Forex- money multiplier

In the recent times, there are various modes by which we can multiply our money. New forms of investment are coming up which fetches huge, profit and can even incur losses. One of the latest ways of trading is in “Forex” market which is also called foreign exchange. At present people have various options where one can invest their money based on different constraints like money, risk, duration, profit etc. Forex market is a perfect place for a active trader. Foreign markets are open 24 hours a day where a trader can login or exit anytime. That’s why it is called money multiplier.

For me it has proved to be a cash machine as I have earned huge profits. There are many ways by which we can earn profit. The easiest part is currency swap. It means to exchange one currency with other. This means I buy a currency at low and sell them at high against another currency. For example when a US Dollar was of Rs40, I brought 100 dollars of Rs4000. After 1 month, as the exchange rate raised I sold them at Rs42 per Dollar. This gave me a profit of Rs200 without bearing any risk. By the use of computers and internet, this form of market is now very popular. It has proved to be profit making machine for many.

It has been found that daily $1.5 trillion is being traded. Forex market is the Most largest and liquid form of market in the world. It is a very good option for trading lovers and a huge profit making machine for them.

Forex Charts

To become a successful forex trader and to maximize profit, knowledge of chart patterns and price movements is very important. There are huge numbers of price charts through which trend reversals, buy/sell/hold points etc can be determined. The Price charts I follow are:

1. LINE CHARTS:  All the price movements of currencies are plotted on the y-axis and the time on the x-axis. Each time the price change, the change is displayed on the chart. This gives traders the accessibility to examine currencies more minutely while also enabling them to spot the trends according to the duration of their investment.

A line chart’s has a simple design, displaying the currency’s closing price.

2. CANDLESTICKS: These are just like bar charts having four basic elements, the LOW, HIGH, OPENING and CLOSING price of a specified time period. It can be solid or transparent or empty. If closing price is lower than opening price the stick is solid or filled. The two dash line on the candle represents the high and low points.

Finexo Forex Market Comments

Congress finally reached a deal on the bailout package, which now looks set to pass into law in the immediate future. There are many adjustments in the details, but the general idea is still that the government takes toxic assets off the bank’s balance sheets with a $700 billion dollar purchase plan. The last minute counterproposals by House Republicans that threatened to end the entire bailout effort late last week were largely dropped.

The most important changes to the original plan involve heavier oversight from Congress (most likely a cumbersome task…) and a plan for the US govt. to receive equity stakes in the institutions it is helping to bail out. Part of the plan importantly makes provisions for reduction of payments and the amount owed on mortgages that have been bought by the US. This last point is very important for the eventual fate of the US consumer, as the enormous debt overhang in the US economy, and the likely shift in savings habits as US consumers look to shore up personal balance sheets will affect growth rate for a long time to come. A potential problem with this plan, many have pointed out, is that while the plan lifts bad assets off banks’ balance sheets, it doesn’t provide any new capital injection that banks can then lend, so the risk is that tight credit conditions continue to prevail.

Regardless of the longer range potential for this plan effectiveness, the short term reaction is the most important here, as credit markets are at a virtual standstill. If this plan is unable to loosen up the exchange of credit, then we will have to move to the next phase of the crisis, which could involve many more institutions failing. The meltdown scenario is still alive and well, unfortunately.

In other news, European banks are beginning to show signs of strain as well. The first victim has been Fortis bank, the largest Belgian bank. Already rumored to be in deep trouble late last week, the bank was partially taken over the weekend by the governments of Belgium, Holland and Luxembourg. Other and even larger European banks may also be in deep trouble if we are to believe the developments in the CDS market. European banks aren’t under the same mark-to-market rules as their US counterparts (new mark-to-market rules were ironically passed just last year in the US) but may be in just as much trouble. Continued bad news in the European banking sector could weigh on the EUR.

