Fed Says Economy is ‘Leveling Out’

Stocks extended recent gains and US Treasury prices declined affecting currency exchange rates. The Fed issued a positive but cautious statement saying that economic activity is ‘leveling out’ but that the economy is likely to remain weak ‘for a time.’ Kathy Lien of GFT Forex said, “The outcome of this decision is still much more dollar bullish.” Many analysts believe that last week’s trend will continue. Last Friday the US dollar rose on better than expected US employment data. Throughout the recession good economic news has pressured the dollar downward.

Fed to Extend Asset Purchase Progam

Some traders believe that the decision by the Fed to extend the asset purchase deadline indicates economic weakness and will cap dollar gains. Michael Woolfolk of Bank of New York-Mellon stated, “The Fed is not yet convinced that the economy is on solid ground,” and that Fed Chairman Bernanke “knows very well the risks associated with removing stimulus too quickly.” The Fed said it would extend by one month the program to purchase long-term government securities and will not increase the amount of the purchases.

Surprise Data From France and Germany

The euro to dollar exchange rate hit a one week high after Germany and France posted surprise data that indicated a return to growth. The greenback also felt pressure from the demand for higher yielding assets. After a weak performance in 2009 the Eurozone is expected to return to growth in 2010. The euro to dollar exchange rate was up 0.5% to $1.4270 and against the Japanese yen the euro gained 0.8% trading at $1.4270. The decision by the Fed to keep interest rates at their present levels stopped market speculation that the Fed will raise rates in the near future putting pressure on the dollar’s exchange rate. Kazuyuki Kato of Mizuho Trust & Banking stated, “The Fed move basically did not have enough impact to alter the market trend of funds flowing into riskier assets. The prospect that the Fed will keep rates low will likely be one factor causing dollar weakness in the long term.”

Dollar Holds Friday’s Gains

The US dollar held onto last week’s gains in early trading Monday. Improving US employment figures and positive manufacturing and housing data helped last week’s dollar rally. Although the dollar slipped slightly against the yen it rose against the euro and a basket of other major currencies. Martin McMahon of Credit Suisse stated, “We had a big move on Friday, so we’ll be seeing some consolidation today.”

Correlation Between Dollar and Risk Sentiment Breaking Down

Mr. Mahon also suggested that investors are waiting to see if last week’s dollar rally is a sign that the correlation between the dollar and risk sentiment is breaking down. Since the current recession began bad news has helped the dollar and good news has put downward pressure on the greenback.

Treasury Yields Help the Dollar

After hitting a high of $1.4448 last week the euro was trading at $1.4185 against the US dollar. The dollar fell 0.3% against the yen and traded at 97.30. The dollar index was little changed at 78.869. Some experts said that a rise in US Treasury yields helped the dollar and will attract investors making it easier for the US to finance its debt.

Fed to be Upbeat About Economy

This week’s meeting of the Federal Reserve is bound to affect currency exchange rates. Many analysts believe that the Fed will end its plan to purchase $300 billion of longer-dated Treasuries in September. Many believe the Fed will extend a separate program to boost the credit flow to consumers and businesses. Barclays Capital analysts believe that the closeness of the payrolls report and the anticipated Fed meeting explain the dollar’s rally. In a note Barclay’s Capital analysts said regarding the Fed meeting, “Our US economists expect no increase in asset purchases and a more upbeat tone on the economy. In our view this would likely be a USD positive and may herald a period where positive news for U.S. yields continues to be a USD positive.”

The Fed meeting begins on Tuesday and Forex traders and investors will be watching closely.

Twitter Widely Used and Popular

Twitter is a wildly popular micro blogging and social networking service. Members send short messages called ‘tweets’ which are short posts limited to 140 characters. According to web traffic analysis done by Alexa Twitter is one of the 50 most popular websites. Twitter was creates in 2006 and has steadily grown in popularity. Twitter was used by both candidates in the 2008 presidential election. On Election Day Twitter use increased by 43%. Twitter users blog about most anything and that includes currency trading.

Twitter Offers Forex Converter

Currency traders are now using Twitter to share information and tips. Twitter has an online currency converter that covers most major currencies. Many Forex brokers have integrated Twitter into their day to day operations. Twitter can also be accessed by many mobile devices making it convenient for currency traders who can follow the forex market from their phones. Since most new mobile devices have internet access currency traders can conduct business from anywhere there is a signal.

