Forex Dollar weighed by trouble for Fannie Mae, Freddie Mac

The dollar was weighed by news that the U.S. government may have to step in to salvage troubled mortgage lenders Fannie Mae and Freddie Mac with state ownership.

After doubts emerged this week about the capitalisation needs of the two government-sponsored bodies, the news that the government may intervene to return the two companies to public ownership made markets nervous.

'Traders may look to further limit any exposure to the dollar as we move into the weekend break,' particularly ahead of economic data later today, said James Hughes at CMC Markets.

The University of Michigan consumer optimism indicator is expected to erode slightly to 56.0 in July from the previous reading of 56.4, remaining near a record low.

The trade deficit is also expected to worsen, to $62.1 billion in May from $60.9 billion in the prior month, driven by higher crude oil costs.

Additionally, the dollar is being hurt by oil prices inching higher once again as well as geopolitical tensions resurfacing in the Middle East.

The euro and pound, meanwhile, are not expected to show much momentum today, as few fundamental drivers are scheduled and after recent economic data has highlighted the extent to which growth is slowing across Europe.

The possibility of a recession in the euro zone will keep the European Central Bank from raising rates any more this year, with most analysts expecting the next move to be a cut after several months of staying on hold.

In the UK, too, data has shown the economy may already be entering a recession -- a view which has forced the Bank of England to keep interest rates unchanged on Thursday despite a flare-up in inflation.

Comex Copper Up In Reaction To Other Markets

Comex copper has a stronger tone as it reacts to moves in other markets. Renewed worries about the financial sector, including market jitters about mortgage giants Fannie Mae and Freddie Mac, have contributed to U.S. dollar weakness, says Shawn Hackett, president of Hackett Financial Advisors. "Precious metals and oil are going up, and it's creating a general concern about an escalating inflation scenario," he says. "Copper is gaining the benefit of that." September copper is up 5.10 cents to $3.7695 a pound. The area up around $4 will provide resistance, Hackett says. "Every time we get up there and try to go through, we fall back," he says. Meanwhile, support lies around $3.50. "Until we break either up or down from either of those two sides, we're basically going back and forth," he adds. "We're in a trading range." (ALS)

EUR/USD: Oil prices weigh on the Dollar

(Barcelona) – The Dollar has plunged as oil prices hit a fresh record high, with the Euro hitting 1.5868. The ActionForex.com Technical Team expects the upward move to continue: “EUR/USD's rally extends further as expected and reaches as high as 1.5868 so far. With correction from 1.5908 completed at 1.5611, rise from there is expected to continue further to retest 1.5908 high first.”

On the downside, the ActionForex.com Technical Team forecasts: “Below 1.5763 will turn intraday outlook neutral first. But another rally is sitll expected as long as downside is contained by 1.5611 support.”

Will Japan and the Eurozone see Decreased Growth Over Next Six Months?

Fundamental Headlines

• EURUSD – A highly appreciated euro deterred foreign consumers in May, as German and French exports fell the most in four years. German shipments fell 3.2 percent in April, the most since June 2004, while French exports declined 1.7 percent. Over the past year, the euro has gained nearly 18 percent on the dollar and 15 percent on the sterling, diminishing competitiveness among traders. The German data was unexpected, suggesting that the U.S.-led global cool down is beginning to affect Europe’s two largest economies. Discuss the topic and your trade ideas in the EUR/USD Forum.
• USDJPY – Japan’s equipment orders report, an important indicator to assess the market and predict capital gain over the next three to six months, rose 10.4 percent in May. The rise is considerate, given orders rose 5.5 percent in April, and only a 1.1 percent increase was expected. Heavy investment in steel headlined the increase, which will have a hard time supporting Japan’s capital investment. More than likely, as inflation increases, capital will decelerate, and there will be a negative reading for the May-June data. Discuss the topic and your trade ideas in the USD/JPY Forum.
• AUDUSD – Westpac Banking Corporations’ confidence index dropped by 6.7 percent to a 16-year low, to 79 points, the sixth straight such reading below 100. Consumers, deterred by upward inflationary pressures and the highest borrowing costs in 12 years, have been less inclined to spend money on property or at retailers. As sentiment decreases and home-loan approvals decline as well, it’s becoming increasingly clear that the RBA is leaning away from another rate hike this year.

Bank Indonesia Raises Borrowing Costs

July 8th, 2008

The Bank Indonesia increased the interest rates today for its third meeting in a row to efficiently fight the accelerating inflation caused by the growing food and oil prices.

The central bank voted for the interest rate to be raised from 8.5 percent to 8.75 percent. The only reason the government wants to hold the rates that high, despite the unpopularity of such measures, is the fastest price growth in Indonesia in the last 21months.

Although the rate of the Indonesian rupiah remains quite steady against the U.S. dollar since April this year, the USD/IDR rate may experience some decline, as this interest rate hike may cause more investors to secure their assets in the Indonesian currencies and get a higher yield.

The rate increase wasn’t a surprise for the market analysts — the growing fuels costs cause protests by the transportation workers world-wide and Indonesia isn’t the exception. Despite the fact that the high borrowing costs may hurt the position of the current President Susilo Bambang Yudhoyono on the general elections next year, the inflation remains the central bank’s main priority.

NZD Risks Falling Low against Yen

July 8th, 2008

According to the analysts from Citigroup Global Markets Inc., the New Zealand dollar may experience the lowest value against the Japanese yen in more than 10 month if it closes below the current triangle pattern support line.

NZD/JPY currency pair is supported at 79.97 level, where the ascending trendline of the triangle pattern is clearly visible on the weekly chart. The descending trendline of a triangle starts from the highest point of the week of July 22, 2008, while the ascending trendline starts from the lowest point of the week of August 12, 2008.

The weekly close below the support trendline at 79.97 will trigger strong downtrend on the NZD/JPY pair, which may last to the March low near 76.71 and if that level is broken to the lowest point of the triangle near 74.26.

The currency pair opened at 80.74 today and is traded near 80.73 as of 7:44 GMT. This weekly loss is also negligible as the week opened at 80.75. Last week NZD/JPY lost almost 1 percent.

Dollar Continues Friday’s Growth

July 8th, 2008

The U.S. dollar continued to grow today during the Asian trading session as the traders followed the Friday’s trend and are now expecting some hawkish commentaries from the next Ben Bernanke’s speech.

Despite the weak report on the employment situation, which was released last Friday, the investors saw it as a rather positive signal and switched to buying the dollar, which lead to the new weekly minimums on EUR/USD.

Dollar growth against the euro, the Japanese yen and British pound stimulated the fall on the oil market today. But some market analysts expect the EUR/USD rate to return to the high levels of the last Thursday near 1.5760 later today.

Ben Bernanke, the Chairman of the Federal Reserve, will be delivering a speech at Federal Deposit Insurance Corporation?s Forum on Mortgage Lending to Low and Moderate Income Households tomorrow. Traders expect that his commentary may have some positive effect on the U.S. currency.

EUR/USD fell down from 1.5691 to 1.5661 as of 10:54 GMT today, but the lowest daily value was at as low as 1.5611, which is the lowest level since June 25. USD/JPY opened at 106.81 today and rose to 107.44, while the daily maximum is already at 107.70.