Risk appetite is taking a hit to open the week with the latest round of news from the financial sector, which includes the stories mentioned above, the B&B partial nationalization in the UK, and news that Wachovia is on the ropes and may have a shotgun wedding with Wells Fargo. This could weigh on the carry trades again, though we will need to see what the reaction in the US trading session to the passage of the bailout package.

Interesting data coming out of Australia tonight, though we’re not sure how much the market is really focusing on data just yet

Chart: EURJPY
The EUR could find itself under increasing pressure as long as credit markets remain frozen as there may be a pipeline of bad news in the banking sector ready to burst soon. In any case, EURJPY and other carry trades are likely to follow the general moves in risk appetite, and our outlook is one of “when” this pair resumes its downward slide, rather than “if”.

Forex market updates by Finexo Posted: 31st October 2008 by Somya Gabriel in Uncategorized 1

 JPY stronger again after odd-ball 20 bp cut. USD also plows stronger as recent EURUSD rally was apparently just a short squeeze.

End of month fixing madness may make for hairy trading environment today. Consumption drop in Q3 US GDP number bodes ill for Q4 growth tallies.

MAJOR HEADLINES – PREVIOUS SESSION

* Japan Sep. Jobless Rate out at 4.0% vs. 4.2% expected
* Japan Sep. Household Spending out at -2.3% vs. -4.0% expected
* Japan Oct. Tokyo CPI out at 1.2% YoY vs. 1.3% expected
* Japan Sep. National CPI out at 2.1% as expected
* UK Oct. GfK Consumer Confidence fell to -36 as expected and vs. -32 in Sep.
* Australia Sep. New Home Sales fell -1.8% MoM
* Japan BoJ Target Rate lowered 20 bps to 0.30% vs. -25 bps cut expected
* Japan Sep. Annualized Housing Starts rose 54.2% YoY vs. 52.0% expected
* Germany Sep. Retail Sales fell -2.3% MoM vs. -1.0% expected

THEMES TO WATCH – UPCOMING SESSION

Events Today:

* EuroZone Oct. CPI Estimate (1000)
* EuroZone Sep. Unemployment Rate (1000)
* Switzerland Oct. KOF Swiss Leading Indicator (1030)
* Canada Aug. GDP (1230)
* US Sep. Personal Income and Spending (1230)
* US Sep. PCE Core (1230)
* US Oct. Chicago PMI (1345)
* US Oct. Final University of Michigan Confidence (1400)

Market Comment:

The Bank of Japan was apparently trying to send some kind of message to markets overnight by only cutting 20 bps rather than moving in the usual and expected 25 bp increment. One can only imagine that they are trying to leave room to be able to cut 10 or 15 bps at a time, but they have so little yield left with which to work that the entire exercise is rather silly. In any case, the JPY hardly budged and its strengthening again late in the Asian session on nosediving equities suggests that the recent rally sequence in JPY crosses was mostly a short squeeze (this may be the case across markets really, combined with the equity/bond rebalancing we discussed previously). Still, one wonders whether we will be able to do much more than go back and test recent lows in some of these JPY crosses as the BoJ will undoubtedly be lurking the next time the action heats up. Still plenty of room on the downside between here and there. -

UK confidence was out overnight at the lowest levels since the oil crisis of 1974. And yet GBP has remained relatively bid in some of the crosses – especially vs. the Euro. One focus for the Euro of late has been its vulnerability relative to the turmoil in CEE currencies and it was notable that as these turned sharply south yesterday, so did EUR. Also weighing on the Euro are the divergent yields on various countries in the EU, what some have called the PIGS spreads (The yield on paper from Portugal, Italy, Greece, Spain vs. that of German benchmarks.) Still, with the JPY and USD moving stronger again, GBP is likely to stay on a weak footing against these currencies. With things looking so dire on the sceptered isle, many are talking up the possibility of the BoE moving by 100 bps next week.

