BOND REPORT: Treasurys Trade Down With Auction, Deficit In Focus

By Deborah Levine

Treasurys prices declined Thursday, sending yields higher for a fourth consecutive session, as the government got ready to sell $22 billion in 7-year notes, the last of three record-sized note auctions conducted this week.

Growing government-debt issuance is in sharp focus as President Barack Obama released his first budget amid plans to come to grips with a yawning federal deficit.

Short-term U.S. debt pared their declines, however, as a pair of economic reports indicated an even weaker-than-expected labor market and as well as declining orders for manufactured goods.

Ten-year note yields (UST10Y) rose 5 basis points, or 0.05%, to stand at 2.98% . Yields earlier had topped 3% for the first time since Feb. 9.

Two-year note yields (UST2YR) also increased, up 2 basis points to 1.11%.

Bond prices move inversely to their yields.

Open Market Analysis forex trading

Rupee continues to recover against greenback in the open market

Rupee continued to recover grounds versus dollar in the kerb as demand American dollar remained low. The American currency kicked off new day’s trading at Rs.79/50, posted more losses and was trading at Rs.79/40 at close of markets on Friday. Thus, rupee ended another day on a positive note versus dollar in the kerb dealings. In the international, the euro headed for the biggest weekly decline in a month against the dollar on speculation European Central Bank President Jean-Claude Trichet will signal in a speech today that he may cut interest rates to spur growth. The 16-nation currency is set for its seventh weekly decline in eight weeks after ECB council member Erkki Liikanen flagged the possibility of using unorthodox monetary policy to deal with a deepening recession and the financial system’s meltdown. The yen headed for a fourth weekly drop versus the dollar, the longest losing stretch since December 2007, on speculation demand for the currency as a haven will wane. “The outlook for a narrowing interest-rate differential is negative for the euro,” said Akio Yoshino, chief economist at Societe Generale Asset Management Ltd. in Tokyo. “The euro may fall to below $1.25 in the near future.” Europe’s currency dropped to $1.2620 as of 11:31 a.m. in Tokyo from $1.2674 late in New York yesterday. It touched $1.2513 on Feb. 18, the lowest level since Nov. 21. The euro weakened to 118.76 yen from 119.37 yesterday, when it reached 120.34 yen, the highest level since Jan. 19. The U.S. currency traded at 94.11 yen, from 94.20 yesterday.

FOREX RATES

FOREX RATES Pakistan Open Market Forex Rates Updated at : 21/2/2009 12:34 PM (PST)
Currency	Buying	Selling
Australian Dollar	50.80	52.00
Canadian Dollar	63.00	65.00
China Yuan	11.25	12.00
Euro	101.50	103.50
Japanese Yen	0.8440	0.8540
Saudi Riyal	21.05	21.35
U.A.E Dirham	21.55	21.85
UK Pound Sterling	114.00	116.00
US Dollar	79.65	80.10

Rupee depreciates versus greenback in the interbank dealings

Bearish trend continued to prevail in the dealings as rupee shed 0/30 paisas versus dollar amid demand of US currency rose. The US dollar started off new day’s trading at Rs.80/80, gained more grounds and was changing hands at Rs.81/10 at close of markets on Friday.

On the international desks, the dollar fell against the euro and the yen on speculation a government report will show the U.S. economy lost the most jobs since 2003, bolstering the case for the Federal Reserve to lower interest rates.

The U.S. currency also declined versus the British pound as futures traders increased bets the Fed will cut borrowing costs by half a percentage point to 0.5 percent compared with a benchmark rate of 3 percent in the U.K. A Labor Department report today may also show the unemployment rate in the U.S. rose to a five-year high as the global economic downturn deepened.

The dollar fell to $1.2753 per euro at 2:07 p.m. in Tokyo from $1.2715 late yesterday in New York. Against the pound, it declined to $1.5683 from $1.5627. The U.S. currency bought 97.53 yen from 97.75. The euro was little changed at 124.35 yen. The dollar may fall to $1.2830 versus the euro today, Ito said.

EUR/JPY tests the 119.15 support and rebounds looking for 120.00 forex trading

Thu, Feb 19 2009, 17:56 GMT
http://www.fxstreet.com

FXstreet.com (Barcelona) - Early American session, and after reaching the 120.35 (three weeks high), the EUR/JPY has fallen 120 pips to the 119.15 support on a correction movement, then the pair has begun to rise again.

The EUR/JPY has risen 50 pips in the last hour to be traded above the 119.50 level in line to test the 120.00 resistance again. If the par breaks the 120.00 and 120.35 resistance, it will go up to the 122.30, January 19th high.

