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Before you decide to enlist the services of a foreign currency broker, take the time to do some research on the broker and / or brokerage firm. Foreign currency trading has enough pitfalls to avoid without adding a shady broker to the equation. You can make a lot of money trading foreign currencies, but if what the broker says sounds too good to be true, chances are it is.
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FAIR VALUE
The concept of fair value in any currency is largely that of CBers and economists and not much about trading. Almost always currencies overshoot from the fair value areas some 20-30% in their medium-term trend and what makes all hard currencies range in reasonable areas overtime since we had this floating regime in 1971 must the ability of relevant CBs to control the currency ranges and their real economy's weakness or strength to support those ranges. ECB folks were not joking when they said Eur/usd was some 25% undervalued from the fair value when Eur/Usd was below parity levels two years ago. Same goes for BOJ when they were saying Yen was some 10-20% overvalued when it was trading around 100 some three years ago too. That is how these folks view the markets and try to guide the market. Of course, when US Treasury folks say "Dollar is still strong" when it is falling, they are begging the market to sell more dollars
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That said, the foreign currency trading market is a very lucrative one if you get in on the right foot and with a broker that knows his or her stuff, as it were. Taking the time to find a reputable brokerage firm can make all the different when it comes to diving in to the foreign currency market.
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The foreign exchange market dwarfs the combined operations of the New York, London, and Tokyo futures and stock exchanges. According to its size and scope it is many times larger than all other markets. Stats shows that spot transactions and forward outright Forex trading take place in the inter-bank market. 51% of the market is in spot Forex transactions, followed by 32% in currency swap transactions. Forward outright Forex transactions represent another 5% of this daily turnover, with options on �interbank� Forex transactions making up another 8%. Therefore the inter-bank market accounts for 96% of the global foreign exchange market, with the remaining 4% being divided among all the global futures exchanges.
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European Mid Morning Update 25th April 2008
Fri, 25 Apr 2008 03:46:28 -0400
Inflation, interest rates and reality
Releases from Europe:
March Forecast Actual
German Import Price Index (MoM) +0.6% +0.4%
German Import Price Index (YoY) +5.9% +5.7%
A little relief from persistent price rises but the annual 5.7% rise is still quite stiff and is still a number to watch out for in future.
The following economic releases are due today:
Q1
U.K. GDP (QoQ) +0.4%
U.K. GDP (QoQ) +2.6%
March
Euro-zone M3 (3MoY) 11.0%
Euro-zone M3 (YoY) 10.6%
April
University of Michigan Confidence (F) 63.5
This week has seen Australia and Japan reporting higher inflation and we already know the situation in Europe and the States. It’s not fresh news. We all know what is causing it and why it is happening.
As usual the market has interest rates as a permanent fixture in the front of its mind. Higher inflation equals higher interest rates and vice versa.
Will the RBA hike rates? Will the BOJ? Will the ECB?
Hell no, why should they? What good would it do?
As the economy minister Ota commented, rising inflation that has not been generated by domestic demand and while wages remain stagnant is just not a healthy sign. Even the word stagflation is one that hangs heavy at the backs of officials’ minds as they see Japan’s export life blood of GDP slowly hemorrhaging to make one wonder whether the country could dip back into recession with inflation rising…
There is no difference in Japan in seeing a higher percentage of household budgets having to be allotted to higher food and fuel prices and when wages are stagnant this will act as a dampener to domestic demand.
Let’s face it, in Japan’s case what benefit is there for businesses borrowing at 0.25% rather than 0.50% when consumers cannot afford to buy goods?
Even ECB governing council member Michael Bonello expressed his own opinion by saying “On the basis of the data we have at hand and the ECB's rationale for monetary policy strategy it is very difficult to make an argument for higher interest rates.”
And here we are with the BOJ and FOMC meetings next week wondering what they’ll do. The BOJ will do has it has done for the past umpteen meetings. Nothing.
The FOMC are rumored to be cutting rates by 0.25% but calling it a day for now. They have come to realize that there is only so much that can be achieved through monetary policy. It certainly cannot have any impact at all on the factors that are fueling oil and food prices.
Lower interest rates have eased the credit crisis but even then there’s a limit to what can be achieved when it’s more a case of confidence – or lack of.
From here on the market will have to concentrate on economic performance and forget interest rates…
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 105.07-37 1.5751-75 1.0505-44 1.9866-77
Res: 104.59-72 1.5670-20 1.0423-50 1.9753-75
Spt: 103.70-90 1.5557-99 1.0335-65 1.9659-84
Spt: 103.45-70 1.5497-10 1.0270-05 1.9599-09
See Also
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