The forex market is the world’s largest and about $3.98 trillion dollars are traded every day. Global currency trading offers investors the opportunity to profit in difficult and uncertain economic times. Global currency trading takes place 24 hours a day (except on weekends) and most trades are done electronically making currency markets perfect for day traders. In the late 1980’s computers and the advent of electronic trading made swift currency transactions possible and by the late 1910’s personal computers enabled the average investor to participate in global currency trading activities.
The global currency trading market, or forex market, has several characteristics that distinguish it from other financial markets which are: its high daily volume which leads to high liquidity, the geographic dispersions of currency markets, 24 hour a day trading, the use of leverage in amounts not available in other markets, and the wide variety of factors that can affect currency markets. Global currency trading was once the domain of big banks and central banks but today the average investor can participate through retail forex brokers.
The primary centers for global currency trading are London, New York, Tokyo, and Singapore but banks and investors from all over the world take part in this dynamic market. There are several factors that affect global currency trading. Economic factors play a major role in determining the exchange rates of currencies. Economic factors can include government fiscal policies, GDP, employment reports, consumer confidence reports, retail sales and manufacturing indexes. Balance of trade levels, government deficits, ratio of debt to GDP are all important factors to watch for investors.
Political conditions play a major role in forex markets. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. The imposition of severe austerity measures by the Greek government helped the euro to regain previous losses and stabilize. Market psychology although difficult to define can affect market perceptions and can either help or pressure currencies. Market psychology can prompt what is known as a flight to ‘safe haven’ currencies. This means that investors pare bets on other currencies and put their money into strong currencies such as the US dollar or Japanese yen which are considered strong currencies.
All that is needed for the average investor to take part in the exciting world of global currency trading is a computer and an internet connection. For investors who have done their homework global currency trading can lead to many profitable trades.
Greece Needs $60 Billion in 2010
Greece has finally asked that the loan mechanism agreed on by EU finance ministers earlier in April be activated. Greece may need as much as 45 billion euros ($60 billion USD) this year. The request came as borrowing costs for the debt stricken nation reached unsustainable levels. The yield on Greece’s two year note hit 11% and spreads are at unprecedented levels. The euro rallied gaining a modest 0.1% vs. the US dollar trading at $1.3306 but many analysts believe the aid package will do little to solve Greece’s long term problems. Daragh Maher of Credit Agricole CIB stated, “It’s a positive development in the short term. In the longer term, it’s just a sticking plaster over the situation. The euro has not seen a sizeable bounce. It shows investors remain uncomfortable with being bullish on the euro.” In a live broadcast Greek Prime Minister George Papandreou said, “It is a national and imperative need to officially ask our partners in the EU for the activation of the support mechanism we jointly created. The time that was not granted to us by the markets will be given to us by the support of the euro zone.” At this week’s G7 meeting Japanese Finance Minister Naoto Kan said that Europe asked the US and Japan for a show of support for Greece but did not request financial aid.
Trading Driven by Greek Concerns
Despite a rise in the German Ifo institute’s business morale index and a larger than expected increase in euro zone industrial new orders euro trading remains largely driven by Greek debt concerns. Ian Stannard of BNP Paribas stated, “It’s not economic fundamentals but the euro zone peripheries, especially Greece, that’s going to weigh on the market.” European Commission spokesman Amadeu Altafaj said that emergency loans to Greece will be processed as quickly as possible. Altafaj stated, “Everything is going to be done in such a way that the mechanism can be triggered as soon as (necessary) and as is necessary for Greece.” He said that interest rates on the loans would be calculated according to a formula worked out between EU finance ministers earlier this month. He also said that since the disbursement date was not known it was not possible to say exactly what the rates will be.
Austerity Measures Could Hamper Growth
European markets rallied briefly after the announcement as investors and analysts believe the loans are a short term solution to ongoing debt problems in the euro zone. Investors are also concerned that the imposition of further austerity measures could hamper growth and deepen Greece’s recession. Investors also worry that Greece’s problems could spread to other EU nations, most notably Spain and Portugal.
