricing in another U.K. interest rate hike in the summer and a third of economists recently polled by the Reuters news agency believe that rates will rise to 6% percent this year.

The Japanese yen continues to languish near multi-year lows against its major counterparts. Falling victim to 15 and 17 year lows against the AUD and NZD due to strong carry-trade activity. Look for USD/JPY to continue to remain confined to its recent ranges as the currency pair tries to break above 122.30 levels last seen in January 2007.

The Canadian dollar remains near 30-year highs against the USD. Talk of parity with the USD by year end is rampant. The rise in the Canadian dollar all week has been pegged to a combination of strong domestic data, soaring commodity prices and growing expectations for summer rate hikes by the Bank of Canada.

The Australian dollar reached fresh two-week highs against the U.S. dollar as carry trades came back into the picture pushing the Aussie to 15 year highs against the yen. Analysts said the global growth outlook, firmer base metals prices, domestic data pointing to strong first-quarter economic growth, and stability on regional stock markets despite China's gyrations this week, were all helping to boost the Aussie. The data, however, did little to change expectations that the Reserve Bank of Australia will hold interest rates in the short term, but potentially raise rates by the end of the year to 6.50%.

The New Zealand dollar followed in the footsteps of it??™s Aussie cousin, climbing to a one-month high against the U.S. dollar and rose to a 17-year high against the yen, driven by carry trades by investors seeking its high yield. Analysts are starting to price in a rate hike to 8%, possibly as early as next week, due to strong consumer spending, as well as, strength in the housing market. The New Zealand market will be closed on Monday for the Queen's Birthday holiday.

The Mexican peso strengthened to its strongest level in 14 months and stocks rose after a robust U.S. jobs report reassured investors about the strength of the economy in the United States, Mexico's main trading partner.

Indicative Rates:

USD Mixed Ahead of Data

2007-06-02T15:26:00.001-07:00

At 2:00 AM Germany Q1 GDP q/q (exp 0.5%, prev 0.5%)
Germany Q1 GDP y/y (exp 3.6%, prev 3.6%)
At 4:00 AM Germany May Ifo Current Conditions (exp 113.5, prev 113.2)
Germany May Ifo Index (exp 108.8, prev 108.6)
At 8:30 AM US Weekly Jobless Claims (exp 305.0k, prev 293.0k)
US April Durable Goods Orders (exp 1.0%, prev 3.8%)
US April Durable Goods Orders ex-transports (exp 0.6%, prev 1.4%)
At 10:00 AM US April New Home Sales (exp 860k, prev 858k)

The greenback is mixed in early Thursday trading, firmer against the euro and yen while continuing to trade on its heels versus the sterling and Loonie. Currency movements have been largely dictated by sentiment on the outlook for global interest rate differentials, with the currencies of the central banks most likely to further tighten policy benefiting from market expectations. Inflation remains buoyed in countries such as the UK and Canada resulting in heightened expectations for rate hikes from their respective central banks.

US economic data for the coming session will see weekly jobless claims, April durable goods orders and new home sales. Weekly jobless claims are forecasted to edge up to 305.0k, from 293.0k the previous week. Durable goods orders for April are seen retreating to 1.0%, versus a robust 3.8% reading previously. Durable goods orders excluding transports is also lower to 0.6% from 1.4% in March. Meanwhile, April new home sales are seen edging higher to 860k versus 858k a month earlier.

Dollar Advanced on New Home Sales

2007-06-02T15:25:00.003-07:00

The dollar advanced after a report showed US new home sales growth rate in April reached the highest in 14 years, dampening the expectations that the Fed may need to cut interest rates this year.

US new home sales rose 16.2% in April to 981k, beating the estimate of 860k. The unexpectedly robust housing data added evidence that the spillover from housing sector to the whole economy is limited. The Fed is widely expected to hold interest rates unchanged in its June monetary policy meeting and is likely to make no move for the rest of the year. The greenback rallied following the housing report. The euro fell from 1.3450 to a day low at 1.3417 versus the dollar, and the sterling dipped around 50 pips against the dollar.

Earlier, the dollar was little changed after the release of two US second-tier data. The weekly jobless claims rose to 311k, compared to a forecast of 305k. The durable good orders rose 0.6% in April, below the expectation of 1.0%. Ex-transport index was up 1.5%, better than an expected 0.6% rise.

USD Buoyed Against Eur, JPY

2007-06-02T15:25:00.001-07:00

At 4:30 AM UK Q1 GDP y/y (exp 2.8%, prev 2.8%)
UK Q1 GDP q/q (exp 0.7%, prev 0.7%)
At 10:00 AM US April Existing Home Sales (exp 6.14 mln units, prev 6.12 mln units)

The dollar remains buoyed against the euro and yen following yesterday’s upbeat US housing data, with new home sales posting its steepest gain in 14-years. Sentiment over central bank interest rate decisions continues to be the primary driver in the foreign exchange market, as expectations for a Fed rate cut this year are slowly diminishing, ultimately supporting the greenback.

