Every currency traded in Forex is influenced by the conditions in its country of origin, and the external relations that affect its value. Economic Indicators (GDP growth, import/export trade accounts), social factors (unemployment rate, real estate market conditions) and the country’s central bank policy are the factors that determine the currency value in the Forex market. Each one of the six major currencies has its particularities, and we are going to analyze the fundamentals that drive the currencies individually.
The U.S. dollar (USD) is the most traded currency in the Forex market. It is also used as a measure to evaluate other currencies and commodities. The reserves in USD are by far the largest being held by different nations, and they compose 64% of the world reserves. Globally speaking, the fundamentals that drive the U. S. Dollar are several. Since the largest amount of metallic commodities and the oil are mostly traded with prices in USD, significant demand variations in these markets will reflect directly on the currency value, as it happened in 2008 with the EUR/USD reaching 1.60, being the oil price a big contributor for this event. In the domestic market, the biggest factor that has been moving the dollar are the industry indicators and the real estate boom, and both were caused by an unsustainable credit system which could not be paid, causing a domino effect in the United States economy, and consequently, worldwide. During the last few years, the USD has been losing ground for other currencies, thanks to the credit bubble, and erroneous social policies, but it will still remain as one of the most powerful currencies for an undetermined period of time.
The euro (EUR) is by far the newest currency traded among the major pairs traded on Forex markets. It is used by 16 European Union member countries and it tends to enlarge during the next few years. The fundamental factors that move the Euro are often based on the strongest economies using the new common currency, such as: France, Italy and mainly Germany. The countries’ indicators regarding export trade, inflation and unemployment rate tend to have a high impact on the EUR movements, considering that countries such as Germany are larger exporters of manufactures and technology. Europe still remains an energy dependant from the Russian gas and the Middle Eastern Oil, making higher demands for these commodities to have a negative reflect on the European Union common currency.
The pound sterling (GBP) is the national currency of the United Kingdom, and the fundamental factors that move it are as complex and variable as the British economy and its global influence. The London commodity market plays a fundamental role in the GBP trends, being a reference for oil and gold trading. Nevertheless, as a powerful and globally dynamic economy, the United Kingdom indicators, social situation and the housing sector are perhaps the main determinant factors for the GBP price. Lately, the British economy has faced inflation issues, which led the interest rates to be cut, industrial recession, and other domestic factors that made the trading movements to naturally flow from the GBP towards other strong economically backed currencies, such as the EUR.
The Japanese yen (JPY) is the strongest and by far the most traded currency in the Asian market. Japan’s economy is mainly orientated to the industrial production exportation, and the economic situation of its main commercial partner, the USA, tends to have a direct influence on the JPY market. The JPY is a low-yield currency, being the GBP/JPY the most volatile pair traded on Forex, usually the scalper’s favorite one.
Switzerland is a small country located in the European Alps, yet, its strong international trade and money influx, made the Swiss franc (CHF), one of the main currencies traded on Forex. The CHF is often preferred by low yield investors. In times of financial instability, such as for the last years with the USD, many traders choose the CHF as a safe investment. The CHF trends can be often compared to those of the gold, increasing their value while other markets’ tends to depreciate during economic downturns.
The Canadian Dollar (CAD) faces a similar situation with the other commodity currencies, being majorly an export-dependable. Most of the Canadian production is exported to the USA. Facing the very same credit bubble problem that dragged America into recession, Canada has to deal also with a decreasing demand for all commodities. The CAD usually correlates positively with the prices for the all commodities.
Friday, November 20, 2009
EUR/USD Forms Doji This Week
I’ll try to cover the latest fundamental reports from the U.S. economy that affected the EUR/USD pair this week. Today, the dollar is losing against the euro, but overall week is almost a perfect doji candle with a lower spike being a bit longer than the upper one. The weekly high for EUR/USD lies near 1.4376 and the low — near 1.4176. Currently it’s trading near 1.4306.