Yen Advances on Stocks Downfall

July 8th, 2008

The Japanese yen rose against all other major currencies today on Forex as the stock markets declined in Asia and Europe, while the investors became concerned about more losses from the mortgage crisis worldwide.

The yen also advanced significantly against its carry trade counterparts — such as Australian and New Zealand dollars. In carry trade investors borrow cheap Japanese yen to buy high yielding assets, such as Australian and New Zealand currencies, bonds. With the growth of currency volatility such positions become less attractive and the yen usually grows.

Asian stocks tumbled today after the report from Lehman Brothers Holdings Inc. that showed that largest U.S. mortgage providers will have to borrow as much as $75 billion to cover the losses.

The Group of Eight nations also signaled in the favor of the stronger yuan, which will probably pull up other Asian currencies, including the Japanese yen. Intraday Forex traders use such information and increased their yen long positions.

USD/JPY declined from 107.14 to 106.44 as of 8:44 GMT today, yesterday the currency pair grew insignificantly. EUR/JPY dropped below the last Wednesday’s open level and is now trading at 167.40 after opening at 168.48 today. GBP/JPY fell from 211.66 to 210.48.

DailyFX Analysts Snapping Up Some Euros?

Analyst picks for: 2008/07/08

• EUR: Looking to Go Long?
• GBP: Mixed Views on the British Pound

Four out of seven DailyFX Analysts are looking to go long Euros against something. Longer term traders Saettele and Sousa prefer the EUR/USD outright and expect a break of 1.60. Shorter term traders Kicklighter and Spivak like buying EUR/JPY and EUR/GBP respectively.

Rodriguez also likes long EUR/JPY but thinks the risk is too high so he's going for GBP/JPY. Ultra short term traders Lien and Schlossberg like short GBP/USD and short EUR/GBP respectively for some quick moves.

The British pound is in play this week with the trade balance numbers and the BoE rate decision due over the next 48 hours.

	Chief Currency Analyst Kathy Lien	My picks: Short GBP/USD Expertise: Combining Fundamentals with Technicals Average Time Frame of Trades: 1-3 Days
EUR: ECB President Trichet put an end to the Euro party last week and because of that, the 1.58 to 1.53 trading range will probably remain intact for the summer. Traders are still working off their Euro long positions and adjusting for the possibility of more aggressive tightening by the Fed than the ECB. I am bearish Euros (currently 1.5678), looking for a move down to 1.5580. GBP: As for the British pounds, I am still bearish. The GBP/USD has broken below the 100-day SMA. It is headed to 1.9688 (now 1.9736) and if that level breaks, then onto 1.9590. 1.9800 would be my risk.

	Senior Currency Strategist Boris Schlossberg	My picks: Short EURGBP Expertise: Fundamental Average Time Frame of Trades: 12- 24 hours
After being battered relentlessly by series of negative economic news, cable was able to recover most of its losses and bounced back to 1.9800 level before selling off in broad dollar rally in the AM. One piece of news that helped was the better than excepted reading in DCLG House prices which printed at 3.7% versus 3.3% forecast. The report is likely to keep the pressure on the BoE to keep rates steady for the time being and therefore alleviate some of the selling pressure on sterling. On the other hand the euro has been sunbject to the vagaries of equities. Rallying when equities fall and falling when they rise. With Bernanke speech suporting stocks for now I think the pound will outperform the euro for the rest of the day. So short EURGBP is my call for today.

	Technical Currency Analyst Jaime Saettle	My picks: EURUSD Long, stop 1.53, target above 1.6018 (probably upwards of 1.70) Expertise: Technical, Psychology Average Time Frame of Trades: 2 weeks (this one will be longer)
As long as price is above 1.5303, it is probable that a large 5th wave advance is underway. Fibonacci extensions (to estimate the end of wave 5) are at 1.64 and 1.70. In FX, major tops are typically preceeded by a blow-off top that creates a strong sentiment extreme. We have yet to see the kind of psychological extreme that often accompanies significant tops. As such, it is unlikely that the EURUSD bull trend that began at the end of 2005 is complete. The GBPUSD should remain supported but the EURUSD offers the best bang for your buck. Cable is stuck in a sideways consolidation and while it could exceed 2.04, there is as good of a chance that a triangle is underway and that the pair will remain below 2.04.

	Currency Analyst Antonio Sousa	My picks: Long EUR/USD Expertise: Interest Rate Dynamics, Volatility and Sentiment Average Time Frame of Trades: 1 week – 1 Year
Last week, the euro fell sharply on speculation the European Central Bank wouldn’t be raising rates again in 2008. Yet, I think the speculation was overdone and I expect the euro to recover in the week ahead. In fact, a report released last week on the euro zone CPI showed that inflation in Europe rose to the highest in more than 16 years. As a result, I expect the ECB to keep its hawkish tone since inflation has exceeded the 2% price stability limit for the last 10 months. According to interest rate swaps for deposits denominated in euros, the market has already priced in one additional rate hike by the ECB in 2008. While the 3 month LIBOR rate stands at 4.96 percent, the 1 year LIBOR rate is being offered at 5.38 percent. I project the EUR/USD to test and break 1.60 over the next few weeks.

	Currency Analyst David Rodriguez	My picks: GBP/JPY Long Expertise: Quantitative Analysis, System Trading, Trader Sentiment and Positioning Average Time Frame of Trades: 2-10 weeks
At the risk of sounding like a broken record, I see little reason to abandon my short-JPY, long EUR and GBP bias. In terms of short-term trades, I like buying the current dip in the GBP/JPY, but I think that the EURJPY is too high at the moment to make for a reasonable risk/reward play. Given a 4-month uptrend in the GBP/JPY, I maintain my bullish bias and will look to buy tests of support in the 210-210.50 range, placing max risk below previous spike lows at 209.43 and initial profit targets at recent spike-highs of 212.48. The fact that the JPY has remained weak despite clear drops in global equity markets emboldens my bullish stance, and the reasonable hope of a short-term correction in the Dow and other major indices may nonetheless support the JPY crosses.

	Currency Analyst John Kicklighter	My picks: Long EURJPY Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week
The economic docket is relatively light this week, but there are a number of specific events that could produce considerable volatility - a difficult situation to incorporate into trades given that a great swath of the market is looking at ranges both big and small. Taking these events into consideration (and the EURGBP breakout trade that I have laid out yesterday and has yet to trigger), the field narrows itself. Among those pairs that have few spikes of significant economic event risk is EURJPY. However, here the health of general risk appetite will be a notable consideration. To minimize risk in risk trends, I'm going to look for a trade to the long side that holds with the dominate trend from March. Recently, congestion has contained price between 169.00/50 and 167; so my entry and initial target will be tailored around these barriers. Considering the relatively small range, I prefer an entry that is close to support at 167.15/40 and will set a limit entry order in that area. My stop will be relatively wide to cover the swing low from June 30th. At the same time, considering the range will hold, there is only 200-250 points to trade within the short-term; so the first target will need to be set equal the risk on the single lot. A second target within the range would be pushing the zone, and the probabilities would be only moderately changed should I put it beyond the range for a potential breakout run (considering the dominate trend is still to the upside). My second target will be set just short of the next large phsycological level at 170; and to reduce risk on this aggressive outlook, my stop on this second lot will be moved to breakeven when the first target is hit.