The OECD released its semi-annual Economic Outlook this week and called for global central banks, with the exception of Japan, to “err on the side of tightness” given lingering inflationary pressure. Further, it urged the Fed to refrain from shifting to an easing stance until early 2008, citing “more persistent than expected” inflation in the US. The OECD anticipates two more rate hikes from the ECB to 4.25% and sees further possible tightening from the BoE throughout the remainder of this year as well. Also, to highlight the growing disparity between the economies of the US and the rest of the world, the OECD cut the growth forecast for the US while simultaneously upwardly revising the growth rates for the Eurozone, UK, Japan and Australia.

$ Slipped On Existing Home Sale$

2007-06-02T15:24:00.000-07:00

The dollar slipped after a report indicated an unexpected decline in US existing home sales, re-igniting concern over the downturn of housing sector and the Fed interest rate cut possibility.

US existing homes sales declined 2.6% to an annual rate of 5.99 million units in April, below the estimate of 6.14 million. The tame housing data surprised the market, which had anticipated a number as robust as the new home sales released yesterday. The euro rose from around 1.3445 to as high as 1.3471, and the sterling gained 30 pips to 1.9868 versus the dollar.

With recent upbeat economic US data, the dollar rebounded versus the euro and sterling. The dollar has gained against the euro for four weeks, which constitutes the longest rally in 5 quarters. However, the dollar failed to break the 1.3415 level versus the euro following the surprisingly good new home sales. The 1.3410-15 area therefore became a base of the pair¡¯s consolidation range.

FX Trading Thinned by Holiday$

2007-06-02T15:23:00.002-07:00

Germany Market Closed for Holiday
UK Market Closed for Holiday
Swiss Market Closed for Holiday
US Market Closed in Observance of Memorial Day

The foreign exchange market will be off to a slow start with several markets closed for holiday on Monday, including Swiss, Germany, UK and the US. However, the economic calendar is stacked with key reports this week and culminates with the closely anticipated US labor report on Friday. Currency movements have predominantly been dictated by sentiment over the outlook for global central banks and should continue to prevail in the coming week.

Some key highlights will be the Bank of Canada’s rate decision on Tuesday, Eurozone money supply, Germany’s unemployment report, Canada’s March GDP, US Q1 GDP, Eurozone Q1 GDP, and manufacturing reports from the US, Japan, UK and Eurozone. Although the BoC is not seen raising rates this week from 4.25%, the policy statement will be closely scrutinized given the recent uptick in Canada’s consumer price inflation as traders gauge whether additional tightening is a possibility. Meanwhile, the growth rates from Swiss, Canada, Eurozone, and US will also be analyzed, with GDP in the Eurozone seen outpacing its counterparts, effectively providing the ECB with additional room to tighten.

Loonie Surges on BoC

2007-06-02T15:23:00.001-07:00

The major currency pairs were mixed in Tuesday trading with the return of several major markets from holiday. The biggest advancer in the session was the Canadian dollar, pushing to a fresh 30-year high against the greenback on the heels of a hawkish policy statement from the BoC.

Meanwhile, the Conference Board’s consumer confidence reading for May improved to 108, edging out forecasts for a slight improvement to 105 from 104.

FX News & Overnight Technical Levels

2007-05-04T09:31:00.000-07:00

· Reserve Bank of Australia lowers 2007 inflationary forecasts despite robust growth in economy. Notes that “the decline (in inflation) appears to have been a little faster than originally expected.” Australian dollar falls through 0.8200 figure.

· Australian March trade deficit widens to A$1.622 billion. February deficit revised to A$728 million shortfall.

· Eurozone PMI services survey for the month of April prints lower than expected figure at 57, below consensus estimates of 57.6.

· Eurozone retail sales rises 0.5 percent on the month, as expected. Subsequent yearly figure rises above the 2.3 percent consensus at 2.6 percent.

· German PMI Services survey released at 57.8, relatively in line with 57.9 consensus estimate.

· US Non Farm Payrolls report prints less than expected. Payrolls increase 88,000 for the month of April as the unemployment rate rises to 4.5 percent.

Watch Out For…

Euro buyers attempt to test 1.3600 in the New York morning.

Japanese Yen holding onto 120.00 figure after US non farm payrolls release.

British Pound notably finds support at the 1.9850 figure, likely to head north to 1.9900 in the near term on bidding sights.

Australian Dollar Hurt By RBA, Greenback Looks to NFPs

2007-05-04T09:30:00.000-07:00

The Aussie was the biggest loser in overnight trade as muted RBA May commentary along with much worse than expected trade deficit, weighed on the unit throughout Asia and early European trade. The trade deficit widened to -1.6 Billion AUD vs. -1 Billion AUD projected but the steep increase was caused primarily by cyclone activity in the northwest that disrupted iron exports. The bad news in trade may have been a one off event, especially in light of the fact that when adjusted for seasonal variation, the deficit for Q1 of 2007 probably shrunk to 3.31 Billion AUD vs. 3.55 Billion the quarter prior.