Brokers Use Twitter to Share Information With Clients

Twitter also maintains a forum specifically for Forex traders and the currency allows forex traders and investors to check current currency exchange rates in real time. Since currency exchange rates change several times a day Forex brokers are using Twitter to communicate with clients giving them up to the minute reports about currency exchange rates in real time. The currency converter available on Twitter is updated several times a day.

Many top Forex brokers are now sending clients regular ‘tweets’ with trading recommendations and the latest market quotes. Social networking is one of the most effective marketing tools available and is well suited to Forex trading.

Aussie and Kiwi Advance For Third Straight Day

For the third straight day both the Aussie and Kiwi dollars advanced against the Japanese yen as demand for safe haven assets fades. A US report that showed industrial production contracting at a slower rate and the stellar second quarter performance of Intel and Goldman Sachs lifted investor risk sentiment reducing demand for the US dollar and the yen. Australia’s 10 year bond yields rose as investors bet that Australia’s central bank will raise rates sometime in the next 12 months. Richard Grace of Commonwealth Bank of Australia stated, “The U.S. economy looks more positive. That’s what the bond market reacted to, and it also helped drive the Aussie higher.”

Reserve Bank of Australia to Raise Rates

The Reserve Bank of Australia is expected to raise its benchmark rates by 64 basis points during the next year and the New Zealand will raise its rates by 78 basis points. Federal Reserve figures showed that in June US industrial production fell by 0.4%, the smallest decrease in eight months. Greg Gibbs, a foreign exchange strategist based in Sydney said, “A sense of greater stability in global markets and a higher yield advantage, following stronger data, may lift the Australian dollar back above 80 (US cents) near term, possibly up to 81.”

New Zealand Economy Recovering Says Prime Minister

The New Zealand dollar strengthened after Prime Minister John Key said that the New Zealand economy is starting to recover from the recession. Citing conversations with Reserve Bank Governor Alan Bollard Prime Minister Key stated, “That tallies with what he’s been privately telling us, that we’re starting to come out of this recession, which is good news. The governor is in a good position to assess both the international markets and the domestic market.”

Euro and Pound Up

The rise in risk appetite has affected global currency exchange rates. The euro traded at $1.41 as investors sought out higher yielding currencies. Sterling rose to $1.6385 from $1.6280. Although some analysts caution that the current rise in risk appetite is not sustainable forex investors seem to think otherwise.

Safe Haven Demand Rising

Both the Japanese yen and the US dollar rose against the euro for the second day due to declining Asian stocks and risk aversion among investors. Rising risk aversion has increased demand for both currencies traditionally seen as safe havens. The London Sunday Times reported that Lloyds Banking Group may post losses of 13 billion pounds ($20.9 billion USD) increasing demand for the safe haven of the yen. Also affecting currency exchange rates was a Wall Street Journal report that said that some major US airlines may have to file for bankruptcy. The report said that American Airlines and Delta may be forced to file Chapter 11 bankruptcy unless liquidity improves.

Asian Stocks Decline

A decline in Asian stocks drove risk aversion higher and the yen traded higher against the 16 most traded currencies. Philip Wee of DBS Group Holdings Ltd. Stated, “Currencies will stay sensitive to downside risks in equities worldwide. Markets may seek safety in the yen and the dollar as they adjust their bullish positions accumulated during the March-June rebound from the crisis.”

Banking Giant Lloyd’s to Post Massive Losses

The pound fell against the dollar after a report in the Sunday Times which said that Lloyds may post losses of 13 billion pounds. ($20.9 billion USD). Yousuke Hosokawa of Chuo Mitsui Trust & Banking Co. stated, “The Times report rekindled concerns about the health of the financial system in Europe, which is believed to have a bigger exposure to non-performing loans than U.S. banks. The risk-averse sentiment will favor the yen.” Last month the European Central Bank said that commercial banks in the euro zone may lose $283 billion by the end of next year as the global recession forces the banks to write off bad loans.

ECB Will Leave Interest Rates in Place

Also affecting Forex markets was a report by the ECB which said that its interest rates are appropriate and that the euro zone economy will recover in 2010. On July 2nd the central bank left its 1% interest rate unchanged in an attempt to stimulate euro zone growth.

Dismal US Unemployment Figures

Recently it seems that the ‘green shoots’ of recovery have withered somewhat after miserable US jobs data sparked a return of risk aversion. For the past two months currency traders have speculated that the worst of the global recession was over despite warnings that the optimism was premature. Last week higher yielding currencies such as the euro and the Aussie dollar which have benefited from the recent optimism fell sharply on Thursday after data showed that the US shed 467,000 jobs in June.