	Currency Analyst Ilya Spivak	My picks: Long EURGBP Expertise: Macro Fundamentals, Candlestick and Fibonacci Technical Analysis Average Time Frame of Trades: 1 week - 6 months
EURGBP has been consolidating in a Pennant formation since the rally lost steam mid-April. This is a continuation pattern, suggesting a bullish breakout. Look to go long on a daily close above 0.7970. Set stop loss at 0.7854. The initial target aims at April's high at 0.8100.

Dollar at 2-Month Minimum versus Euro

The U.S. dollar reached its lowest value against the European currency in more than two months today as the traders are waiting ADP report on the June jobs dynamics and expect it to show a first decline in four months.

Automatic Data Processing, Inc. reports on the employment in the non-farm private business sector each month, relying on the private data of its business clients. June report will be released today at 12:15 GMT and the median analysts’ forecast is a decline by 20k after 40k gain in May.

The dollar also declined against the Australian currency today as the macroeconomic statistics there pushed the AUD rate higher against almost all other currencies. Despite loses against euro, Australian and New Zealand dollars, USD managed to grow against the Great Britain pound today as the Bank of England will probably abstain from increasing the rates and may even cut the interest rate during its next meeting on July 10.

Although the dollar is trading quite low this week and is experiencing a downside daily trend against euro since June 16, in a longer term period the EUR/USD pair is still going sideways. The approach of the period’s maximum levels may trigger the sell-out on the pair by the range speculators.

EUR/USD went up today from 1.5793 to 1.5813 as of 8:26 GMT with a maximum at 1.5849 (the highest level since April 24). GBP/USD dropped 1.9953 to 1.9894, while AUD/USD rose from 0.9551 to 0.9608.

Dollar Rallies after NFP - How Much Further Can it Rise?

Thursday, 03 July 2008 21:29:12 GMT

Non-farm payrolls were right in line with expectations, triggering a broad based dollar rally. Even though the US economy saw a net job loss for the sixth consecutive month, the sheer fact that non-farm payrolls was no where near -100k, was enough to drive the dollar higher (More details on Non-Farm Payrolls). According to the yield curve, traders now expect more aggressive tightening by the Federal Reserve than the ECB over the next 12 months. If inflation continues to trend higher, this is very possible since the Fed has more room to raise interest rates. The ECB’s disappointment and the market’s relief that NFPs were not as bad as they could be should lead to further dollar strength in the coming week. However the underlying weakness in the payrolls report and the sharp drop in service sector ISM indicate that the US economy is still on a downward spiral. Payrolls for the month of June was revised to more negative levels, while the unemployment rate remained unchanged at a 4 year high. With jobless claims topping 400k last week, the labor market will only get worse in the coming months. American Airlines announced today that 7,000 jobs will be cut by the end of 2008 to offset the pain of rising fuel prices. This follows the equally severe layoffs announcements that we have already heard from Starbucks, Citigroup and Goldman Sachs. The service sector is back in contractionary mode with the ISM index falling from 51.7 to 48.2. The employment component of the report fell to a record low, foreshadowing more problems in the labor market. Yet even as economists and analysts, (us included) are calling for doom and gloom, the numbers have yet to show it. Today’s NFP figures are not as bad as the market feared while consumer spending remains positive. Inflationary pressures on the other hand are continuing to rise. Oil prices hit a new record high above $145 a barrel. This will add further pressure to the prices paid component of service sector ISM, which already hit an 11 year high in the month of June. The US economy will worsen, but probably not as quickly as inflationary conditions. The rise in oil prices is testing the patience of the Federal Reserve. If they continue to remain on hold and fail to indicate when they plan on raising interest rates, the rally in the US dollar could be limited.

Metals - Gold drops as dollar firms

Thu, Jul 3 2008, 14:37 GMT

Gold dropped to around $930 per ounce on Thursday after the dollar firmed against the euro, reducing the appeal of the precious metal as an alternative to the U.S. currency.

At 3:09 p.m. BST, spot gold was trading at $931.70 per ounce against $945.00 per ounce in late New York trade on Tuesday. Gold had risen by almost $90 per ounce since slipping to a low of $858.30 per ounce on June 24

Gold has been pushed higher by rising oil prices, heightened risk aversion and dollar weakness recently as investors have looked for a safe store of wealth during the current economic turmoil.

However, profit-taking ahead of the July 4 weekend in the U.S. was encouraged by a stronger tone in the dollar on Thursday.

The dollar firmed off a two-month low against the euro on a combination of better than expected employment figures in the U.S. and some neutral comments from the European Central Bank.

ECB President Jean-Claude Trichet was noncommittal about the future direction for interest rates in the eurozone, in the wake of the central bank's widely predicted 25 basis point rate hike on Thursday.

The near 30 cent decline in the dollar's value against the euro since the start of 2007 has been one of the major drivers of gold's move higher.

The precious metal has added over $300 per ounce in the last 18 months, with gold bought as an alternative to the most common form of global currency reserves.

The precious metal remains well supported by rising inflation concerns, with oil prices smashing records above $145 a barrel in New York and London.

"The price of oil is fuelling inflation fears and pushing up gold," said analysts at Commerzbank.

Among other precious metals, platinum was down at $2,028 per ounce from $2,076 per ounce, while sister metal palladium slipped to $458 per ounce from $466.25 per ounce. Silver dipped to $18.12 per ounce from $18.31 per ounce.

Forex - Dollar off day lows as markets shrug off weak U.S. data

Thu, Jul 3 2008, 15:14 GMT

LONDON (Thomson Financial) - The dollar came through on top in a day marked by mixed fortunes as players shrugged off a European Central Bank rate hike and yet another drop in U.S. job creation.

The day's U.S. data was decidedly weak, with the snapshot of the services sector of the world's biggest economy and the much awaited jobs report painting a gloomy picture. However, not so gloomy that it was unexpected and already reflected in the dollar's exchange rate.

The dollar had suffered a brief dip after the European Central Bank raised interest rates by a quarter point, as expected, but its falls proved fleeting. The euro rose above $1.59 but quick profit-taking ensued, especially after ECB chief, Jean-Claude Trichet, failed to signal that more hikes are on the way.

"The dollar recovery was a classic example of 'buy the rumour sell the fact' with both the ECB rate hike of 25 basis points and non-farm payrolls of -62,000 widely anticipated by markets and already priced into exchange rates," said Michael Woolfolk at Bank of New York Mellon.

"The failure of Trichet to signal any further ECB rate hikes and the failure of non-farm payrolls to live up to its negative whisper, prompted a sizable relief rally ahead of the long holiday weekend," he added.

U.S. markets will be closed Friday for a public holiday.

"Given that Trichet had no knowledge of non-farm payrolls ahead of its release, it was obvious in retrospect that he would not pre-commit to further rate cuts and risk triggering a surge in the euro above the $1.60 level," said Woolfolk.

Also on Thursday, the Institute for Supply Management (ISM) said the non-manufacturing index for June fell to 48.2, lower than the 51.0 median expectation of economists polled by Thomson Reuters IFR Markets, and down from the 51.7 reading in May. A reading above 50 indicates growth, below 50 contraction.

But by the time the data came out, the dollar's trend was already intact.

Elsewhere, the pound remained on the back foot, but more against the dollar than the euro. The euro came close to making a sustained break above the 0.80 level against the UK currency after a survey showed UK services sector activity at its weakest for five years but the momentum faded as the day wore on.