Up today we have the final regional US manufacturing survey with the Chicago PMI. The other regional surveys have been awful this month and could set up the worst ISM number on Monday since the early 1980′s. The trends are all pointing to a truly ugly Q4 GDP picture for the USA: First, the strong export market was propping up US growth numbers previously, but the financial and economic implosion unfolding in EM and elsewhere have put an end to this phenomenon. So the slightly better than expected Q3 growth numbers still contained a bit of residual strength from the export sector that will not be there in Q4. Also, the Q3 growth numbers showed a sharp deceleration in consumer spending that is clearly deepening into Q4 and the combination will prove toxic for Q4 growth data. Clearly, none of this spells ill so far for the US dollar, where its strength related mostly to the global deleveraging issue – the more mayhem, the more the greenback strengthens, in other words. We’re also very curious to see the ISM non-manufacturing data for October next Wednesday as the resilient September number simply defied belief.

The EuroZone picture looks far from rosy as well. Just this morning, German retail sales for September look very weak and we have to consider that unemployment numbers in the less flexible European labor market have not even begun to tick higher in some places while they’ve already risen by a third in the USA. It’s hard to believe that the October unemployment rate for Germany, for example, ticked down to a new low since the integration of East Germany began in the early 1990′s – this in an economy that is crash landing….

Liquidity is absolutely atrocious and one should adjust leverage accordingly. At one point this morning in the late Asian session, GBPUSD jumped around 60+ pips back and forth – likely on hardly any flow at all. Today is also the last trading day of the month, which means end of month fixing based on relative market performance around the world and this could mean drastic swings in the 1200-1600 time block in London.

Be careful out there – markets may be more than a bit ghoulish on this Halloween.

Forex Recommendations and Analysis

EUR/USD swooning

Yesterday saw an extension of the rally in US equities ahead of the Thanksgiving weekend, a phenomenon we are assuming has more to do with end of the month effects and misplaced optimism by market participants rather than something to hang our hats on. It was interesting to note that the currencies largely shrugged off the move in equities, with JPY crosses virtually unchanged on the day and EUR/USD swooning to lower support before bouncing back to relatively unchanged. End of month analysis circulating out there suggests that due to the larger relative falls in US equities for the month of November, there could be a USD positive effect here at month end. In any case, it will be interesting to see how the market looks early next week in case what we’re seeing are these end of month effects rather than “real” moves.

We suspect that the EUR is an accident waiting to happen, judging from the failure in EUR/USD to hold short term support despite a horrific batch of US data yesterday and the action in EUR/GBP, which saw a significant break of short term support and confirmation of the Tuesday reversal. (Later in the day, the GBP saw a sharp move back lower as the ECB was out saying it would no longer accept certain types of syndicated loans from England and Wales as collateral, but this morning it appears the effects of this announcement have faded again).

The Friday after Thanksgiving – so called Black Friday

The Friday after Thanksgiving – so called Black Friday because it is said to be the point in the earnings year when retailer’s books move into profit for the year -  traditionally kicks off the US Christmas shopping season – a vital 4 weeks for US retailers. As we’ve discussed before, the retailers are trying to elbow one another aside simply to get customers to come through their doors and have already pre-discounted much of their merchandise ahead of the holidays, thus they may have already cannibalized some of their own sales from the Christmas shopping seasons. Year on year comparisons will be key for understanding what kind of mood the famous US consumer is in this year (remember the famous line “Don’t bet against the American consumer.”? If we were the betting kind, we’d be asking where we can place our bets…). A Canadian survey showed that Canadians planned to spend 14 percent less this year, and an American survey quoted in Marketwatch indicates that 63% of baby boomers plan to cut back on spending this Christmas. US Personal Spending for October fell at -1.0% rate MoM, the worst reading ever save for the month of the September 2001 terror attacks.