Risk Aversion Dominant

Although the euro to dollar rate recovered somewhat on Friday but risk aversion still dominated currency markets and trading was light during the holiday weekend. Arne Lohmann Rasmussen of Danske Bank in Copenhagen stated, “There has been a bit of a recovery in risk currencies, which got really hammered yesterday. But with the U.S. closed it’s a bit of a dull market today, with everyone taking a breather after yesterday’s hectic movements.”

ECB President Says Euro Zone Economic Activity to Remain Weak

Earlier in the week the euro to dollar exchange rate had risen to a one month high of $1.4200 but fell back to $1.3991 on Friday. Remarks by European Central Bank President Jean-Claude Trichet who said that Euro Zone economic activity would remain weak put additional pressure on the euro. Forex traders are also anticipating the G 8 meeting this week which is bound to affect currency markets.

Risk Appetite Fading

The Japanese Yen benefited from poor stock market performance and advanced against the US dollar and the Euro. Like the US dollar the Yen is seen as a safe haven currency and traditionally benefits from risk aversion. Daragh Maher of Calyon, the investment-banking unit of Credit Agricole SA Stated, “We’re in an environment where risk appetite is fading and the yen in capitalizing. We haven’t had any decisive news to change the pessimistic mood.”

Investors Focus on G 8 Summit

The G8 meeting will likely be the focus of most Forex investors and traders this week  There will in all likelihood be a discussion of the US dollar’s status as a reserve currency which coulkd shake up currency markets.

Dollar Regains Lost Ground

The meeting of the BRIC (Brazil, Russia, India and China) nations has come and gone leaving currency exchange rates largely unaffected. Recent remarks by Russia’s president questioning the dollar’s reserve status caused the dollar to fall on Tuesday but on Wednesday the dollar regained some lost ground. Trading has been somewhat erratic as markets struggled to find direction and remained uncertain whether the dollar’s decline was over or had a little further to go.

BRIC Summit Fails to Address Dollar’s Reserve Status

The failure of the BRIC summit to issue any statements regarding the dollar slowed the dollar selling caused by the Russian president’s remarks on Tuesday. Masafumi Yamamoto of Royal Bank of Scotland stated, “At the end there was no strong comment to play down the role of the dollar.” Asian stocks were down as investors tried to make sense of conflicting US economic data causing many to doubt how fast the US recession is easing.

Risk Aversion Surfaces

Some risk aversion has surfaced sending the dollar to yen exchange rate to 96.00 and the Aussie dollar to a three week low of 76.00 against the yen. In early trading on Wednesday the euro to dollar rate rose 0.3% to $1.3883. Better than expected inflation data from the US was taken by forex investors as another sign that recovery is underway paring safe haven demand. May price data boosted expectations that US interest rates will remain low, Brian Dolan of Forex.com stated, “We’re seeing dollar weakness because the idea is that inflation is not pretty evident right now and that is seen as a positive in terms of the growth outlook and risk appetite.”

Currency Markets ‘Lack Conviction’

The Q1 U.S. current account deficit narrowed adding to market optimism and affecting currency exchange rates. Some experts said currency markets lacked conviction leaving investors and traders unsure of how to trade the dollar due to conflicting sets of US economic data.

Record Drop in Industrial Production

A record drop in Euro Zone industrial production has put further downward pressure on the euro. Earlier the euro had been pressured by automatic sell orders as the currency hit $1.41 and the Euro Zone figures added to the Euro’s woes. Euro zone industrial production fell 21.6% from April 2008, a record drop. The Euro Zone figures are a sign that forex investment continues to decline in member nations.

Industrial Production Rises in China and Japan

In Asia Chinese industrial production rose more than expected in May and Japan’s industrial production experienced its biggest monthly gain in 50 years. Despite struggling US and European economies many investors believe that the global economy is on its way to recovery from the worst recession since World War Two. Many forex investors remain cautious due to rising deficits and consumer credit costs. Bill Schultz of McQueen Ball & Associates stated, “While this is recovery, and it’s better, it may not be the jumping-on point to a stronger” rise in economic growth.