UK services sector PMI slumped to 47.1 in June from 49.8 in May, keeping the reading below the 50 level that marks contraction in the sector and way below forecasts for a much more moderate fall to 49.5. The news came as a Bank of England survey also reported tighter credit supply and wider spreads to both firms and households, raising fears of a recession in the UK.

"The UK economic outlook continues to darken amid the triple whammy of a credit crunch, oil price surge, and housing market correction ... The risks of mild recession in the UK are clearly rising," said Matthew Sharratt at Bank of America.

London 1554 GMT London 1119 GMT

U.S. dollar

yen 106.76 up from 106.28

Swiss franc 1.0273 up from 1.0123

Euro

U.S. dollar 1.5704 down from 1.5892

pound 0.7921 down from 0.7988

yen 167.69 down from 168.92

Swiss franc 1.6135 up from 1.6084

Pound

U.S. dollar 1.9822 down from 1.9904

yen 211.65 up from 211.46

Swiss franc 2.0367 up from 2.0130

Australian dollar

U.S. dollar 0.9597 down from 0.9618

pound 0.4841 up from 0.4832

yen 102.48 up from 102.20

Venezuela's Planning Min Sees No Need To Devalue Currency

CARACAS -(Dow Jones)- The Venezuelan government has no plans to devalue its currency, which is pegged to the dollar, the Planning Minister said according to a government press released published Thursday.

Haiman El-Troudi, the Planning Minister, said that "we're not considering changing the national exchange rate policy," in a speech addressing business leaders.

He stressed that the government will maintain the current peg to the dollar at the price of 2.15 bolivars. "Some people want to speculate that we will devalue. That's something that's not even being examined," he said.

The Planning Minister said that new measures announced by President Hugo Chavez last month will make it easier for importers to buy at the official rate by cutting red tape and speeding up their requests to the Cadivi currency commission, which is in charge of selling dollars at the official rate.

The government announced last month that requests to buy less than $50,000 at the VEB2.15 rate will be approved automatically, seeking to lighten the backlog of applications in Cadivi.

Companies and individuals that don't receive approval to buy dollars at the official rate have to turn to the black market, where they must currently pay a 60% premium.

Venezuela imposed capital controls in 2003 amid massive capital flights during an economic crisis.

Italy's Confindustria Head Says Worried By ECB Rate Hike

ROME (MF-Dow Jones)--The head of Confindustria, Italy's industry lobby, said Thursday's ECB rate hike could pose problems to growth and overall costs amid a general economic slowdown.

"We are worried about that," Emma Marcegaglia said on the sidelines of a parliamentary hearing in Rome, commenting on the ECB's decision to raise its key interest rate 25 basis points to 4.25%.

-By Gugliemo Valia, with MF-Dow Jones, and Giada Zampano Dow Jones Newswires, +39 02 5821 9907; giada.zampano@dowjones.com

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=YR4uBIqxai%2BnNiEwRngPJQ%3D%3D. You can use this link on the day this article is published and the following day.

ECB Weber: Rate Hike Should Support Consumption

FRANKFURT -(Dow Jones)- The decision to raise interest rates should support consumption, by ensuring that an erosion of euro-zone residents' purchasing power is prevented, European Central Bank council member Axel Weber said Thursday.

"High perceived inflation is one of the main effects hampering demand," Weber said, speaking in a video on the Web site of German television station ARD.

The decision to raise interest rates will "no doubt support consumption" by preventing the erosion of purchasing power, Weber added.

In addition, Weber said high temporary inflation isn't only being caused by high oil prices, but also by price increases in the services sector.

Weber said he expects the euro-zone inflation rate to remain around 4% throughout the summer.

Euro-zone inflation hit 4% in June, according to a flash estimate released Monday by Eurostat.

Weber is also president of the Deutsche Bundesbank.

-By Monica Houston-Waesch and Nina Koeppen, Dow Jones Newswires; +49 69 29 725 520; nikki.houston@dowjones.com

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=YR4uBIqxai%2BnNiEwRngPJQ%3D%3D. You can use this link on the day this article is published and the following day.

Trade, Oil & Food Prices Main Econ Issues At G8

Oil and food prices and a last-minute push to seal a Doha trade deal will be the top economic issues on the agenda at the Group of Eight leading nations summit in Japan next week, a U.K. government official said Thursday.

The first meeting of G8 officials Tuesday morning will focus on economic issues, including a discussion of the state of the global economy, including "financial markets, oil and food prices."

The G8 meetings with Brazil, Russia, India, China and Mexico Wednesday and with African nations Monday will be opportunities to push the Doha round, the official said.

On oil prices, talks are expected to focus on medium-term steps to improve perceptions about the mismatch between oil supply and demand, the official said. The U.K. government will also push for G8 backing for regular discussions between oil producers and consumers, such as last month's gathering in Jeddah.

"I think the discussion will be not around what can the G8 do to bring down oil prices tomorrow...but around how we change perceptions of (future) supply and demand," the official said.

On trade, the official said the G8 meeting comes at a "fortuitous time" - days before scheduled World Trade Organization ministerial talks July 21.

The official said if a deal isn't wrapped up in the days following this month's meetings, an accord "is unlikely to be done for a few years."

"The G8 therefore has a real chance...to really create momentum in the run-up to that trade meeting. And given that there's quite a lot of political differences - even though the substantial differences are pretty small - actually the G8 could be crucial on that."

The official said in addition to an already announced meeting with Russian President Dmitry Medvedev, Brown is also likely to hold informal talks with Japanese Prime Minister Yasuo Fukuda, French President Nicolas Sarkozy and Australian Prime Minister Kevin Rudd who will be attending the G8 outreach meetings Wednesday.

The official wouldn't comment on whether currency issues would be discussed, but said the G8 is expected to make a statement on the political situation in Zimbabwe.

The G8 includes the U.K., the U.S., Canada, Italy, France, Germany, Russia and Japan.

-By Laurence Norman, Dow Jones Newswires; 44-207-842-9270; laurence.norman@dowjones.com

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=YR4uBIqxai%2BnNiEwRngPJQ%3D%3D. You can use this link on the day this article is published and the following day.

CORRECT: US Economic Growth 1.0% In 1Q, Not 0.6%

Thu, Jul 3 2008, 17:10 GMT

CORRECT: US Economic Growth 1.0% In 1Q, Not 0.6%

The U.S. economy grew 1.0% in the first quarter and economists say there is a risk of recession. The economic problems have spread out from the U.S., with the U.K. and euro-zone economies also showing increasing signs of strain.

(In the item "=In Europe, US Paulson Warns On Econ And Global Inflation" published at 1204 GMT, U.S. economic growth in the first quarter was misstated.)

PE Ratio and Forex

The price earnings ratio is the ratio of the market price per share to the earnings per share i.e.

PE = Market Price per share
Earning per share

The earnings per share (EPS) is basically considered on the basis of net profit for the last four quarters. This is popularly known as the trailing P/E. When the EPS is based on the expected earnings for the next few quarters, then what one gets is known as the forward P/E. There is also a third variation that takes the in-between path, where the EPS for the last two quarters and forward earnings for the next two quarters are taken into account.

How can one use the P/E ratio?