Nonfarm payrolls were reported today, showing a loss of 216k in August, following 276k decline in July. The forecasts expected 230k drop. The overall unemployment rate went up to 9.7% — up from 9.4%.
Other important reports this week included:
Chicago PMI business barometer index jumped up from 43.4 to 50.0 in August. It was expected to grow to 48.0.
ISM PMI index rose from 48.9% to 52.9% in August. This increase exceeded the forecasted growth to 50.5%.
Pending home sales index rose by 3.2% in July after advancing by 3.6% in June. Only 1.5% change was expected to be reported according to the analysts’ forecast.
Construction spending report disappointed traders with the monthly change for July at -0.2% after 0.3% growth a month earlier and zero change expectation.
ADP employment report showed a decrease by 298k workplaces in August, which is not that bad after 360k loss in July, but nevertheless the forecasts were pointing at -260k change.
Thanks to the extensive optimization of their business processes by the companies, the nonfarm productivity increased at an annual rate of 6.6% in the second quarter of 2009, which is better than 6.4% released in the preliminary report.
Factory orders rose by 1.3% in July, coming higher than 0.9% gain in June, but falling short of 2.2% estimated by the market analysts.
Crude oil inventories decreased by 0.4 million barrels during the last week, while the total motor gasoline inventories dropped by 3 million barrels during the same period.
Initial jobless claims were at 570k last week — down from 574k during the week before that. The market participants expected a 560k value.
ISM non-manufacturing index rose from 46.4% to 48.4% in August. The forecast value was quite close — at 48.2%.
Nonfarm payrolls were reported today, showing a loss of 216k in August, following 276k decline in July. The forecasts expected 230k drop. The overall unemployment rate went up to 9.7% — up from 9.4%.
Other important reports this week included:
Chicago PMI business barometer index jumped up from 43.4 to 50.0 in August. It was expected to grow to 48.0.
ISM PMI index rose from 48.9% to 52.9% in August. This increase exceeded the forecasted growth to 50.5%.
Pending home sales index rose by 3.2% in July after advancing by 3.6% in June. Only 1.5% change was expected to be reported according to the analysts’ forecast.
Construction spending report disappointed traders with the monthly change for July at -0.2% after 0.3% growth a month earlier and zero change expectation.
ADP employment report showed a decrease by 298k workplaces in August, which is not that bad after 360k loss in July, but nevertheless the forecasts were pointing at -260k change.
Thanks to the extensive optimization of their business processes by the companies, the nonfarm productivity increased at an annual rate of 6.6% in the second quarter of 2009, which is better than 6.4% released in the preliminary report.
Factory orders rose by 1.3% in July, coming higher than 0.9% gain in June, but falling short of 2.2% estimated by the market analysts.
Crude oil inventories decreased by 0.4 million barrels during the last week, while the total motor gasoline inventories dropped by 3 million barrels during the same period.
Initial jobless claims were at 570k last week — down from 574k during the week before that. The market participants expected a 560k value.
ISM non-manufacturing index rose from 46.4% to 48.4% in August. The forecast value was quite close — at 48.2%.
EUR/USD Gains for 4th Day on Continuing Optimism
The euro is currently showing a small daily gain against the U.S. dollar — its fourth bullish daily candle this week. The series of the better-than-expected or just good macroeconomic reports from the developed economies increases the attractiveness of the euro and other riskier assets as the investment medias. Today EUR/USD set its new highest level since September 25th, 2008. Currently it’s trading near 1.4718.
Building permits annual number rose from 564k to 579k in August. Housing starts increased from 589k to 598k during the same period. The housing starts were expected to gain to 595k.
Initial jobless claims went down from 557k to 545k last week. They declined even faster than the forecast — 561k.
Phildaphia Fed index increased from 4.2 to 14.1 in September. This index indicates the manufacturing activity in the region.
Yesterday, some other important fundamental reports were released in the United States:
August’s CPI was reported with a monthly change at 0.4%, which followed an unchanged value of the consumer price index in July and was slightly better than 0.3% increase in the forecasts.