G 8 Meeting Closely Watched

Investors and Forex traders are watching the current G8 meeting with great interest. Statements and actions from the group of finance ministers will undoubtedly affect global currency exchange rates. At the G8 meeting many participants feel that global recovery is ‘not fully underway.’ European automaker Volkswagen said it saw no signs of recovery outside of China which posted gains in industrial production. A European Commission report stated, “Despite some evidence of a slowdown in the pace of decline, the evolution of imports and exports of all major countries remains very negative. Moreover, the fact that unemployment continues to rise in most major economies, means the global recovery is still not fully underway.”

The euro to dollar rate fell 0.7% to $1.4000 while the pound to dollar rate was $1.6421. The dollar to yen exchange rate rose 0.6% to 98.14. Currency exchange rates are not on the formal agenda of the G8 conference which is a preparation for the July G8 summit.

Investors Hope For US Rate Hike

The US dollar ended its recent gains on Tuesday as investors questioned whether the US would raise rates later in the year. Many forex investors are concerned that recent improvements in the US economy could justify a rate hike. Hopes that the worst of the credit crunch are over were raised after the US Treasury said that 10 of America’s biggest banks will be able to pay back $68 billion in bailout money received at the height of the credit crunch.

Traders Expect Weak Dollar Trend

The euro to dollar exchange rate rose to over $1.40 while the pound to dollar rate rose 1.4 percent to $1.6268. Some forex traders expect the dollar’s performance to be weak for the next few weeks. Michael Woolfolk of The Bank of New York-Mellon said, “I fully expect the dollar to trend weaker over the next several weeks unless big problems in Europe develop.” Recent US job figures boosted the dollar in recent trading sessions but investors remain concerned that the US may not raise rates.

Euro Zone Economy Still Weak

The pound to dollar rate was affected by better than expected UK housing data and a lull in recent political turmoil helped bolster the pound in currency markets. The euro to dollar rate was pressured by a sharp decline in German production suggesting that the euro zone economy is still weak. The euro was helped by hopes that Latvia may be able to avoid devaluing its currency. It has been estimated that Latvia’s economy may contract 18% this year.

US Deterioration Slowing

Investors remained wary of the dollar due to rate concerns. Jeremy Stretch of Rabobank in London stated, “Yes, the deterioration in U.S. data has slowed, but to suggest … the Fed is looking to take back some monetary easing before year-end is somewhat injudicious. It’s safe to say that market is getting ahead of itself.” Investors are waiting for the results of the US Treasury’s auction of 10 and 30 year notes to gauge rate expectations.

Markets have not reacted to the conservative sweep of EU elections but many experts expect currency exchange rates to be affected by expected shifts in policies.

Liquidity Attractive Feature of Forex

A June 2nd story by the global news agency Reuters tells the story of investor Cenk Utkan who lost half his investment in emerging market hedge funds. The 33-year-old managing director of London-based Connexion Capital introduces institutional investors to hedge funds. After losing much of his investments Mr. Utkan turned to global currency markets citing their liquidity. Mr. Utkan stated, “In Russia, stocks got suspended. So I thought instead of locking my money up in a hedge fund, why don’t I go to the most liquid end of the market, which is the currency market?”

Investments Hammered By Recession

Mr. Utkan now traces currencies daily for his personal account. Mr. Utkan is not alone. Many small investors are dumping stocks, real estate, and other investments that have been hammered by the worst recession since World War Two. For these new forex investors liquidity is king. The currency exchange market is the world’s largest with over $3.2 trillion dollars traded daily. Currency exchange rates are always changing and forex markets are not subject to the same sort of regulations that govern stock and equity markets. Betsy Waters of Germany’s Deutsche Bank stated, “Retail investors around the world, particularly in countries where you have more controls over the equity markets, are definitely turning to FX.”

Number of Forex Traders Increases

At dbFX.com, the retail currency trading platform of Germany’s Deutsche Bank, volume has increased 37% in the first quarter compared with a year earlier. Other retail forex companies report a 30% monthly increase in new accounts for the last six months. Betting on currency pairs is not for the faint of heart but by using the leverage available to retail forex investors the rewards can be astounding compared to what equity markets offer. Potential investors are cautioned that leverage can be a double edged sword.

Forex Rewards Great

Although forex markets can be volatile with currency exchange rates changing several times a day those willing to educate themselves about this dynamic market and exercise discipline can reap fantastic rewards. There are many free real time currency converters available online including the popular XE currency converter and the Yahoo currency converter. Both are popular among forex day traders. There is no dearth of information available and we recommend the following sites-

www.fx-trader.info
www.forexopportunity.org
www.forexopportunity.net
www.interbank-fx.net
www.fxconverter.org