The real driver behind Aussie’s plunge may have been the less than hawkish May statement from the RBA. The weak inflation results last month prompted RBA to downgrade its inflation forecast from 2.75% to 2.5%. Furthermore, the central bank projected no serious inflationary impact from the persistent drought affecting the whole continent which has resulted in higher crop prices. The central bank signaled that for now its was content to simply observe the economy without initiating any additional rate hikes. For traders who had banked on another RBA rate hike in June, the tepid tone of the statement served as a disappointment. With Aussie trading at 17 year highs fueled in large part by some of the highest interest rates in the industrialized world, the RBA appears to be cautious about stoking more carry trade demand by hiking rates further. In short, the Australian central bank let the market know that it is unwilling to raise rates higher unless it is absolutely compelled to do so by spiraling price data and as a result, Aussie longs were liquidated throughout the night.

In Europe today, the economic news was essentially in line, although the services PMI data did print a bit soft. The index registered a reading of 57 vs. 57.6 as Italian and French data slipped. All of the components with the exception of employment were higher, but the pullback in employment suggests that the higher euro may be exerting some drag on future growth. At the very least, tonight’s data indicates that expansion in the 13 member region may have hit a short term peak as the index dropped to it lowest level in 6 months. The pair hardly reacted to the news however, as the EURUSD continued to trade in a very narrow 1.3545-1.3560 range ahead of the key event this week – US Non-Farm Payrolls. With market sentiment towards the US report already sour the risks for the dollar lie to the upside, unless the number prints extraordinarily weak at less that 60K jobs. Furthermore, as always the prior month revisions will be as important as the headline itself and the prices may well whipsaw in the first few minutes post release so caution and patience are advised.

Down Dollar Helps Everybody

2007-05-03T13:36:00.000-07:00

How do changes in the value of the dollar affect U.S. companies and U.S. exchange-traded funds? It is not as straightforward as it looks.

First, a falling dollar raises the dollar value of foreign sales. Big U.S. multinationals receive roughly half of their total sales from overseas. For S&P 500 companies, it is about 30% of their sales overseas compared with 15% for smaller companies in the Russell 2000 Index. When the dollar weakens, the value of those sales grows. Hence international “mega-cap” companies, laggards for years, have recently outperformed.

n short, a weak dollar improves the case for big U.S. stocks.

But look at Europe, the stronger euro has not hurt their share prices even though they are even more international in terms of sales than most American firms. One of the reasons European ETFs are doing so well this year is the stronger euro. Remember, international ETFs are not hedged against the U.S. dollar so a weaker dollar will help their returns.

f the 19 emerging market ETFs tracked by ETFXRAY.com, only one is increasing in value. It is the iShares MSCI Mexico Index Fund (amex: EWW). The other 17 positions have reversed into columns of O’s.

The iShares Dow Jones U.S. Transportation Index (amex: IYT) has also recently reversed negatively. It has hit $94 twice this year only to fall back, once in February and again in April. In three years IYT has appreciated 78% for an annualized average gain of 26%. Despite the exceptional growth there have been periods of correction such as last May through September when the ETF gave up 17% in value.

HSBC (nyse: HBC - news - people ) is a leading bank in many financial exchange-traded funds such as the Wisdom Tree Int’l Financials ETF (nyse: DRF) where it represents 7.3% of the ETF basket. Formerly known as the Hong Kong Shanghai Banking Corporation, it is a global powerhouse and earlier this year passed Citigroup (nyse: C - news - people ) as the largest bank in the world in terms of market value. This week a second Gulf investor appeared on HSBC’s share register in less than two weeks on Tuesday as DIC Asset Management, part of Dubai International Capital, said it had bought a “substantial” stake in the bank.

HSBC’s expansion strategy in China has also recently been dealt a blow by the reclassification of its Chinese partner into a significant state-owned bank, a change that would protect the Chinese lender from a foreign takeover. HSBC paid $1.75 billion three years ago for 19.9% of the Bank of Communications--the biggest stake allowed for a foreign investor under then existing Chinese rules.

According EPFR Global, money returned to U.S. equity funds during the fourth week of April as the benchmark Dow Jones index posted a series of new record highs on the back of a better than expected first-quarter earnings season. But uncertainty about China’s response to economic growth that clearly exceeds official targets may have dampened flows into emerging markets funds. And, after three weeks of solid gains, investors pulled significant amounts of money out of Western European equity funds.

The $3.77 billion that flowed into U.S. equity funds during the week ending April 25 pulled these funds back into positive territory year-to-date. Small- and large-cap blend exchange-traded funds--passively managed funds which mix growth and value investment styles--accounted for the lion’s share of the fresh money that came in during the week.

In the case of the Western European funds, investors decided to lock in profits after this fund group has put in a 9% performance gain since March 22. The perception that mergers and acquisitions activity rather than fundamentals were driving recent gains in major European equity markets triggered some of the $1.01 billion worth of redemptions from these funds, as did the growing concern about Spain’s property bubble.

Finally, Japan ETFs and funds have been hit with net redemptions seven of the past eight weeks and are once again in negative territory year to date.

Faltering US dollar poses dilemma for equity investors

2007-05-03T13:30:00.001-07:00

Investors in US stocks have viewed the recent decline in the dollar as a green light to buy into large companies with international exposure.