The preliminary report for the current account balance showed a deficit of $98.8 billion in the second quarter of 2009 — down from $104.5 billion. It’s lowest value of the deficit since Q4 2001. Forecasts by the economic strategists predicted a fall to $92.0 billion.
Net foreign purchases of the U.S. long-term securities were at $15.3 billion in July after $90.2 billion in June. Expected purchases value was near $60 billion.
Industrial production and capacity utilization both improved in August considerably. Industrial production went up by 0.8% after 1.0% gain a month before and 0.6% forecasts. Capacity utilization went up from 69.0% to 69.6%.
Commercial crude oil inventories decreased by 4.7 million barrels compared to the previous week in U.S. Total motor gasoline inventories increased by 0.5 million barrels during the same short period.
Building permits annual number rose from 564k to 579k in August. Housing starts increased from 589k to 598k during the same period. The housing starts were expected to gain to 595k.
Initial jobless claims went down from 557k to 545k last week. They declined even faster than the forecast — 561k.
Phildaphia Fed index increased from 4.2 to 14.1 in September. This index indicates the manufacturing activity in the region.
Yesterday, some other important fundamental reports were released in the United States:
August’s CPI was reported with a monthly change at 0.4%, which followed an unchanged value of the consumer price index in July and was slightly better than 0.3% increase in the forecasts.
The preliminary report for the current account balance showed a deficit of $98.8 billion in the second quarter of 2009 — down from $104.5 billion. It’s lowest value of the deficit since Q4 2001. Forecasts by the economic strategists predicted a fall to $92.0 billion.
Net foreign purchases of the U.S. long-term securities were at $15.3 billion in July after $90.2 billion in June. Expected purchases value was near $60 billion.
Industrial production and capacity utilization both improved in August considerably. Industrial production went up by 0.8% after 1.0% gain a month before and 0.6% forecasts. Capacity utilization went up from 69.0% to 69.6%.
Commercial crude oil inventories decreased by 4.7 million barrels compared to the previous week in U.S. Total motor gasoline inventories increased by 0.5 million barrels during the same short period.
E-Global Trade & Finance — Forex Broker with Liberty Reserve
Today I’ve added another Forex broker to the site — E-Global Forex. It’s not a new broker (they’ve been on-line since 2007) and they also have a rather popular IB company working for them — Forex4you (which has some additional features compared to E-Global). Apart from the standard Forex trading accounts that start from $100, E-Global offers cent accounts that have only $20 minimum and allow trading with positions as small as 10 base currency units (0.0001 lots). It’s a broker with MetaTrader 4 platform. Other highlights of this broker include:
* Sharia-compliant accounts on request
* Leverage from 1:10 to 1:500
* Small yearly interest on account balance (applied monthly)
* Regulated on BVI but offices based in Cyprus
* Deposit via Liberty Reserve, credit card and wire transfer
* Forex, CFD, gold and oil trading
* Sharia-compliant accounts on request
* Leverage from 1:10 to 1:500
* Small yearly interest on account balance (applied monthly)
* Regulated on BVI but offices based in Cyprus
* Deposit via Liberty Reserve, credit card and wire transfer
* Forex, CFD, gold and oil trading
EUR/USD Down After FOMC Claims
EUR/USD managed to reach its new high level since late September 2008 and then went down below the daily open level today. The FOMC decision played the major role in today’s decline of the euro against the U.S. dollar. Currently EUR/USD is trading near 1.4764 after reaching as high as 1.4842 earlier today.
U.S. Federal Reserve decided to leave the interest rate unchanged between 0% and 0.25% but slowing down the purchase of the mortgage securities and the agency debt. The statement from the Fed also included a claim that the economical output is expected to be very low for an ”extended period”, while the changes in the monetary policy are expected to be made at the end of the first quarter of 2010.
Crude oil inventories increased for the first time in several weeks — by 2.8 million barrels during the week ending September 18. During the same time total motor gasoline inventories went up by 5.4 million barrels. Such a growth of the inventories have put a great pressure on the oil prices globally.
