Risk-Aversion Buoys JPY, BoC Awaited

Risk-aversion continued to dictate market direction, with the Japanese yen touching a fresh 15-year high against the dollar while most of the major currencies tumbled against the greenback. The Canadian dollar slid by 1.2% and the euro dropped by more than 1.5%. The US equity bourses slid after returning from the long-weekend, with the major indexes shedding more than 1%. Meanwhile, safe-haven flows propped spot gold it’s a new record higher to settle around $1,257.30 per ounce while crude oil drifted lower to dip beneath the $73-per barrel mark.

Central bank policy decisions will be the key event risks in the week ahead. The Reserve Bank of Australia announced the results of its policy deliberation, leaving interest rates on hold at 4.5%. The accompanying policy statement was largely unchanged from the August statement, widely seen as more dovish and indicative the RBA leaving rates on hold for the rest of the year.

The Bank of Canada is scheduled to announce its monetary policy decision at 9:00 AM EDT, with consensus forecasts calling for a 25-basis point rate hike to 1.0%. Traders will closely scrutinize the accompany statement from the BoC. In light of the sharp pullback in second quarter GDP growth, which revealed the pace of economic growth slowing to 2.0% and down drastically from first quarter growth of 5.8%, it will be interesting to see whether the Bank will downwardly revise its growth outlook again following the downgrades from the policy statement issued in July. Given market expectations leaning toward a rate hike tomorrow, the risk stands with an unchanged BoC decision and a signal that interest rates will remain on hold in the near future as a result of the pullback in economic activity. If that scenario was to materialize, the reaction in the currency market will likely prompt a knee-jerk sell-off in the Loonie to breach the 1.0550-mark.

Earning Big From Forex Business

Forex market is of great interest for the people that are interested in making huge money and that is too in a quick way. However the only problem comes there when they get to know that in order to earn really big they would need to learn the right practices of the business, and they feel like loosing interest in whole business.

Why it is important to learn about the business

The fact is that it is not just in forex, every business that has wide potential for people earning need to be understood and practiced in right and desirable way. If you are interested in making money through forex market, there is good news that you can get to know and understand the business practices in the forex world in rather an easy way.

The forex business is all about trading money. The investor buys different currencies and sells them later on when he sees or expects any profit in doing so. The business is quite easy to learn and practice and for getting rid of the hesitation, the brokers offer one to open and do the business through the demo accounts. Once an investor is used to with the process of making money with the help of demo accounts, he or she can switch on to a live forex account.

What is recommended to be done

If you are interested in making big, you must focus upon learning the details of forex market and the forex business practices. The business rules and practices are rather simple and you do need to be a business student for learning it. The only thing you need to do is to focus and keep in touch with all kinds of news that emanate from the market. If you are fed up of the 9 to 5 job schedules, the forex business is something you need to ponder upon rather seriously.

FOREX BLOG MONEY : “U.S. Dollar’s Days are Numbered as Reserve Currency”

FOREX BLOG MONEY : “U.S. Dollar’s Days are Numbered as Reserve Currency”

Over the next two days, world leaders gathered at the G20 summit in Pittsburgh will attempt to address the issue of the persistent global imbalances that have been cited as a long-term cause of the recent economic downturn. Integral to this debate has been the long-standing issue of the US dollar’s hegemonic status as the world’s reserve currency – IMF data shows that nearly 65 per cent of allocated foreign exchange reserves were held in dollars in the first quarter of 2009.

The dollar’s reserve currency status allowed the US government to build up its current account deficit from just $11bn back in 1998 to as much as $60bn a decade later without being under the same compulsion as other countries to undertake the necessary macroeconomic or exchange-rate adjustments to bring their deficit back under control.

The dollar’s hegemony has come under fire from a number of quarters over the past year, most notably from the Chinese – themselves holding $2 trillion in FX reserves as of June 2009. Ahead of the G20 summit held in London last spring, Zhou Xiaochuan, China’s central bank governor, said the desirable goal of the international monetary system is to “create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

The Chinese have pointed towards using the International Monetary Fund (IMF) Special Drawing Rights (SDRs) as an alternative world reserve currency to the US dollar. SDRs were created back in 1969 as a means of supporting the Bretton Woods fixed exchange rate system.