MasterCard, for example, is a company with large overseas operations that has boosted its recent earnings amid a weaker dollar. Its first-quarter profit soared 70 per cent compared with a year ago, partly because of the stronger euro against the dollar. Its shares jumped 11.2 per cent to $127.67 on Wednesday after the announcement.

But analysts warn that a faltering currency looms as a double-edged sword for equity investors.

"At some point, foreign investors will either hedge their US assets or repatriate," says Dominic Konstam, head of interest rate strategy at Credit Suisse.

So far, the dollar is seen to have made an orderly decline to compensate for a divergence between US and global growth rates.

In the wake of last week's news that the US economy grew just 1.3 per cent during the first quarter, the dollar fell to a record low against the euro and multi-year lows against sterling and the Canadian, Australian and New Zealand dollars.

This, analysts say, has encouraged local and some foreign investors to buy US stocks – which now look relatively cheap in their domestic currencies.

"The lower dollar has helped equities as the currency has adjusted for the slower economy and lower US investment returns," said Mr Konstam. "If the dollar doesn't fall, stock prices would come under pressure."

While the dollar has fallen by about 2.75 per cent against the euro for the year to date, the Dow Jones Industrial Average is up 6.1 per cent and the S&P 500 is up 5.9 per cent.

But if the dollar continues to weaken substantially, there will soon come a tipping point when foreign investors will no longer be satisfied with the returns from US assets.

Jack Ablin, chief investment officer at Harris Private Bank, said he was "a little worried about a replay of 1987 where the stock market kept going higher while the dollar quietly fell, adding: "Eventually, investors stood up and noticed."

The prospect of higher inflation beckons from a lower dollar, an outcome that, if accompanied by a slowly growing economy, represents the worst environment for stocks later this year, analysts say.

Investors are likely to watch the April jobs report, due on Friday, for any evidence that the labour market is weakening.

For some foreign investors who purchased US stocks at the start of this year, the recent market gains are not as impressive when viewed in their own currencies. In terms of the euro, the Dow's gain for the year is 3.2 per cent while the S&P has returned 2.9 per cent.

The one factor keeping back the risk of a massive net selling of US stocks by foreigners is the weak yen, according to Mr Konstam.

"So long as the dollar is stable against the yen, the threat of such an outcome will stay contained. Dollar-Asia is a very important gauge of repatriation risk," he says.

Dollar Near Record Low vs Euro

2007-05-03T11:35:00.000-07:00

The dollar fell to near record low against the euro on Monday as the market sentiment on the greenback remains negative under the fact that the US economy is facing a soft landing while other major industrial countries are still seen growing. The euro rose to as high as 1.3678 versus the dollar and the sterling rallied to above 2 again. The dollar index is down 1.7% in April, the biggest monthly decline since November 2006.

Today¡¯s US data were mixed, making little impact on the market. Personal income rose 0.7% in March, larger than the estimate of a 0.5% rise. Personal spending was up 0.3%, less than the forecast of 0.5%. Core PCE, an inflation gauge, rose 0.1% in March, after a 0.3% rise a month earlier. Chicago PMI fell from 61.7 to 52.9 in April, adding evidence to the fact that the manufacturing sector is slowing down.

The market will focus on Canada PPI and US manufacturing ISM due tomorrow. Besides, the Reserve Bank of Australia is scheduled to announce its interest rate decision tomorrow evening. It is widely expected to maintain rates unchanged at 6.25%.

Dollar Rose on Strong ISM

2007-05-03T11:34:00.001-07:00

The dollar climbed against its major rivals after a stronger-than-expected manufacturing report, temporarily easing worries about US economy slow-down and the Fed interest rate outlook. The manufacturing ISM rose from 50.9 to a 11-month high at 54.7 in April. The greenback bounced from near-record low at 1.3672 to test the 1.36 handle against the euro. The sterling went off a high at 2.0073 to the 2 level versus the dollar.

The dollar rebound today was partly a result of the thin trading during the Labor Day and the lack of fresh data. This single manufacturing report was not enough to change the overall negative sentiment over the greenback. The market will focus on the employment report from the US Labor Department this Friday for more clues on the economic conditions and outlook. Besides, tomorrow¡¯s ADP job report will give some insights on the job market of private sectors.

EURUSD will face interim resistance at 1.3650, followed by 1.3670 and 1.37. Additional ceilings will emerge at 1.3730, backed by 1.3750. Support starts at 1.36, backed by 1.3580, 1.3550 and 1.3530. Subsequent floors are eyed at 1.35.