The P/E of a company tells us how much investors are willing to pay, based on the earnings of the company. For this reason, the P/E ratio is also known as the P/E multiple of the stock.
For example, a P/E ratio of 25 suggests that investors are willing to pay Rs 25 for every Re 1 of earnings that the company generates.
Investors look at the P/E ratio as future market expectations of a company’s growth prospects in terms of profitability. If the P/E of a company is on the higher side when compared to its industry averages, it means the market is expecting some positive events from the company as far as earnings are concerned. Other way of looking at higher PE is that companies market value is higher and hence expensive.
Take, for example, the media sector in India. It’s a fairly new industry and many companies are showing accumulated losses in their balance sheets. Yet, the industry has a P/E ratio of close to 40. This shows that investors are confident of the prospects for this industry.
But a P/E is always like a double-edged sword. On the one hand, it is a great tool for comparisons. On the other hand, it can have completely opposite implications. For example, skeptics feel that a P/E multiple of 40 for the media industry is certainly not justifiable because these companies are yet to perform and have a long way to go when we look at their balance sheets. A P/E of 40, when compared to the P/E of the Sensex, appears very high and can be considered over-valued.
In fact, this ratio is very high when we compare it with the capital goods industry, which has a phenomenal growth rate and has a P/E of 25-30. For a lot of investors, this is a signal to probably get out of this sector.

What are the other parameters that need to be considered when looking at the P/E ratio?

To make sense of the P/E ratio, we need to look at growth rates and industry performance. When it comes to growth rates, probably the most fundamental question that is asked in the market is how fast a particular sector has been growing in the past, and are these growth rates sustainable? If they are not sustainable and yet the industry has a very high P/E, then one needs to evaluate their investment risks. Because a P/E ratio is synonymous with the future growth of the company, most analysts feel that it should be calculated by considering the forward earnings, rather than those based on the past.

On the other hand, P/Es should ideally be compared with companies belonging to the same industry, as broad factors affecting these companies do not change. For example, comparing a software company with a commodity business will not make sense, as industry dynamics are different.

Can the P/E ratio be considered the one important tool to make your investment decisions?

Experts have always advised investors not to take investment decisions based only on P/E ratios. Stock prices are affected by multiple factors. One must consider the P/E as an important ratio. But there are always more things to an investment than its P/E multiple and forward earnings and in many cases it could also be insufficient.

5 Reasons to Trade Forex Instead of Stocks

While Forex trading is becoming more popular in the United States, the vast majority of investors still do not understand the massive advantages offered in the foreign currency market when compared to equities or fixed income trading. When you fully grasp the following concepts, you'll understand why you might want to reconsider your current investment strategies.
1. Currency prices are not heavily influenced by institutional investors. In stock trading, there is a limited amount of volume on a daily basis. Each stock has a specific number of shares on the open market and trade prices are governed by the number of people attempting to buy or sell shares at a specific point in time. This makes the market vulnerable to price swings when a large investor is attempting to buy up or unload large amounts of shares.
For example, if some pension fund owns 10% of a company and suddenly decides to liquidate their position, the market is now flooded with sell orders. Since the amount of shares attempting to be sold will outnumber the amount of buy orders, the price of the stock will start to drop as the number of buyers days up. This creates losses for the remaining shareholders. On the other hand, the forex market is so massive and has so many investors that no single investor can possibly have a major impact on pricing. There are too many units of Euros, Dollars, Yen, etc for any single institution to hold even close to a controlling interest in any currency.

2. Margin requirements are significantly lower in forex trading than equity trading. While the exact amount of margin allowed is determined by each broker, the restrictions are usually much less stringent when trading forex. Margin allows the investor to "play with house money." In essence, you're borrowing money from the broker to invest in your own account. While this can be risky, it can also be insanely profitable. For example, let's say you have $10,000 of your own money to invest. If you open up a margin account at an equity broker, you can usually margin up to 50% of the value of stock. So if you buy $10,000 in Microsoft stock, you can borrow another $5,000 to own a total of $15,000 in value. With your forex account, the margin requirement is often as low as 1%. Which means that if you buy $10,000 in Euros, you can use your broker's money to buy another $1,000,000. So you now own over $1 million in Euros. Now lets say that the value of each investment increases 10%. Your $15,000 in Microsoft stock is now worth $16,500. You sell it, pay back the $5,000 you borrowed, and you pocket $1,500 in profit (minus any fees or interest).
Your return on investment is 15%. If your Euros went up 10%, your $1 million is now worth $1.1 million. After selling and repaying your broker, you profit $100,000 before any interest. That's a return on investment of over 1,000%. Of course, you need to be extra careful when trading on margin. Imagine if the transaction went the other way. You'd be in a much bigger hole in the forex scenario. But the potential for enormous gain is there and is one of the major reasons why forex trading is so attractive to serious investors.

3. Forex trading is open 24 hours a day. Unlike the U.S. stock markets, you can trade forex any time of day from Monday through Friday. If a major news story breaks when you're holding stock, and it's after hours, you're stuck holding onto your position until the market opens the next day. By the time this happens, everyone else knows the news and there's thousands of buy/sell orders waiting when the opening bell rings. This will dramatically influence your trade price and negate any advantage you might have had by being one of the first to react. Keep in mind that many corporations withhold major news such as earnings reports and personnel moves until after the market closes. They do this to minimize emotional trading, which is smart for them to do but also hurts savvy investors. Since Forex trading is open 24 hours, you can place your trade order whenever major events occur.

4. The foreign exchange market is more liquid than the equity market. Forex is the largest market in the world. Every day, an average of $1.4 trillion dollars is traded, and the amount of securities (foreign currencies) is minuscule when compared to the number of companies traded in the equities market. This means that there are always buyers to be matched with sellers, which means that you'll have a much better chance to get a fair and accurate price on your trade than if you were trading a low volume stock where the bid and ask spreads can be very large.

5. Forex trading offers the advantage of limited risk. This is one of the large advantages over the futures market. When you buy a futures contract, you are obligated to buy or sell a specific amount of a specific commodity at a specific time for a specific price. Which means that if disaster hits, you're out of luck. For example, lets say you buy a futures contract to sell corn. If news breaks that reports an outbreak of deaths caused by a pesticide used in corn crops, the price on your contracts will drop through the floor, limits will drop, and you could be stuck in your position and end up taking massive losses. This would not happen in the forex market since you can leave your position at any time.

Taking Stock of life!

The mind gloats on the news of a booming Sensex and Nifty. The media serves us everyday with thrilling reports of how much investors gained or lost in the stock market.
I have never understood how the stock market really works so I do not pay much attention to it. Nor does it seems to matter to media that only about two per cent of India's Population actually indulge in stock market.
Hearing the news of bullish and bearish markets sometimes to the point of boredom, my attention the other day was drawn to a simple parable that Jesus once recounted to his listeners(Luke 12:16-21);"The ground of a certain rich man yielded plentifully. And he thought within himself, saying, What shall I do, since I have no room to store my crops?"
So he said, 'I will do this:I will pull down my barns and buld greater; and there I will store all my crops and my goods. And I will say to my soul, 'Soul, you have many goods laid up for many years; take your ease; eat, drink, and be marry.'
But God said to him, 'You fool! This night of your soul will be required of you; then whose will those things be which you have provided?' So is he who lays up treasure for himself, is not rich toward God." One often hears people say , "What are we going to take with us when we die? Everything will be left here". But rarely do those words make a deep impact on our life and behaviour.
Mark in his gospel quotes Jesus: "Children, how hard, it is for those who trust in riches to enter the kingdom of God! It is easier for camel to go through the eye of a needle than for a rich man to enter the Kindom of God (Mark 10:24-25)".
And that is why Mahtama Gandhi once said, "There is enough in the world for everyone's need but not for every one's greed".