China announced a new rate cut – 108 bps

China was out announcing a massive new rate cut – 108 bps – as the desperate effort continues by the Chinese government to manufacture a soft landing for the world’s workshop when demand for its products is shriveling around the world. Economic theory states that in a slowdown, the sectors of the economy geared toward production are the most heavily impacted, and with a very imbalanced Chinese economy in the past cycle of expansion, we look at China with concern. Reports are cropping up of rioting related to lost jobs at factories. This is a situation worth watching. The pressures on the Chinese regime will mount exponentially with every percentage point decline in GDP growth below perhaps 7.0%.

CAD is experiencing turmoil related to the huge BCE takeover deal, which may be collapsing. This is a potentially very CAD bearish story, and yesterday’s energy rally may have hidden further potential for CAD weakness. Keep an eye on USD/CAD and beware the volatility.

Attention

Be aware that markets may be very thin and nervous. Many might expect that Thanksgiving would be a time for a rangebound market as many participants are absent, but the fact that this Thanksgiving weekend coincides with the month-end and its potential effects, anything can happen, especially as the market may have gotten too short on the USD here in the short term. Thanksgiving of 2006 saw a huge technical break in EUR/USD, for example.

New Year Seasons and Forex Analysis

The market action continues to show a market that isn’t sure what it wants to do here in the short term – and larger players are undoubtedly waiting for the New Year before putting on any meaningful positions. Still, volatility is easy to come by these days, especially with end of month/year fixing up today.

Even more ugly data out of the US yesterday with a larger than expected drop in home prices (not really surprising as this is oldish data from October, when the deleveraging panic was full upon us. Yesterday we discussed the idea that the December freefall in yields at the long end will likely aid a slowing of house price depreciation for the lower end of the housing market.) Consumer Confidence in December also posted a massive drop to a record low. This is a bit surprising considering the fact that the survey came after the US election, and after a huge additional drop in gasoline prices. Also, the other major surveys suggested a bit of stabilization. Still, this data is by no means a shock and speaks of the real economic pain being felt in the US economy. The mounting rate of job losses means that many are worried about their future as they see colleagues and relatives losing their jobs even if they haven’t lost their own yet. The viral effect of employment insecurity is going to result in a massive continued contraction in consumption in 2009.

With the lack of short term visibility for currency moves at present, we’ll take this opportunity to freshen up some of the developments we will be looking for in the New Year.

EUR weaker

We’ve covered this one extensively in recent days. The Euro has rallied for good reasons: it has refused to join the competitive devaluation impulse launched so aggressively by the Fed and the Bank of England and it is one of the most liquid currencies outside the USD in a world that is very concerned about illiquidity. Its economic weakness has also been less vicious so far on the whole as well, even if there are very troubled spots. But the single currency’s weaknesses may become much clearer in the New Year, including very likely bickering among the EuroZone members and the difficulty of coordinating policy among so many nations when the stresses of weak economies could make national agendas compete with the EU framework. We’re also concerned about the state of play in European credit markets, when so much debt must be rolled over in 2009 and the banks in Europe as well, particularly their exposure to Eastern Europe. The EUR is overpriced in the bigger picture – look at shorting EUR vs. SEK and NOK as a potential value play in the New Year or shorting the EUR on a trade-weighted basis.

The final deleveraging

Asset prices went into freefall in September and October of this past year as the AIG, GSE and Lehman failures shook the world and triggered a historic and vicious cycle of deleveraging. Subsequently, in November and December, governments and central banks, led by the US Fed, swooped in with astounding injections of liquidity and unprecedented expansion of the public balance sheet. Hedge funds, to avoid liquidating illiquid assets in the midst of the panic reneged on their redemption agreements when investors were looking to recoup their funds. But troubled assets are still out there and the unwinding of the black hole of risky derivative plays and troubled hedge fund strategies will continue, and this could lead to a second, very large round of deleveraging in 2009 that will also shake the currency world. This final deleveraging potential is a key reason we are reluctant to call for the immediate devaluation of the greenback. In the past, bouts of risk aversion have seen a boost in the USD. And, due to the US’ already very advanced state of economic weakness, it may be the first major country to show signs of stabilization. Any large scale rally in the USD should be seen as a historic opportunity to sell the currency, however.