The value of an SDR is based on a basket of four key international currencies – the dollar, the euro, the yen and the pound – which can be exchanged for freely usable currencies. The third ever allocation of SDRs was approved on 7 August for SDR 161.2bn – currently equivalent to about $317bn – and which took place on 28 August to pump more liquidity into the global monetary system.

Furthermore, the United Nations Conference on Trade and Development (UNCTAD) called earlier this month for a new currency to be established to protect emerging markets from the “confidence game” of financial speculation.

But while China might be calling for a greater use of SDRs, Nouriel Roubini, professor of economics at the Stern School of Business at New York University (and the man named Doctor Death for his gloomy pronouncements before the financial crisis), says that the Chinese government is paving the way for the yuan’s ascendance. He goes further, arguing that China is in fact better placed than the US to provide a reserve currency for the 21st century thanks to its large current account surplus, focused government and the fact that it lacks many of the economic worries that have plagued the US.

Even the US Treasury’s economic and financial emissary to China, David Dollar, has argued in the past month that it makes sense for China to diversify its huge stockpile of foreign exchange reserves, saying that it is healthy to have a wide and different type of reserve currencies.

While some diversification into euros and sterling has occurred over the past 10 years, the US dollar has lost very little ground. Back in 1999, countries held 71 per cent of their allocated foreign exchange reserves in dollars, and just 18 per cent of reserves in euros. Today, 26 per cent of allocated FX reserves are in euros.

But while many are calling for an end to the dollar’s supremacy and for countries, especially in emerging markets, how likely is it that the dollar will be replaced a global reserve currency?

REPLACEMENT

Mark O’Sullivan, director at Currencies Direct, says that while it would be ideal to find a replacement for the US dollar, he can’t see what it would be. “At the end of the day 65 per cent of the world’s commodities are still priced in dollars and until you change that dynamic, you won’t see an end to the US dollar’s reserve status,” he says. Furthermore, the vast majority of international contracts and invoices between multinational companies are priced and accounted in dollars. A change to the dollar’s status would require an eventual change to this practice.

O’Sullivan says that in order to see a shift in the dollar’s status, the Chinese need to come to the table and make the yuan fully convertible. The Chinese might have been complaining that the dollar is too powerful, but they need to allow central banks to hold the yuan in reserves.

But while the Chinese might be hoping to diversify their foreign exchange reserves, it is going to have to be done very slowly indeed. As Richard Turner, FX sales dealer at spread betting firm IG Index points out, given that the Chinese have a trillion dollars worth of US dollars, they aren’t going to want to drive down the value of their reserves by selling large amounts of dollar-denominated assets.

Even if the yuan could not become a world reserve currency, it is sometimes suggested that it could take that role in Asia, especially among countries which trade with China. Other regions could also follow suit: the Economic Community of West African States plans a common currency, although plans were recently put back until 2015.

The euro is the obvious choice for EU countries, while the rouble could do the same job for Eastern Europe. In a world with many economic powerhouses, it might make sense for there to be a number of different reserve currencies. For now, the dollar is still top dog, but radical changes could be afoot.

How You Make Money in Forex

In the forex market, you buy or sell currencies.

Placing a trade in the foreign exchange market is simple: the mechanics of a trade are very similar to those found in other markets (like the stock market), so if you have any experience in trading, you should be able to pick it up pretty quickly.

The object of forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.

Example:

Trader's Action	EUR	USD
You purchase 10,000 euros at the EUR/USD exchange rate of 1.1800	+10,000	-11,800
Two weeks later, you exchange your 10,000 euros back into U.S. dollar at the exchange rate of 1.2500	-10,000	+12,500**
You earn a profit of $700	0	+700

*EUR 10,000 x 1.18 = US $11,800

** EUR 10,000 x 1.25 = US $12,500

An exchange rate is simply the ratio of one currency valued against another currency. For example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.

How to Read a Forex Quote

Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in pairs is because in every foreign exchange transaction, you are simultaneously buying one currency and selling another. Here is an example of a foreign exchange rate for the British pound versus the U.S. dollar:

The first listed currency to the left of the slash ("/") is known as the base currency (in this example, the British pound), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar).

When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.51258 U.S. dollars to buy 1 British pound.

When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency. In the example above, you will receive 1.51258 U.S. dollars when you sell 1 British pound.

The base currency is the "basis" for the buy or the sell. If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency. In caveman talk, "buy EUR, sell USD."