Life Insurance Investment

Life insurance induces negative thoughts and emotions in a number of people's minds. Such people may have had terrible experiences with greedy sales representatives or perhaps do not understand the concept. Life insurance is really a useful social and economic tool that ensures that the unfortunate few can be supported by the fortunate many. Sometimes even those with misgivings about life insurance spend too much on it. The reason is that they always look to receive returns from the plan while they are alive. That seems reasonable, but if life insurance is purchased without reference to other elements of the financial pyramid, the investment would not possess the value that it should have.

Life insurance needs are calculated using three main variables; final expenses, the first year shortfall and the income replacement fund. Final expenses include all the bills that must be paid immediately upon the death of a person. These include doctor's bills, estate fees and creditors.

The first year shortfall denotes the drop in household income that occurs within the first year of the insured's death. The income replacement fund is an accumulated fund that substitutes the income earned by the insured. It embodies the principle of money working for you. Suppose you earn $8,000.00 per month. If you received $1,000,000.00 working at an interest rate of 8%, you'd receive your previous income as interest. That is the principle behind the income replacement fund. If you have coverage in place already, the coverage available is subtracted from the coverage needed. The calculation is represented in the following equation:

Life insurance need = (Final expenses + First year shortfall + Income Replacement Fund)- Coverage available.

INVESTMENT STRATEGY: A checklist for investing in global funds

Global fund NFOs (new fund offers) are the latest trend in the mutual fund industry and are fast catching the investor’s fancy. Several fund houses have already launched their global fund offerings; we understand that there are many more in the pipeline. As the name suggests, global funds invest in global stocks and/or mutual funds (that in turn invest in global markets). So what do global funds offer to investors?
Investing in global funds can also prove advantageous if you have a future liability in that currency/country. For instance, if you plan to send your child to the US for higher studies, investing in an US fund can be an option for you. By doing so you would have done away with the currency risk (explained later in this note).

We present a checklist that will help you evaluate global funds and make an informed investment decision.
1. Factoring the expenses
Investors in mutual funds incur expenses at two levels.
The first is a one-time expense (in the form of an entry/exit load) and the other is the recurring expense related to fund management expenses, market and sales expenses, administration expenses to cite a few. The recurring expenses are incurred by the mutual fund, but passed on to the investor. If you never realised this fact, it is because the daily NAV (net asset value) that is declared factors in the expenses.
It is equally important to evaluate a global fund from the ‘expense’ perspective. This is more so since many of the global funds that are being launched have opted for the FoF (fund of funds) route as opposed to direct investments in global markets. While FoFs add the diversification edge to your portfolio, this comes at a cost. FoFs have a double-layered expense structure. So all expenses (one-time as well as recurring) are incurred twice in an FoF; first for the FoF itself and second for the underlying scheme. Although the underlying schemes often waive off the entry load, there is still the matter of the FoF’s recurring expense. While calculating the FoF’s expense ensure that you add both the recurring expenses (FoF’s plus that of the underlying funds) and both the loads (FoF’s plus that of the underlying funds, if any).
The reason why investors have to be very concerned about the expenses incurred by their mutual fund investments is because over a period of time, higher expenses can and will erode returns significantly.

2. Don’t ignore Currency risk one of the more vital factors associated with global investing. Let’s understand this risk with the help of an illustration. Suppose you invest Rs 4,000 in a US$ fund. The Rs 4,000 will be converted into US$ 100 (approximating, for convenience). This US$ 100 is then invested over a one year period; now assume you earned 10% return i.e. the value of your investment is now US$ 110. But what is the value in terms of Indian Rupees? Let’s again assume, that the India Rupee actually appreciates vis-à-vis the US Dollar and touches Rs 36 per US Dollar in a year. So, effectively, the US$ 110 translates to Rs 3,960! So, even though in US Dollar terms you earned 10%, in Indian Rupee terms you actually lost 1%! But this is just a hypothetical example to illustrate currency risk. The situation could reverse and your gains could actually be magnified. In our view, investors can take on this risk under certain circumstances; for instance if you plan to send your child abroad for higher studies, then you can consider investing in a global fund domiciled in the country where your child will be studying.

3. Then there is country/market segment risk Another type of risk related to the currency risk is the country/market segment risk. There is no doubt that by investing in global funds, investors get an opportunity to diversify their portfolio across countries, but the same also amounts to taking on country/market segment risk. For instance, if a global fund invests in a particular country (say the US) or a market segment (emerging markets), then its investors are exposed to the negatives and positives of that economy (over here the US) or that market segment (over here emerging markets). In our view, it is best to select a well-managed fund that can invest across global markets. That would be diversification at its best. Such a fund would give its fund management team the much-needed flexibility while deciding where to invest.

4. Check the track record of the underlying investments Through global funds Indian investors are venturing into an investment universe to which they have had little or no exposure. Investing in an avenue without adequate information enhances the risk level of that investment considerably. Hence, it is advisable for investors to check the track record of the underlying investments of global funds (particularly in a FoF global fund), before investing in them.

At Personalfn, we are presently not capacitated to give a view on the underlying investments; hence we recommend that investors evaluate the underlying investments based on a rating wherever available

5. Ensure that you have an adequate investment time frame We believe that investments in equities and related assets should be made with at least a 3-5 Yr investment time frame. In an open-ended global fund this should not be a problem because you stay invested for as long as required. But in a close-ended global fund you should consider funds that have an investment tenure of a minimum of 3-Yrs (preferably more than 3-Yrs) and if it is lower than that, then it is best to avoid such funds. For equity investments, longer the tenure, the better it is in our view.

6. Is it diversified adequately and appropriately? Investors are meant to get the benefit of diversification by investing in global funds; hence it is surprising when global funds deprive investors of this benefit. Many of the global funds that have been launched (and are going to be launched) are investing predominantly in emerging markets, which to an Indian investor is not particularly exciting because India by itself is an important emerging market. So by being invested in domestic markets, the Indian investor already has a flavour of emerging markets. Ideally, he wants to diversify by investing in other markets (like developed markets for instance) that behave differently vis-à-vis emerging markets. So go for global funds that invest across market segments.

7. Ensure that Your Portfolio is in place We welcome the move to launch global funds and believe that investors must make the most of this opportunity by investing in them to diversify their portfolios (and in this way de-risk them). However, first they must ensure they have an portfolio consisting of well-managed funds with established track records and investment processes. Only then must they invest in global funds. Put simply, global funds must not be considered as a stand-alone investment, rather they must form part of a portfolio.

8. How much to invest in global funds? Since global funds must be considered primarily for the purpose of diversification and asset allocation, they should not form a large chunk of your portfolio. Typically, such funds should account for a smaller portion of your portfolio (typically less than 10%); the precise allocation can be assessed only after discussing the same with your financial planner.