USD Extends Gains

2007-05-03T11:33:00.001-07:00

At 3:55 AM Germany April Manufacturing PMI (exp 57.3, prev 56.9)
At 4:00 AM Eurozone April Manufacturing PMI (exp 55.7, prev 55.4)
Germany April Unemployment Rate (exp 9.1%, prev 9.2%)
Germany April Unemployment (exp 3.94 mln, prev 4.108 mln)
Germany April Unemployment Change (exp -40.0k, prev -65.0k)
At 4:30 AM UK March Consumer Credit (exp 900 mln stg, prev 919 mln stg)
At 5:00 AM Eurozone March Unemployment Rate (exp 7.2%, prev 7.3%)
At 8:15 AM US April ADP Payrolls (exp 100.0k, prev 106.0k)
At 10:00 AM US March Durable Goods Orders (exp 3.3%, prev 3.4%)
US March Factory Orders (exp 2.1%, prev 1.0%)

Markets continued to reward the dollar for yesterday’s higher than expected manufacturing report, with the greenback piercing through the 120-level versus the yen for the first time in 2-months. Trading remained choppy in the overnight session, as position squaring in the euro and sterling pushed both lower toward 1.3562 and 1.9915 respectively against USD. We anticipate these conditions will linger heading into Friday’s all-important US non-farm jobs report.

On the calendar for today, we’ll see the April ADP payrolls report and March durable goods orders. Traders will look at the ADP payrolls data as a proxy for Friday’s non-farm payrolls reading. The April figure is seen slipping to 100k, down from 106.0k previously. Meanwhile, the March durable goods orders are largely unchanged, down marginally to 3.3% versus 3.4%. Factory orders are seen edging up to 2.1% from 1.0%.

Dollar Strengthened, Eyes on US Payrolls

2007-05-03T11:32:00.000-07:00

The greenback continued its corrective rally on Wednesday with mixed US economic data. The euro weakened to as low as 1.3562 versus the dollar, and the sterling fell from 2 to 1.9873.

Durable goods orders rose 3.7% in March, beating the estimate of 3.3%. Factory orders increased 3.1% in March, above the forecast of 2.1% and a 1.0% rise in the previous month. Combined with the stronger-than-expected manufacturing ISM index, those two manufacturing numbers helped the dollar extend the correction in thinned holiday trading conditions.

The dollar rebound was resulted from adjustments in short dollar positions rather than a change in overall negative sentiment over the dollar. The dollar is likely to maintain tight range correction before the Labor Department employment report due Friday. US ADP job report today showed that private sectors added 64k jobs in April, far below the forecast of 100k. Though ADP report has no correlation with the Labor Department report, the market will keep cautious ahead of Friday payrolls.

FX Consolidates Ahead of Data

2007-05-03T11:31:00.000-07:00

At 8:30 AM US Q1 Productivity (exp 1.0%, prev 1.6%)
US Q1 Labor Costs (exp 4.0%, prev 6.6%)
US Weekly Jobless Claims (exp 325k, prev 321k)
At 10:00 AM US April non-manufacturing ISM (exp 53.0, prev 52.4)

Currencies remained confined within recent ranges with a lack of fresh impetus and traders sidelined ahead of Friday’s US jobs data. The greenback was mixed overnight, holding firm above the 120-level against the yen while relinquishing the 1.36-mark versus the euro.

Economic data will be the focus today, with productivity, labor costs, jobless claims and services ISM due out. The Q1 productivity number is forecasted to drop to 1.0%, from 1.6% while labor costs are seen slipping to 4.0%. Weekly jobless are largely unchanged at 325k, up slightly from the prior week at 321k. Lastly, we have non-manufacturing ISM for April, estimated to improve to 53.0 from a 52.4 reading from March.

Online Forex Currency Exchange Trading FAQs

2007-04-26T16:19:00.000-07:00

What Is Foreign Exchange?

The Foreign Exchange trading market, also referred to as the "Forex" market, is the largest financial market in the world, with a daily average turnover of approximately US$1.3 trillion. Forex is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example EURO/USD or USD/CHF.

Who Are The Participants In The FX Market?

The Forex market is called an 'Interbank' market due to the fact that historically it has been dominated by banks, including central banks, commercial banks, and investment banks. However, the percentage of other market participants is rapidly growing, and now includes large multinational corporations, global money managers, registered dealers, international money brokers, futures and options traders, and private speculators.

What Is Margin?

Margin is required collateral for taking a forex trading position. It allows traders to take on leveraged positions with a fraction of the equity necessary to fund the trade. In the forex market leverage ranges from 1% to 2%, giving investors the high leverage needed to trade actively whereas equity market only provides leverage of 50% (double the buying power).

What Are Commissions And Fees charged By MoneyForex?

Unlike many other forex brokers, MoneyForex does not charge any commission in executing a forex trading order. We are a market maker and our major revenue is generated from the spread from currency traded; usually 3 to 5 pips. There is a small cost of holding positions overnight.

What Does It Mean Have A 'Long' Or 'Short' Position?

A long position is one in which a forex trader buys a currency at one price and aims to sell it later at a higher price; the investor is benefiting from a rising market. A short position is one in which the trader sells a currency in anticipation that it will depreciate; the investor is benefiting from a declining market. The risk of having either long or short position will be the same.

How Do I Manage Risk?

The most common risk management tools in forex online trading are the limit order and the stop loss order. A limit order places restriction on the maximum price to be paid or the minimum price to be received. A stop loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses should the market move against an investor's position. The liquidity of the Forex market ensures that limit order and stop loss orders can be easily executed.