A minor market indicator was released this Monday — Leading Economic Indicators index increased by 0.6% in August, following 0.9% gain in July. The index was expected to rise by 0.7% in August.
U.S. Federal Reserve decided to leave the interest rate unchanged between 0% and 0.25% but slowing down the purchase of the mortgage securities and the agency debt. The statement from the Fed also included a claim that the economical output is expected to be very low for an ”extended period”, while the changes in the monetary policy are expected to be made at the end of the first quarter of 2010.
Crude oil inventories increased for the first time in several weeks — by 2.8 million barrels during the week ending September 18. During the same time total motor gasoline inventories went up by 5.4 million barrels. Such a growth of the inventories have put a great pressure on the oil prices globally.
A minor market indicator was released this Monday — Leading Economic Indicators index increased by 0.6% in August, following 0.9% gain in July. The index was expected to rise by 0.7% in August.
UK Economy UK Economic Profile, British Economy, United Kingdom Economy
During the days of the British Empire the UK economy was the largest in the world and the first to industrialise (or industrialize, ushering in the Industrial Revolution). Although it has declined in significance since, the UK is still the sixth largest economy in the world by purchasing power parity.
It is a member of the G7 (now expanding to the G8 and G20), the European Union (although not the European Economic and Monetary Union -EMU – or Euro) and the OECD (Organisation for Economic Cooperation and Development). It is also the founding member of the Commonwealth, the association formed by former British Empire states.
The British Economy is one of the most globalised (or globalized) economies in the world, thanks in no small part to the City of London, considered to be the largest financial center in the world.
The economy of the United Kingdom of Great Britain includes the economies of England, Scotland, Wales and Northern Ireland. The Isle of Man and the Channel Isles are part of the British Isles and have offshore banking status.
The Bank of England had cut interest rates to 1.0 per cent by the end of 2008, and that is expected to drop to 0.5 per cent for most of 2009 and 2010.
UK budget deficit stood at 5.3 per cent of GDP in 2008. With economic stimulus packages and bank bailouts being worked on, that is expected to balloon to 11.3 per cent of GDP in 2009 and 13 per cent of GDP in 2010.
In 2008, the UK had the 43rd largest relative national public debt, at 47.2 per cent of GDP. This figure could rise to 58.5 per cent of GDP by 2009 and 70 per cent of GDP in 2010, thanks to the projected budget deficits of 2009-2010.
Inflation had ramped up to 3.6 per cent in 2008, but has dropped back with the economic collapse and is expected to be 0.4 per cent in 2009 and 0.8 per cent in 2010. It had the 58th lowest inflation rate in the world at end 2008.
The 3-month Treasury rate has similarly dropped, from 5.5 per cent in 2008 to an expected 1.3 per cent in 2009 and 2010.
The unemployment rate had reached 6.3 per cent in the UK by the end of 2008 according to the Office of National Statistics, reaching close to 2 million unemployed. This figure is likely to grow to the 2.5 million – 3 million figures, or 8-10 per cent.
The UK has the third highest current account deficit in the world of US$186 billion. It has a large trade deficit in manufacturing and has become a net importer of energy and North Sea extraction declines. It runs $468.7 billion of exports (9th in the world export rankings) and $654.7 billion of imports (6th in the world).
It was the 2nd largest recipient of foreign direct investment (FDI) in 2007 (although the figure has dropped since), and one of the most competitive in Europe for business and tax.
It is a member of the G7 (now expanding to the G8 and G20), the European Union (although not the European Economic and Monetary Union -EMU – or Euro) and the OECD (Organisation for Economic Cooperation and Development). It is also the founding member of the Commonwealth, the association formed by former British Empire states.
The British Economy is one of the most globalised (or globalized) economies in the world, thanks in no small part to the City of London, considered to be the largest financial center in the world.
The economy of the United Kingdom of Great Britain includes the economies of England, Scotland, Wales and Northern Ireland. The Isle of Man and the Channel Isles are part of the British Isles and have offshore banking status.