9. Don’t rush into investing in global funds Like with investments in domestic funds, investments in global funds need to be evaluated thoroughly after drawing comparisons with comparable offerings. So avoid the urge to rush into investing in a global fund for whatever reasons (media hype, distributor’s persuasion). Evaluate a global fund across parameters (the investment proposition it offers, the fund’s investment processes, long-term track record across market phases, especially the downturns) by comparing it with other global funds of a similar nature. And keep in mind that many open-ended global mutual funds are likely to be launched in the next several months. So don’t just invest thinking you will otherwise be missing an opportunity. Invest only for the right reasons.

Bank Notes

Thursday, April 3, 2008

I have always been fascinated by currency, coins and notes; it is amazing how all countries are heading towards the same plastic based monetary notes which I dislike intensely as they do not fold and are not user friendly and can spring out of a trouser pocket easily. I was in China once and nobody would accept one of the plastic notes I was carrying because it had a small tear and everyone insisted that the plastic notes could not be torn which drove me insane. I have been to several note printing factories including the plastic note printing factory and the history is extremely interesting and so I thought that I would share a little knowledge with you now.
All currencies are units of exchange facilitating the transfer of goods and services; one form of money where money is anything that serves as a medium of exchange or a store and standard of value. Currency is the dominant medium of exchange, hence currency zone or region. In order to trade between currency zones there are exchange rates or prices at which currencies and the goods and services of individual currency zones are able to trade. Currencies can be classified both as floating currencies and or fixed currencies based on their respective exchange rate regime. Both coins and paper money are accepted forms of currency and not only paper notes as is often believed. In most cases every sovereign state has its own monopoly or control system in place to oversee the supply and production their own currency. An exception is the European Union Economic and Monetary Union whom have given control of monetary policy to the European Central Bank.

Where a country does not have control of its own currency the control is exercised either by a central bank or by a Ministry of Finance and in either case, the institution that has control of monetary policy is referred to as the monetary authority. Monetary authorities have varying degrees of autonomy from the governments that create them. In the United States it is the Federal Reserve System that operates without direct interference from the legislative or executive branches. It is important to note that a monetary authority is created and supported by its sponsoring government, so independence can be reduced or revoked by the legislative or executive authority that creates it. However, in practical terms, the revocation of authority is not likely. In almost all Western countries the monetary authority is largely independent from the government. All countries are linked by the Central Bank monetary system allowing countries to trade currency. Some countries will share the same currency and system of other countries such as the British pound or United States dollar.

The origin of currency is the creation of a circulating medium of exchange based on a unit of account which quickly becomes a store of value. Currency evolved from two basic innovation; the use of counters to assure that shipments arrived with the same goods that were shipped and later with the use of silver ingots to represent stored value in the form of grain. Both of these developments had occurred by 2000 BC and originally money was a form of receipting grain stored in temple granaries in ancient Egypt and Mesopotamia. This first stage of currency, where metals were used to represent stored value and symbols to represent commodities formed the basis of trade in this region for over 1500 years. However, the collapse of the Near Eastern trading system pointed to a flaw: in an era where there was no place that was safe to store value; the value of a circulating medium could only be as sound as the forces that defended that store Taxes were used to raise armies to defend these territories and were a heavy burden on the society but was the only way to insure trade could continue in a safe environment. However the late Bronze Age saw a series of international treaties established safe passage for merchants around the Eastern Mediterranean that reached from Minoan Crete and Mycenae in the North West to Elam and Bahrain in the South East. Although it is not known what functioned as a currency to facilitate these exchanges it is believed that ox hide shaped ingots of copper produced in Cyprus may have functioned as a currency.

The basics of charting

Of the many market sayings thrown around by traders, perhaps none is more overused and less understood than the old adage 'the trend is your friend'. All too often, the phrase is used after a trader has taken a counter-trend position and subsequently been stopped out at a loss. Remorse sets in at this point and most traders themselves not only for having lost on a counter-trend trade, but also for not having caught the latest move in the trend itself. To avoid this all too common scenario, we will suggest using several technical tools to identify whether or not a trend is in place and then use additional indicators to help maximize trading profits. Having a strategy in place to identify trends is essential to successful trading in any market, but especially so in the case of the forex markets. Currencies have a greater tendency to move in trending fashion due to the longer-term macroeconomic elements that drive exchange rates, such as interest rate cycles or global trade imbalances.

Currencies are also pre-disposed to short-term, intra-day trends due to international capital flows reacting in unison to day-to-day economic and political news.Identifying the TrendIn its most basic sense, a trend is simply a prolonged market movement in one general direction, either up or down. From a traders' perspective, though, that simple definition is so broad as to be relatively meaningless. A more relevant definition of a trend would be one where a trend is defined as a predictable price response at levels of support/resistance that change over time. For example, in an uptrend the defining feature is that prices rebound when they near support levels, ultimately establishing new highs. In a downtrend, the opposite is true-price increases will reverse as they near resistance levels, and new lows will be reached. This definition reveals the first of the tools used to identify whether a trend is in place or not-trendline analysis to establish support and resistance levels.

Trendline analysis is often underestimated because it is perceived as overly subjective and retrospective in nature. While both criticisms have some truth, they overlook the reality that trendlines help focus attention on the underlying price pattern, filtering out the noise of the market. For this reason, trendline analysis should be the first step in determining the existence of a trend. If trendline analysis does not reveal a discernible trend, it's probably because there isn't one.

Trendline analysis is best employed starting with longer timeframes (daily or weekly charts) first and then carrying them forward into shorter timeframes (hourly or 4-hourly) where shorter-term levels of support and resistance can then be identified. This approach has the advantage of highlighting the most significant levels of support/resistance first and less important levels next. This helps reduce the chances of following a short-term trendline break while a major long-term level is lurking nearby.

What factors drive currency prices?

How Interest Rate Increases Drive Currency Prices
A common way to think about U.S. interest rates is how much it's going to cost to borrow money, whether for our mortgages or how much we'll earn on our bond and money market investments. Currency traders think bigger. Interest rate policy is actually a key driver of currency prices and typically a strategy for new currency traders. Fundamentally, if a country raises its interest rates, the currency of that country will strengthen because the higher interest rates attract more foreign investors. When foreign investors invest in U.S. treasuries, they must sell their own currency and buy U.S. Dollars in order to purchase the bonds. If you believe U.S. interest rates will continue to rise, you could express that view by going long U.S. Dollars. If you believe that the Fed has finished raising rates for the time being, you could capitalize on that view by buying a currency with a higher interest rate, or at least the prospect of relatively higher rates. For example, U.S. rates may be higher than those of Euroland now but the prospect of higher rates in Euroland, albeit still lower than the U.S., may drive investors to purchase Euros.

How Rising Gold Prices Affect Currencies
It's not hard to understand why we've experienced a run-up in gold prices lately. In the US, we're dealing with the threat of inflation and a lot of geo-political tension. Historically, gold is a country-neutral alternative to the U.S. dollar. So given the inverse relationship between gold and the U.S. Dollar, currency traders can take advantage of volatility in gold prices in innovative ways. For example, if gold breaks an important price level, one would expect gold to move higher in coming periods. With this in mind, forex traders would look to sell dollars and buy Euros, for example, as a proxy for higher gold prices. Moreover, higher gold prices frequently have a positive impact on the currencies of major gold producers. For example, Australia is the world's third largest exporter of gold, and Canada is the world's third largest producer of gold. Therefore, if you believe the price of gold will continue to rise you could establish long positions in Australian Dollar or the Canadian Dollar - or even position to be long those currencies against other major countries like the UK or Japan.