You would buy the pair if you believe the base currency will appreciate (gain value) relative to the quote currency. You would sell the pair if you think the base currency will depreciate (lose value) relative to the quote currency.

Want to Make Money Online from Home? Try Forex Trading

More and more people want to make money online from home these days. Having no commute is so convenient. Having no boss is even better. You are not tied to regular hours and you can be at home with the family. Plus of course in the current economic climate it is harder and harder to find a good job. All of this makes the idea of making money on the internet very attractive.

Learning forex currency trading is one way of earning money online that a person can do from the comfort of his or her own home. Some of us start in our spare time while holding down a full time job, others may be retired, unemployed or disabled. We soon get hooked and want to make this our full time career.

We all start out with big dreams and while these may come true for a few people, we must face the facts. The truth is that the majority of traders starting out will lose money with online currency trading. Why is this, and how can we avoid falling into this unlucky crowd?

One problem with forex trading is that many people approach it as if it were a game. They have a gambling mindset. They may open and close trades almost as if they were playing roulette, hoping to be lucky this time.

This type of trader has become more and more prevalent in the last few years since online casinos were outlawed in the USA. People who got a kick from risking (and probably losing) their money had to find a new way to do it, and many of them came into the forex market.

But forex trading is not a game of chance. There may be some similarities in the way that you view gains and losses but exchanging currency is still a form of investing, even if you are trading on the probability of a rise or fall in the interest rates. There are skills to be learned, techniques and tactics, systems that are profitable and some that are not.

In fact the most important thing to remember when you are starting out as a forex trader is that you must completely get rid of the idea of relying on luck and intuition. Stop using words like ‘playing’ when you are talking or thinking about making a trade.

Instead, concentrate on finding a reliable system and understanding the market thoroughly before you jump in. I know you probably do not want to hear this but you do have to spend some time on your forex exchange training if you want to make money online from home with forex trading.

Forex Trading Volume Forecast for 2011

If LeapRate has anything to say about the forex scene in 2011, it's that traders could face lower forex trading volumes in the year ahead. LeapRate, for those of you who don't know, is an independent research and advisory firm that provides ratings for online trading and brokerages all around the world.

Basic understanding of market liquidity tells us that lower trading volume goes hand in hand with lower liquidity, which in turn, often results in a higher degree of volatility. Why is that? Well when trading volume and liquidity are low, it's more difficult to buy and sell currencies without causing big price movements.

According to LeapRate, one factor that could cause forex trading volume to shrink is stricter market regulations. Recall that the CFTC capped leverage at a maximum of 50:1 and, at the same time, imposed a requirement to close offsetting positions to avoid hedging. Regulatory agencies all over the globe, particularly in Japan and Canada, are following suit and are becoming more iron-fisted in implementing their rules.

Aside from that, LeapRate predicts that the forex market will reach its saturation point as an effect of persistent advertising by online forex brokers. They also mentioned that the decreased volatility witnessed recently could discourage new traders from entering the scene. After all, who wants to trade in a market that's barely moving?

But in this Ninja's humble opinion, I don't believe that we will see a significant decrease in trading volume in 2011.

While some regulations such as leverage limits may discourage small retail traders, let's remember that retail traders only make a tiny percentage of total market players. Multinational companies and hedge funds play a larger role in driving market liquidity and will most likely continue to do so. Besides, these regulations exist mostly in the U.S., and traders will always have the option to jump across to offshore accounts.

And while volatility seemed to taper off despite the ongoing debt crisis, there always exists the possibility of a "black swan" event that could rock the markets. After the recent consolidation, a strong trend could once again trigger large swings in volatility.

Lastly, forex brokers are becoming more and more creative with their marketing strategies in order to gain new business. Some have sponsored sports teams (what up Aston Villa!), while there are those that continuously offer trading contests. Others, like FXCM, are opening offices across the world, in order to provide more services and reach out to a broader range of clients.

All in all, 2011 should be yet another banner year for the forex market. Be sure to sign up for our email updates, RSS feeds, Twitter, or check out our Facebook page by clicking on the buttons up top to stay in tune with the new developments cooking!

Forex Trading - How To Make Money In 2011

I've been lucky enough to make some very nice profits from forex trading in 2010, but you can never be completely confident in your own abilities because market conditions can quickly change. So how can you make some consistent profits in 2011?