Loonie Slips Versus Dollar, Choppy Versus Euro

2007-04-26T16:17:00.000-07:00

Thursday, April 26, 2007 3:47:51 PM - The loonie was mixed against its two major counterparts on Thursday in New York. The Canadian dollar slipped in trading with the dollar and saw choppy movement against the euro. The day's action came as the Bank of Canada released a monetary policy report saying 2007 growth will be the slowest in four years. On Wednesday, the BoC left rates unchanged.

The Canadian dollar slipped in trading with the greenback on Thursday. The move came a day after the currency hit its highest level against the dollar since September 2006. Thursday's action caused loonie to slip throughout the morning and touch a daily low of 1.1222 around 10:30 am Eastern Time. The Canadian dollar moved off that level as the day progressed, however, and by 3:30 pm Eastern Time, it traded at 1.1208 against the buck.

The loonie saw choppy trading versus the euro in New York on Thursday. The Canadian dollar touched a daily high of 1.5196 at 6 am Eastern Time, and a daily low of 1.5264 around 10:40 am Eastern Time. The pair remained range bound entering the afternoon, and by 3:30 pm Eastern Time, the loonie traded at 1.5245 against the euro.

Correction: Pound Down Versus Dollar And Euro; Slightly Up Against Yen

2007-04-26T16:04:00.000-07:00

hursday, April 26, 2007 4:15:53 PM - The British pound was generally weaker against the other majors on Thursday morning in New York. The sterling saw a five-week low against the euro and a nine-day low against the dollar. The pound gained slightly on the yen. UK house price inflation nearly doubled in the month of April, a survey indicated Thursday, cementing expectations of a Bank of England interest rate hike in May.

The pound dropped to a nine-day low against the dollar during Thursday trading in New York. In the early morning, the sterling fell away from a weekly high against the dollar, which hovered above a 26-year high seen last week. The sterling began to trend down at around 3 a.m. ET and reached as high as 1.9922 at 10 a.m. ET. Trading was flat in the afternoon and the pair was at 1.9910 at 3:45 p.m. ET.

The sterling fell to a five-week low against the euro on Thursday. The British currency began to slip at around 3 a.m. and reached as low as 0.6834 at around 10:45 a.m. Before the rally, the pair had been range bound for about a day and a half.

The pound was up slightly with the yen during choppy trading within a week-long trading range. The sterling climbed to the top of the range early in the morning before falling back towards the bottom shortly after. The sterling climbed to as high as 238.49 at 5:30 a.m. ET before falling off. The pair was at 238.14 at 4 p.m.

Data to Drive FX by Korman Tam

2007-04-25T14:40:00.001-07:00

At 4:00 AM Germany April IFO Index (exp 108.0, prev 107.7)
Germany April IFO Current Conditions (exp 112.6, prev 112.4)
At 4:30 AM UK Q1 GDP q/q (exp 0.6%, prev 0.7%)
UK Q1 GDP y/y (exp 2.8%, prev 3.0%)
At 8:30 AM US March Durable Goods Orders (exp 2.5%, prev 1.7%)
At 10:00 AM US March New Home Sales (exp 888k units, prev 848k units)

The dollar remains under pressure against the major currencies amid renewed concerns of further deterioration in US economic fundamentals. Yesterday’s dismal existing home sales, which posted its steepest decline since 1989, pushed the greenback to fresh 2-year lows versus the euro and just shy of its all-time low against the single currency.

Economic data will remain the primary focus among fx traders for the coming session, with durable goods and new home sales slated for release. The key concern among markets is the direction and timing of any FOMC policy moves in the coming months. Given the lingering weakness in the housing market and gradual decline in overall economic activity, we feel the next rate move will be a shift to an easing stance. However, the timing will hinge on the pace of deterioration in economic fundamentals. The March durable goods report, which is a typically volatile reading, is expected to improve to 2.5% versus 1.7% in February. Meanwhile, the new home sales are forecasted to improve 888k units, up from 848k units a month earlier.

Dollar Extended Loss after New Home Sales by Yan Xu

2007-04-25T14:38:00.001-07:00

The dollar extended its loss against the euro and sterling after lower-than-expected US new home sales reinforced expectations for a Fed rate cut as early as October. The euro rose to 1.3665, close to the record peak at 1.3670. The sterling climbed back to above the 2 handle versus the dollar.

US new home sales rose 2.6% to an annual rate of 858k units in March, but below the consensus of 888k. Recall that the sharp decline in March existing home sales induced a dollar sell-off yesterday. The lackluster data today put the slowing housing sector in the spot light again.

Earlier, the dollar edged up slightly after durable goods orders rose 3.4% in March, beating the estimate of 2.5%. However, a single upside surprise in such a volatile indicator is not sufficient to challenge the expectations of the economy and the Fed rate outlook.

CFTC warnings

2007-04-15T09:45:00.001-07:00

The CFTC lists 9 warning signs for foreign exchange trading fraud:

1. Stay away from opportunities that seem too good to be true

Always remember that there is no such thing as a "free lunch." Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your money back once it is gone can be difficult or impossible.

2. Avoid any company that predicts or guarantees large profits

Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false.