Translating Rising Oil Prices to Currency Trading Opportunities
Equity investors already know that higher oil prices negatively impact the stock prices of companies that are highly dependent on oil such as airlines, since more expensive oil means higher expenses and lower profits for those companies. In much the same way, a country's dependency on oil determines how its currency will be impacted by a change in oil prices. The US's massive foreign dependence on oil makes the US dollar more sensitive to oil prices than other countries. Therefore, any sharp increase in oil prices is typically dollar-negative. If you believe the price of oil will continue to increase for the near term, you could express that viewpoint in the currency markets by once again favoring commodity-based economies like Australia and Canada or selling other energy-dependent countries like Japan. Technical Analysis 101 The vast majority of forex traders rely on charts to forecast price action.

What is a pip? What does it mean?

The smallest price change that a given exchange rate can make. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point - for most pairs this is the equivalent of 1/100th of one percent, or one basis point. In the Forex market, prices are quoted in pips. Pip stands for "percentage in point" and is the fourth decimal point, which is 1/100th of 1%. In EUR/USD, a 3 pip spread is quoted as 1.2500/1.2503Among the major currencies, the only exception to that rule is the Japanese yen. In USD/JPY, the quotation is only taken out to two decimal points (i.e. to 1/100 th of yen, as opposed to 1/1000th with other major currencies). In USD/JPY, a 3 pip spread is quoted as 114.05/114.08.

Forex Education

Why we trade Forex?

There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit

This daily volume is larger than the combined volume of all the world’s stock markets. The FOREX market is not centrally located. It is an over-the-counter market where buyers and sellers conduct business linked by telephones, computers, fax machines, and other means of instant communications.

If you're brand new to the Forex market, start here.
Firstly understanding forex quotes Reading a foreign exchange quote may seem a bit confusing at first.
However, it's really quite simple if you remember two things: 1) The first currency listed first is the base currency and 2) the value of the base currency is always 1.
The US dollar is the centerpiece of the Forex market and is normally considered the 'base' currency for quotes. In the "Majors", this includes USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of $1 USD per the second currency quoted in the pair.
For example, a quote of USD/JPY 110.01 means that one U.S. dollar is equal to 110.01 Japanese yen.

Learn the benefits of Forex

The currency trading (FOREX) market is the biggest and fastest growing market on earth. Its daily turnover is more than 2.5 trillion dollars. The participants in this market are banks, organizations, investors and private individuals, just like you.

FOREX.com equips you with actionable trader education. Try free local seminars, dynamic online webinars, plus exclusive market commentary and trading ideas, straight from our traders. It involves trading one nation’s currency for the currency of another nation. As individuals or companies from one country trade across borders, the need for foreign currency arises.

Retail Appeal of Forex Grows

Retail Appeal of Forex Grows

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

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?

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

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!

Barclays Introduces Carry Trade ETN

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.

USD: Worst Quarter in 4 Years

Thursday, April 10, 2008

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

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

Thursday, April 10, 2008

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."

Canadian Dollar Rate Cut

Canadian Dollar Rate Cut

The Canadian dollar strengthened against the US Dollar over the course of the week, despite a rate cut by the Bank of Canada, as interest rate differentials continue to benefit the Loonie. Indeed, the possible implications of a 25bp rate reduction to 4.00 percent - lowest level since April of 2006 - by the Canadian central bank was offset by an unexpected emergency 75bp rate cut by the Federal Reserve.

Nevertheless, there is potential for Canadian dollar weakness in the future judging by the policy statement that accompanied the BOC rate announcement. While the outlook for growth was still relatively upbeat, as the bank said it expected domestic demand to “remain strong,” the group lowered its outlook for growth in 2008, saying it was “significantly weaker” than its October projection given the negative impact of the rapid appreciation of the Canadian currency on export sector activity.

On the inflation front, the BOC forecasted core CPI to fall below 1.5 percent by mid-year - which appears entirely possible after the bank’s inflation measure surprisingly dipped to 1.5 percent in December – and with the BOC’s inflation target still well above at 2 percent – the statement said that further “stimulus” would likely be needed in the “near term.”

Looking ahead to this month, the fate of USD/CAD will likely depend more upon the status of the greenback given the major event risk looming in the US. Meanwhile, Canadian economic data may not prove to be extremely market-moving though they could contribute to Loonie weakness. The orders component of the Business Conditions index is anticipated to drop to a one year low of -6.5, as the combination of an economic slowdown in the US and a stronger Canadian currency prove to be a major hindrance for manufacturers.

Meanwhile, November GDP figures are forecasted to reflect tepid growth, though the Q4 GDP reports (which will not be released until early March) will be a far better gauge of the status of the Canadian economy. Regarding USD/CAD, according to Technical Strategist Jamie Saettele’s Daily Technical Report on Friday, “potential resistance is at 1.0128,” and a failure to break above this level may find the pair falling back below 1.0012. Nevertheless, traders should keep an eye on broad US Dollar trends, as they may dictate the next move for USD/CAD.

Swiss Franc Not Too Good on Economy Market

The Swiss Franc began the week significantly stronger against major currency counterparts, but a later reversal in the Dow Jones Industrial Average and other major equity indices forced a commensurate pullback in the risk-sensitive currency. Indeed, the tremendous tumbles in global stock markets sent the low-yielding CHF near record-highs against the US dollar and 13-month heights against the euro. Yet the Swissie turned on a dime when a surprise 75 basis point interest rate cut from the US Federal Reserve sent major risky asset classes significantly higher in its wake. Domestic economic developments took a backseat to the happenings in global financial markets, and we saw relatively little reaction to modestly disappointing inflation and retail sales figures.

According to the Swiss Federal Statistical Office, Producer and Import Prices unexpectedly fell through December on falling raw materials costs. Given forecasts of a 0.2 percent monthly gain, the result certainly proved disappointing to those that believe that higher import prices will drive the Swiss National Bank to raise rates through 2008. Yet one month does not make a trend, and markets will clearly wait until the release of later inflation numbers to shift forecasts on domestic yields. A subsequent Adjusted Retail Sales report likewise came below consensus forecasts, however, and consumption growth rates remained relatively low at 2.9 percent on a year-over-year basis. Though traders mostly ignored both retail sales and prices reports, it remains clear that continued disappointments in economic data could sink the recently high-flying European currency.

The coming week will help solidify Swiss interest rate forecasts, as closely followed KOF Leading Indicator and SVME PMI reports will provide a forward-looking peak at the robustness of the domestic economy. Current consensus forecasts show that analysts believe the KOF Leading Indicator will fall to 9-month lows through January hardly a bullish assessment on overall growth prospects. Subsequent SVME-PMI figures are forecast to show a similar deceleration in overall expansion; an in-line result would leave the figure at its lowest levels since September. It will be important to watch developments in both KOF and SVME reports, and any significant disappointments would only further temper bullishness for the domestic currency.

Yet Swissie price action will likewise depend on developments in broader financial markets. Given the low-yielders strongly negative correlation with major risky asset classes, any further Dow Jones Industrials rebound could sink the CHF against higher-yielding counterparts. Of course, the opposite is likewise true; a strongly negative week for the Dow and other stock markets could leave the Franc at significant heights against the euro and other risk-sensitive currencies.