Well first of all if you're a day trader or an early morning trader, for instance, you should be aware of the average daily trading range for each of the major currency pairs. In the last few months many of the leading pairs have seen their averages fall quite considerably, as indicated by the Average True Range indicator.

So therefore if this trend continues into 2011 and we see a relatively small trading range each day, you have to take this into consideration. There is no point targeting big points gains that are well in excess of the latest ATR figure.

To give you an example, the average true range of the GBP/USD pair is currently 135 points at the time of writing (December 29th 2010). So if you are like me and enjoy trading early morning breakouts, you would have to be cautious about trading any breakouts early in the day if the overnight trading range is already in excess of 100 points, for instance.

However if the range so far is just 30 or 40 points and a breakout occurs when the London market opens, then there is much more room for the price to move strongly in the same direction for the rest of the day. This is in stark contrast to earlier in the year when the trading range was in excess of 200 points and you could be a lot more confident about the price continuing to move in the desired direction.

Another way to make money in 2011 is by concentrating on longer term trades. A lot of people focus on trying to make quick profits, but as I've already pointed out, the trading ranges are quite small at the moment for the major pairs and this could continue into next year.

You are much better off trading the 4 hour and daily charts. My main forex trading system uses the daily chart for highlighting the overall trend, and the 4 hour chart for pinpointing entry and exit points. This has worked very well for several years now, and there is no reason why this shouldn't continue to be profitable in 2011.

The major pairs will always conform very well to technical analysis on these longer time frames, and overall it is a lot easier to make money. You simply need to come up with a straight-forward trading system that is able to detect one or two high probability trading opportunities every week.

The point is that if previous years are anything to go by, there should be plenty of opportunities to make money from forex trading in 2011. This is particularly true if you lengthen your time frames and trade the longer term charts. However it is still possible to make money from short-term trading as well despite the narrow trading ranges. You just need to find the right trading method.

easy-forex 2011 forex forecast

As we roll into the new year we expect a continuation of positive fundamental data from the US, indicating a stable and sustainable US economic recovery. We believe the US dollar will strengthen tremendously on safe haven demand as the eurozone battles with sovereign default risks, aggressive austerity measures and uncertain European solidarity. Risk aversion spurred by eurozone problems will feed into the price of gold, the US dollar (USD) and the Swiss franc (CHF).

We estimate that gold will trade by the end of Q2 in a range of $1550 – $1650 as global risk aversion remains elevated and the dollar/yen (USD/JPY) will trade around a 93 – 97 range. Although the Japanese yen is traditionally expected to strengthen during global risk aversion we expect the Bank of Japan to openly intervene at the 80 levels and that the size of the Japanese deficit will cast a shadow on the yen’s safe haven status.

Our Euro/dollar (EUR/USD) expectation by the end of Q2 is to trade between 1.20 – 1.25. The Swiss franc strength will mostly be expressed through short EUR/CHF trades and we expect the pair to trade to new all-time lows between 1.23 – 1.28.

Q3, Q4

As we move into Q3 and Q4 of 2011 we believe that China’s economy will overheat and result in aggressive interest and reserve ratio tightening cycles. This will eventually lead to a Chinese revaluation of the yuan, which should improve China’s relationship with the US, help rebalance global trade and combat local Chinese inflation.

We believe that Japan will benefit if China revalues as global rebalancing will allow Japanese exports to become more competitive. Higher Japanese corporate profit margins and large unsustainable budget deficits will result in Japanese corporations looking for higher returns in US higher-yielding assets. The US dollar is also likely to strengthen on the back of Chinese yuan revaluation as the global rebalancing trends start to materialise.

In the US we expect GDP growth to pick up at 3% and 4% for Q3 and Q4 respectively with inflation remaining at or below the 2% mark. We also expect a pickup in US employment. Q3 we believe will see the start of the debate for the Federal Reserve Bank to unwind its extraordinary monetary policy and by the end of Q4 we feel that the markets would have fully priced in a Fed exit strategy from its loose monetary policy. This will add further strength to the greenback.