Asian currencies stronger

The need to address global imbalances due to the destruction of the old paradigm of Asian oversaving and reinvestment in the US and the resulting overspending and excessive debt creation there. Eventually, the USD must continue to weaken, though the timing looks uncertain for the greenback’s next sell-off. The clearer trade is to be long a basket of Asian currencies – perhaps against the overvalued EUR to start. Consider EURJPY and EURCNY shorts in the New Year.

Moves from New Years Past

Here we offer a brief recap of moves in EURUSD from the past few years. It is clear from recent years that the first trading day of the New Year (January 2nd for 2009) often sees large moves, even if they don’t necessarily predict the subsequent direction.

• January 2002 - The single currency celebrates its inaugural year as a real currency and the first trading day of the year sees a sharp 2% rally. But that was the top for the month as EURUSD dropped 5% by the end of January – to the low of the year below 0.8600 before rallying over 20% into the end of the year

• January 2003 - EURUSD swoons on the first trading day of the year, but then picks up the old rally impulse to new highs well above parity as the world moves close to the Iraq war and the weak and low-yielding USD has become a popular funding currency for carry traders.

• January 2004 - EURUSD continues its rally from December unabated until mid-January, when at a spectacular new high of 1.2900, it suddenly swoons mid-month and then spends much of the year until the US election trading in a wide range.

• January 2005 - After rallying spectacularly into year end after the US election to a high above 1.3600 and on the themes of central bank reserve diversification, the EUR kicks off the New Year with a vicious sell-off already on New Year’s Eve. This is followed by further weakness toward 1.2750 by early February, presaging what would prove a difficult year for the Euro.

• January 2006 - after doing nothing for two weeks in December, EURUSD snaps to attention on January 3 with a sharp 2% rally that would prove the beginnings of a rocky climb into mid-year from the lows of late 2005.

• January 2007 - EURUSD rallies sharply on January 2nd in a weak attempt to look at the 2006 highs above 1.3300, but then crumbles sharply in the subsequent days. But the mid-January lows were the lows for the year.

• January 2008 - EURUSD sells off sharply on New Year’s Eve after a late December rush higher, but that move is reversed with a sharp rally on the first trading day of the year that market a renewed attempt in the subsequent days to challenge the high of the time at 1.4965.

All the best to you and yours and Happy New Year!

The US government’s moves to “stimulate” their economy will have a negative impact on the greenback

The Australian Dollar made a strong showing against the US Dollar as well.  Consumer prices fell the most in ten years which led investors hoping for large cuts in Australia’s interest rates as a device to curb offset the economic spiral that has also hit the Aussie nation.   The AUD hit .672 in early trading, a rise of more than 1%.  Along the same lines, the Canadian dollar also had a nice day against its neighboring currency.  According to the Daily FX updates the CAD rose more than 1% against the USD as the Canadian government pledged to cut billions of dollars in taxes as part of a stimulus package.  The CAD was trading at $1.208 in late trading Wednesday.

There is a big concern in the Forex market that the US government’s moves to “stimulate” their economy will have a negative impact on the greenback.  By pumping close to a Trillion dollars of money into the economy, the Fed is in effect raising its fiscal deficit to over two trillion dollars which will make it necessary for the US to increase borrowing and the printing of money which will dilute the value of the currency.  While investors see the US as a safe-haven, a passage of the proposed stimulus package, the second one in four months, might turn investors away from the currency and weaken the perceived strength of the USD in world markets.

In another alarming sign that things are getting worse before they get better, the International Monetary fund announced yesterday that they will run out of money if they had to address all the claims coming in for its help.  The IMF cut its global growth forecast to .5% revised down from 2.2%.  With so many countries in financial trouble and the main body responsible for helping economically challenged countries also experiencing difficulties – the outlook is bleak