Quick Forex Tip: Electronic currency trading offers many advantages to the average investor. Anyone can learn how to trade currencies by using one of the many excellent training programs available online for free. In addition many retail forex brokers provide potential investors with training programs and demo accounts. Electronic currency trading offers recession proof trading because in the currency market when one currency falls another rises giving the savvy trader the opportunity to profit from the move.
No EU Solution in Sight
The euro continued its decline on Tuesday as investors remain concerned that no solution to Greece’s fiscal crisis will be found at the upcoming EU summit. The euro fell against most major currencies on Tuesday as investors speculate that EU leaders may allow the International Monetary Fund to bailout Greece. European Central Bank President Jean-Claude Trichet indicated he is opposed to the low interest loans which the Athens government has requested. Greece’s debt crisis has caused a political rift in the euro zone and most analysts are pessimistic that any solution will come out of Thursday’s EU summit. Omar Eisner of Travelex Global Business Payments said, “Continued bickering back and forth between EU officials is highlighting the lack of cohesion within the bloc. That is ultimately undermining demand for the single currency.” The euro fell 0.3% vs. the US dollar trading at $1.3521 in New York. The euro fell 0.2% against the yen and last traded at 122.02 yen.
Greece’s Economy to Shrink 2% in 2010
On Monday the Bank of Greece said in its 2009-2010 monetary policy report that the Greek economy may shrink 2% in 2010, twice as much as had been forecast. Greece’s budget deficit for 2009 could be as high as 12.9%, four times the EU limit of 3%. The report also said that banks will face “serious challenges” as the nation’s economy slumps and will need to diversify funding sources as the ECB cuts emergency financing. Many experts see a further decline for the euro. According to the BlueGold Capital Management LLP the euro may fall as low as $1.20. Stephen Gen of BlueGold in London stated, “This policy divergence is one of the central pillars of my view going forward. It is one more reason for investors to be cautious about the euro.” On Monday European Central Bank President Jean-Claude Trichet said that the ECB may reassess its collateral rules softening the central banks stance regarding Greece.
Pound Falls on Rate Speculation
The pound declined vs. the greenback after a report showed that UK inflation slowed more than had been forecast prompting speculation that the Bank of England will keep rates at historic lows. Chancellor of the Exchequer Alistair Darling will deliver his budget report on Wednesday as the UK government deals with a deficit that could reach 12.6 percent of gross domestic product this year. The pound fell 0.2% against the US dollar trading at $1.5076. The UK is struggling with a budget shortfall similar to Greece’s and a stalled recovery which has kept the pound under pressure. The pound could extend losses if retail sales fall short of predictions. The UK retail sales report is due March 25th.
Quick Forex Tip: Euro currency trading requires a lot of research and investors must keep track of economic information from the twelve member nations. The economy of just one nation can affect the euro’s exchange rate. In 2010 political uncertainty and deficit concerns about Greece caused the euro to fall considerably in global forex markets. Euro currency trading can be exciting and very lucrative for investors who have done their homework.
Euro Has Worst Week Since January
The euro had its worst week last week since January as investors remained concerned that no EU solution will be found for the Greece’s debt crisis. A report last Thursday said that the Athens government sees limited prospects for EU assistance causing concerns about the nation’s ability to service its massive debts. Greek Prime Minister George Papandreou has said that Greece may have to turn to the International Monetary Fund is no EU lending mechanism is established at next week’s EU summit. Many believe such a move would threaten the credibility of the euro. European Central Bank President Jean-Claude Trichet and many other EU officials have ruled out IMF aid to Greece but opposition to EU assistance is widespread in Germany and the Netherlands. Andrew Wilkinson of Interactive Brokers Group stated, “From the perspective of the investor, events continue to be frustratingly opaque. Repeated meetings result in no clear statement other than a commitment that now appears far less solid than before.”