The following are examples of statements that either are or most likely are fraudulent:

"Whether the market moves up or down, in the currency market you will make a profit."

"Make $1000 per week, every week"

"We are out-performing 90% of domestic investments."

"The main advantage of the forex markets is that there is no bear market."

"We guarantee you will make at least a 30-40% rate of return within two months."

3. Stay Away From Companies That Promise Little or No Financial Risk

Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government.

The currency futures and options markets are volatile and contain substantial risks for unsophisticated customers. The currency futures and options markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures or options contracts. Therefore, beware of companies that make the following types of statements:

"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day."

"We promise to recover any losses you have."

"Your investment is secure."

4. Don't Trade on Margin Unless You Understand What It Means

Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited.

Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers.

Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.

5. Question Firms That Claim To Trade in the "Interbank Market"

Be wary of firms that claim that you can or should trade in the "interbank market," or that they will do so on your behalf.

Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks and large corporations, since the term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.

6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise

Be especially alert to the dangers of trading on-line; it is very easy to transfer funds on-line, but often can be impossible to get a refund.

It costs an Internet advertiser just pennies per day to reach a potential audience of millions of persons, and phony currency trading firms have seized upon the Internet as an inexpensive and effective way of reaching a large pool of potential customers.

Many companies offering currency trading on-line are not located within the United States and may not display an address or any other information identifying their nationality on their Web site. Be aware that if you transfer funds to those foreign firms, it may be very difficult or impossible to recover your funds.

7. Currency Scams Often Target Members of Ethnic Minorities

Some currency trading scams target potential customers in ethnic communities, particularly persons in the Russian, Chinese and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials."

Sometimes those advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading, as well as to recruit their family and friends to do likewise. What appears to be a promising job opportunity often is another way many of these companies lure customers into parting with their cash.

8. Be Sure You Get the Company's Performance Track Record

Get as much information as possible about the firm's or individual's performance record on behalf of other clients. You should be aware, however, that It may be difficult or impossible to do so, or to verify the information you receive. While firms and individuals are not required to provide this information, you should be wary of any person who is not willing to do so or who provides you with incomplete information. However, keep in mind, even if you do receive a glossy brochure or sophisticated-looking charts, that the information they contain might be false.

9. Don't Deal With Anyone Who Won't Give You Their Background

Plan to do a lot of checking of any information you receive to be sure that the company is and does exactly what it says.

Get the background of the persons running or promoting the company, if possible. Do not rely solely on oral statements or promises from the firm's employees. Ask for all information in written form.

If you cannot satisfy yourself that the persons with whom you are dealing are completely legitimate and above-board, the wisest course of action is to avoid trading foreign currencies through those companies.

Forex scam

2007-04-15T09:44:00.000-07:00

A forex scam is any trading scheme used to defraud individual traders by convincing them that they can expect to unreasonably profit by trading in the foreign exchange market, which would be a zero-sum game were it not for the fact that there are brokerage commissions, which technically make forex a "negative-sum" game. These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits, improperly managed "managed accounts", false advertising, Ponzi schemes and outright fraud. It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment. The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry. An official of the National Futures Association was quotedas saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $300 million, mostly in managed accounts. CNN also quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?" The highly technical nature of retail forex industry, the OTC nature of the market, and the loose regulation of the market, leaves retail speculators vulnerable. Defrauded traders and regulatory authorities, can find it very difficult to prove that market manipulation has occurred since there is no central currency market, but rather a number of more or less interconnected marketplaces provided by interbank market makers.

Speculation

2007-04-15T04:08:00.002-07:00

Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) have argued that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.

Large hedge funds and other well capitalized "position traders" are the main professional speculators. Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view; it is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.

Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.

In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators only made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.

The difference between spot and futures in forex

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Before a description of retail trading, it is important to understand the difference between the spot and futures markets. Futures are generally based on contracts, with typical durations of 3 months. Spot, on the other hand, is a two-day cash delivery. While the futures markets were created to hedge out risks and speculate on future market conditions, spot was created to allow actual cash deliveries. Spot developed a two-day delivery date to give those transporting the actual cash a window of time to receive it. While in theory there still is a two-day delivery date imposed after a forex transaction, this is effectively no longer used. Every day, at 5 pm EST (the predetermined end of the trading day) spot positions are closed and then reopened. This is done to guarantee an unlimited timeline for delivery. For example, if a spot transaction occurs on a Monday, the delivery date is Wednesday. At 5 pm on Monday, the position is closed and then immediately re-opened; now this is a new position with the close date of Thursday. This daily process allows an investor to hold open a position indefinitely.