The Bank of England had cut interest rates to 1.0 per cent by the end of 2008, and that is expected to drop to 0.5 per cent for most of 2009 and 2010.
UK budget deficit stood at 5.3 per cent of GDP in 2008. With economic stimulus packages and bank bailouts being worked on, that is expected to balloon to 11.3 per cent of GDP in 2009 and 13 per cent of GDP in 2010.
In 2008, the UK had the 43rd largest relative national public debt, at 47.2 per cent of GDP. This figure could rise to 58.5 per cent of GDP by 2009 and 70 per cent of GDP in 2010, thanks to the projected budget deficits of 2009-2010.
Inflation had ramped up to 3.6 per cent in 2008, but has dropped back with the economic collapse and is expected to be 0.4 per cent in 2009 and 0.8 per cent in 2010. It had the 58th lowest inflation rate in the world at end 2008.
The 3-month Treasury rate has similarly dropped, from 5.5 per cent in 2008 to an expected 1.3 per cent in 2009 and 2010.
The unemployment rate had reached 6.3 per cent in the UK by the end of 2008 according to the Office of National Statistics, reaching close to 2 million unemployed. This figure is likely to grow to the 2.5 million – 3 million figures, or 8-10 per cent.
The UK has the third highest current account deficit in the world of US$186 billion. It has a large trade deficit in manufacturing and has become a net importer of energy and North Sea extraction declines. It runs $468.7 billion of exports (9th in the world export rankings) and $654.7 billion of imports (6th in the world).
It was the 2nd largest recipient of foreign direct investment (FDI) in 2007 (although the figure has dropped since), and one of the most competitive in Europe for business and tax.
Dutch Bankers’ Code To Limit Bonuses Next Year
The Netherlands Bankers’ Association, or NVB, will implement a code of conduct for banks next year that will limit the level of bonuses awarded and strengthen corporate governance, the association said Wednesday.
According to the Code for Banks, bonuses for board members may not exceed their fixed income by more than 100%. The code also determines that bonuses can be reclaimed, “if long term targets will not be met,” NVB spokesman Kees Verhagen said to Dow Jones Newswires. “This also means that in practice bonuses will often be paid in terms related to achieved targets and not all at once in advance anymore”, he added.
The code also requires strengthening of governance, risk management and auditing for banks.
NVB said that the code will apply from Jan. 1, 2010, and banks must report on the implementation of the code’s regulations in their annual reports.
NVB, with almost 100 member banks, said an independent commission will monitor the implementation of the Code for Banks.
“The members of this commission will be appointed in close consultation with the Dutch Ministry of Finance”, Verhagen said. Shareholders and supervisory boards will also play an important role in monitoring the compliance of the code, he said.
According to the NVB spokesman, the Dutch Code for Banks anticipates a discussion of bankers’ bonuses at the summit of leaders from the Group of 20 industrial and developing nations in Pittsburgh later this month.
According to the Code for Banks, bonuses for board members may not exceed their fixed income by more than 100%. The code also determines that bonuses can be reclaimed, “if long term targets will not be met,” NVB spokesman Kees Verhagen said to Dow Jones Newswires. “This also means that in practice bonuses will often be paid in terms related to achieved targets and not all at once in advance anymore”, he added.
The code also requires strengthening of governance, risk management and auditing for banks.
NVB said that the code will apply from Jan. 1, 2010, and banks must report on the implementation of the code’s regulations in their annual reports.
NVB, with almost 100 member banks, said an independent commission will monitor the implementation of the Code for Banks.
“The members of this commission will be appointed in close consultation with the Dutch Ministry of Finance”, Verhagen said. Shareholders and supervisory boards will also play an important role in monitoring the compliance of the code, he said.
According to the NVB spokesman, the Dutch Code for Banks anticipates a discussion of bankers’ bonuses at the summit of leaders from the Group of 20 industrial and developing nations in Pittsburgh later this month.
Subscribe to:
Posts (Atom)