Borrowing Costs High For Greece
Currently Greece is paying twice as much as other EU nations in borrowing costs making it difficult for Greece to refinance its massive debts. Prime Minister Papandreou stated, “Let everyone be certain, Greece will not default, we will not let it default. Greece has a strong government and courageous people. We are returning to the road of economic stability.” Papandreou has also called for regulation to curb speculation which he says have driven yield spreads on Greek government bonds over EU benchmarks. Papandreou said, “We are building alliances in and outside the EU. We are convincing our partners for changes to set limits to speculators. We are not asking anyone to pay our debts. We will do this by ourselves. We want to be able to implement all that we have announced and enacted calmly.”
German Opposition
German Finance Minister Wolfgang Schaeuble said that only the most ‘extreme circumstances’ could justify a bailout by EU members. Schaeuble told German newspaper Bild am Sonntag that currently no joint EU mechanism is in place for assistance to EU members. Schaeuble stated, “There is no joint instrument for EU help. So only in the most extreme case could bilaterally coordinated, voluntary help come into question. But Greece has said itself it does not need this.”The Athens government has warned that it may not be able to implement promised deficit cuts if borrowing costs remained high. Schaeuble said Greece has access to aid from the IMF. Investors will be watching the EU summit closely.
Quick Forex Tip: The forex market offers investors the opportunity to profit even during a recession. If one currency rises another must fall creating constant opportunities for savvy investors to profit from currency moves. It is not difficult to learn how to trade forex currency and there are many very well written and user friendly learning programs and training courses available for free on the internet. Besides training, the most important thing those who trade forex currencies must learn to follow political and economic news and interpret the results and the affect current events will have on forex markets.
Japanese Growth Exceeds Estimates
The Aussie dollar gained on most major currencies after Japan’s economic growth exceeded predictions prompting demand for riskier assets. The Aussie also gained after Reserve Bank Governor Glenn Stevens said that the central bank will “likely” have to adjust policies to keep inflation within a target range of 2 to 3%. Sue Trinh of RBC Capital Markets in Hong Kong stated, “The better-than-expected headline for Japanese GDP seemed to put a floor under risky assets. Clearly, it all depends on headlines out of Greece but the market seems to be settling down and reduced volatility is typically quite favorable for risky assets.” The Aussie gained 0.2% on the Japanese yen trading at 80.02 yen and the Kiwi dollar traded at 62.92 yen. GDP in Japan, Australia’s second-largest trading partner after China, rose 4.6% in the fourth quarter, better than the 3.5% forecast by most economists.
Aussie Gains Limited by New Chinese Reserve Requirements
At present benchmark interest rates are 3.75% in Australia and 2.5% in New Zealand making both currencies attractive to investors seeking high yielding assets. Recently both currencies have been pressured by a rise in risk aversion prompted by concerns about the fiscal health of some EU member nations. Aussie gains were pared after the People’s Bank of China said that it will raise reserve requirement for banks by 0.5% on February 25th. China is Australia’s largest trading partner.
Euro Gains For First Time in Five Days
The beleaguered euro rose for the first time in five days as investors wagered that the currency’s losses due to Greece’s fiscal crisis were too rapid to be sustainable. Fiscal problems in Greece, Portugal and Spain have put enormous pressure on the euro since late last year. Greek Prime Minister George Papandreou said that Greece is ready to address the crisis and make the necessary reforms and predicted the crisis would end in the “very near future.” Omer Esiner of Travelex Global Business Payments stated, “There’s been a little moderation of concern about the debt crisis. Investors are still wary about the situation, but most of the bad news is reflected in the value of the euro. It’s come a long way down in a short period of time.” Prime Minister Papandreou told reporters in Moscow that “Greece now is indeed in a difficult economic situation but it’s not the end,” after talks with Russian leader Vladimir Putin who said, “I think, hope and believe that we’ll emerge from the situation in the very near future and emerge stronger than we are right now.”
Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.