Another important difference between futures and spot is how interest is credited. Each currency in a forex transaction has an inherent interest rate attached to it. In the case of the US dollar, this is the Federal Funds Rate. This interest is added every day whether the market is trading or not. Interest cannot take a vacation; money and its loaning value are still important even if the financial world has stopped dealing. In futures, the interest is built into the price of the contract. In spot, however, interest is not taken into account in the offering price because the spot market is a cash market, not a contract market. There must be some mechanism for crediting interest, and various institutions have developed ways to do it. The most common method is to credit that day’s worth of interest at the same time they “flip” the position, or carry it over to the next day. This is important for later discussions and analysis because the transactions examined in this study had interest credited at the end of the business day at exactly 5 pm EST. If a position was held from 5:01 pm on Tuesday and closed at 4:59 pm on Wednesday, no interest would be credited for that day. If, on the other hand, a position was opened Tuesday at 4:59 pm and closed Tuesday 5:01 pm, a full day’s interest would be credited. This has interesting ramifications; traders who work intra-day, or “day traders,” often do not use interest for either gain or loss.

Financial instruments

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There are several types of financial instruments commonly used.

Spot: Aspot transaction is a two-day delivery transaction, as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot has the largest share by volume in FX transactions among all instruments.

Forward transaction: One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.

Futures: Foreign currency futures are forward transactions with standard contract sizes and maturity dates — for example, 500,000 British pounds for next November at an agreed rate. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.

Swap: The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not contracts and are not traded through an exchange.

Options: A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.

Algorithmic trading in forex

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With steady growth of the FX markets and the increasing adoption of E-FX among the market participants, algorithmic trading is emerging as the next level of trading technology for market participants to contend with. Although there is much confusion about the technique, most market participants seem to agree that it will be used increasingly frequently. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.

Factors affecting currency trading

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Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange. Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.

Economic factors

These include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators. Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates). Economic conditions include:

Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.

Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.

Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency.

Economic growth and health: Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.

Political conditions

Internal, regional, and international political conditions and events can have a profound effect on currency markets. For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

Market psychology

Perhaps the most difficult to define (there are no balance sheets or income statements), market psychology influences the foreign exchange market in a variety of ways:

Flights to quality: Unsettling international events can lead to a "flight to quality" -with investors seeking a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts.

Long-term trends: Very often, currency markets move in long, pronounced trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.

"Buy the rumor, sell the fact:" This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".

Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect - the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.

Trading characteristics

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There is no single unified foreign exchange market. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs.

**Top 6 Most Traded Currencies**
Rank	Currency	ISO 4217 Code	Symbol
1	United States dollar	USD	$
2	Eurozone euro	EUR	€
3	Japanese yen	JPY	¥
4	British pound sterling	GBP	£
5-6	Swiss franc	CHF	-
5-6	Australian dollar	AUD	$

The main trading centers are in London, New York, Tokyo, and Singapore, but banks throughout the world participate. As the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting for the market to open.

There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.3045 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.

The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.

On the spot market, according to the BIS study, the most heavily traded products were:

EUR/USD - 28 %
USD/JPY - 18 %
GBP/USD (also called sterling or cable) - 14 %

and the US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%) and sterling (17%). (Note that volume percentages should add up to 200% - 100% for all the sellers, and 100% for all the buyers).

Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus far still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The only exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.

Market participants

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**Top 10 Currency Traders**
Rank	Name	% of volume
1	Deutsche Bank	19.26
2	UBS	11.86
3	Citigroup	10.39
4	Barclays Capital	6.61
5	Royal Bank of Scotland	6.43
6	Goldman Sachs	5.25
7	HSBC	5.04
8	Bank of America	3.97
9	JPMorgan Chase	3.89
10	Merrill Lynch	3.68

Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001-2004 period in terms of both number and overall size” Central banks also participate in the forex market to align currencies to their economic needs.

Banks

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Commercial companies

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives, however. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992-93 ERM collapse, and in more recent times in Southeast Asia. Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximization. Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

Hedge funds

Hedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Retail forex brokers

Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market.

Market size and liquidity

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The foreign exchange market is unique because of: its trading volume,the extreme liquidity of the market,the large number of, and variety of, traders in the market,its geographical dispersion,its long trading hours - 24 hours a day (except on weekends).the variety of factors that affect exchange rates,

According to the BIS study Triennial Central Bank Survey 2004, average daily turnover in traditional foreign exchange markets was estimated at $1,880 billion. Daily averages in April for different years, in billions of US dollars, are presented on the chart below: Global foreign exchange market turnover: $621 billion spot$1.26 trillion in derivatives, ie$208 billion in outright forwards$944 billion in forex swaps$107 billion in FX options. Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, but only accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20). Average daily global turnover in traditional foreign exchange market transactions totalled $2.7 trillion in April 2006 according to IFSL estimates based on semi-annual London, New York, Tokyo and Singapore Foreign Exchange Committee data. Overall turnover, including non-traditional foreign exchange derivatives and products traded on exchanges, averaged around $2.9 trillion a day. This was more than ten times the size of the combined daily turnover on all the world’s equity markets. Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as internet trading platforms has also made it easier for retail traders to trade in the foreign exchange market.[1] Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 32.4% in April 2006. Other large centres include the US (with a 18.2% global share), Japan (7.6%) and Singapore (5.7%) (Chart 2). Most of the remainder was accounted for by trading in Germany, Switzerland, Australia, Canada, France and Hong Kong. The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 0-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $100,000. These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005). Competition has greatly increased with pip spreads shrinking on the major pairs to as little as 1 to 1.5 pips.