In Europe we believe the focus on the sovereign debt markets will intensify. The fundamental structure of the European Union and the common currency will be questioned as European leaders are unlikely to act unilaterally. We believe that the eurozone will continue with its piecemeal approach to solving individual country issues. This will pressurise the euro as investors will continue to worry about potential defaults by member countries in the future. We feel that such an approach will heighten the risk of an EU breakup as leaders fail to meet eye to eye and economic policies diverge. Furthermore we expect that Greece, Spain and Portugal will not meet their deficit reduction targets. This may result in a vicious debt spiral for peripheral Europe where any savings made from austerity measures will be paid in higher interest rates demanded by the bond markets. Europe will be faced with high unemployment and weak economic growth which should persist well into the year end.

As a result, the euro will be the great loser against most major pairs. By the end of Q4 we expect the EUR/USD to trade near parity between 1.00 – 1.05, the EUR/CHF to trade between 1.05 – 1.10, the GBP/USD between 1.30 – 1.35 and the USD/JPY to trade between 105 – 110. Gold should make an attempt for the $1900 level and trade between $1800 and $1900 by year end.

Country perspective: United Kingdom

In the UK, we believe that the combination of a higher VAT rate on consumer goods, tighter fiscal policy on businesses and a eurozone slowdown will have a negative impact on consumer and business confidence into 2011. We believe that the Bank of England will have no other choice but to stimulate growth through more quantitative easing into Q3 and Q4.

Despite higher inflation, the labour market still remains under pressure. This will restrict the Central Bank’s monetary policy in terms of interest rates and justifying another round of gilt purchases. The combination of the above coupled with a strong US recovery will keep GBP/USD under pressure. In 2011 we estimate the GBP/USD pair to retest 2009 lows at 1.30 – 1.35.

Country perspective: Australia

The Australian economy was one of the few major economies that narrowly missed a recession during the financial crisis of 2008 and 2009. It was also one of the first countries to start creating jobs following the crisis and the first major economy to aggressively hike interest rates to 4.75% following the crisis so as to prevent price pressures.

Australia is a major commodities exporter and has benefited greatly from China’s double digit growth and demand for recourses. We expect Australia will continue to benefit from China’s huge appetite for commodities and drive growth to 3-4% in 2011. We believe that there is a large possibility of a Chinese yuan revaluation which we feel will slightly dampen the demand for Australian commodities. Australia is also embarking on a self prescribed fiscal consolidation plan over the next few years.

Given both these factors we feel that the current level of interest rates in Australia will remain on hold for 2011. We believe the Australian dollar/US dollar (AUD/USD) is actually trading at its high and will consolidate in a trading range between 1.01 – 0.91 into 2011.

Country perspective: South Africa

South Africa achieved real GDP growth of 3.3% in 2010 as it received a boost from strong commodity and precious metal demand, a successful FIFA World Cup and loose US and EU monetary policy investing in higher yielding currencies such as the South African rand (ZAR).

Despite strong growth, South Africa is still suffering from high unemployment and elevated household debt which will undoubtedly dampen domestic demand in the coming year. We expect June year-on-year 2011 growth to be 4.5% as inventory restocking picks up. We then see growth moderating by year end to 3.5% as inventories stabilise. We expect interest rates to be hiked no more than 75 basis points, attracting more foreign capital flows looking for attractive yields and supporting the rand. We also expect an increase in overall private investments both foreign and local while government spending will be constrained. Overall for the South African rand/US dollar pair (ZAR/USD) we foresee trading between 6.2 and 6.4 by June 2011 and 6.9 – 7.1 by year end. The euro/rand pair (EUR/ZAR) is expected to trade between 8.6 – 8.7 by June 2011 and between 8 – 8.2 by year-end.

Expected trading ranges for 2011

	End of 2nd Quarter (2011)	End of 4th Quarter (2011)
EURUSD	1.2000 – 1.2500	1.0000 – 1.0500
USDJPY	93.00 – 97.00	100.00 – 105.00
EURCHF	1.2300 – 1.2800	1.0500 – 1.1000
XAUUSD	$1550 – $1652	$1800 – $1902
AUDUSD	1.0100 – 0.9100	1.0100 – 0.9100
USDZAR	6.2000 – 6.4000	6.9000 – 7.1000
EURZAR	8.6000 – 8.7000	8.0000 – 8.2000
GBPUSD	1.4200 – 1.3700	1.3500 – 1.3000
GBPZAR	10.0000 – 9.5000	8.5000 – 8.0000
AUDZAR	6.4000 – 6.3500	6.10000 – 6.0500