Euro and Gbp again turning bearish

Fri, Feb 20 2009, 02:00 GMT
http://www.fxstreet.com

Wide movements seen in majors Thursday as uncertainty continues ruling. Early European session optimism supported by a German plan to support Eastern Europeans banks, failed to feed risk appetite. Bad macroeconomic U.S. data send stocks down under November previous lows, and investors quickly return to dollar. Gold bullish trend continues, with the commodity reaching 988 an ounce intraday high, very close to the historical maximum at 1.031.

Stocks in Asian session are falling on concern rising bad-loan costs will weigh on profits at financial companies, outweighing a gain by resource shares after oil surged from under U$ 35 a barrel. This suggest more dollar gains are about to be triggered.

EUR /USD – Consolidating just under the 1.2700 level, the pair reached 1.2760, the daily ascendant trend line broken past Tuesday. Daily close under another key resistance level 1.2725, reinforce dominant bearish trend. Resistances for Asian session will be at 1.2700 1.2730 zone, 1.3760 and above the zone around 1.2800. First important support is at 1.2647, followed by 1.2610, 1.2558 and 1.2513.

GBP/USD – The pair reached as far as 1.4446, forex trading before quickly coming down. 4 hours charts indicators point for bearish continuation with supports at 1.4245 1.4210, 1.4177 and the strong congestion zone around 1.4135. Under this last, expect more bearish momentum in the pair. Resistances placed at 1.4320, 1.4355, 1.4410 and 1.4460.

USD /JPY – Reached past 94.00 and remains above, addressing to the key forex trading resistance level 94.63. Daily confirmation above that point, will confirm longer term upside continuation. Resistances above that level, will be at 94.92 and 95.30. Under 93.95 the pair will find supports at 93.50, 93.10 and the 92.60 zone.

Asian stocks decline for second day in a row; EUR/USD at 3−month low

Tue, Feb 17 2009, 07:01 GMT
http://www.fxstreet.com

FXstreet.com (Barcelona) – Asian stock markets have lost ground on Tuesdays session for second consecutive day as investors looked for safety in moments of financial turmoil, the EUR/USD has suffered on risk aversion falling to three months low Life Insurance.

Tokyo’s Nikkei average index lost 1.4% on the back of resignation calls for its finance minister after a rather embarrassing performance at last weekend’s G7 meeting. Australia’s S&P Index lost 1.6%, and Hong Kong’s Hang Seng Index tumbled 3%.

Dollar and Yen Up in Risk Aversion

Down to currencies, EUR/USD has broken a critical support line to fall below the area between 1.2700/1.2720, reaching thus the lowest value since early December. The pair s at the moment trying to pull up from the 1.2615 area. Life Insurance On the downside, 1.2500 area will be on focus, while in case of a successful rebound above 1.2870, the area around 1.3030 could be tested.

The USD/JPY has continued growing break resistance at 92.40, last week’s high. The pair has been growing rather steadily since the 5th of February, therefore, we could advance the possibility of an attempt to reach higher levels, Car Insurance92.80. Jan 8 high. EUR/JPY has been unable to break above 117.20 and has returned below 117.00, while GBP/JPY seems to have managed above resistance at 130.35.

GBP/USD has broken below 142.70 on its withdrawn from 1.4300, losing about 100 pips to fall to levels around 142.00. if the current level gves, selling Car Insurance pressure can take the cross down to test 1.4135 first, and 1.4060.

Forex Market Comparison

Forex vs. Credit Cards Stocks
Trade Around the Clock
The forex market is a near-seamless 24-hour market. Subject to available liquidity, FXCM offers trading from Sunday, starting after 5:15 PM EST, until Friday, 4PM, EST (FXCM Client Service is available 24/7). With the ability to trade around the clock, currency traders have the advantage of customizing their own trading schedule; they can usually get in or out of the market at any time without waiting for an opening bell or encountering a market gap Credit Cards. While trading stocks after usual market hours is possible, very often that possibility is negated by a lack of order flow or a drastic widening of the bid-ask spread.

Introducing Brokers Mesothelioma

GCI offers an outstanding opportunity to qualified introducing brokers ("IBs"). Our IB program supports brokers, traders and industry participants in creating or enhancing a Credit Cardslucrative Forex or Share Trading business. Advantages of introducing business to GCI include:



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Reliable monthly payments from an industry leader. GCI depends on Introducing Brokers for a large part of its trading volume. As such, we highly value all our IB relationships and have considerable administrative resources dedicated to making sure you are paid on time and in full.
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Overview of GCI Financial

GCI Financial Mesothelioma Ltd ("GCI") is a regulated securities and commodities trading firm, specializing in online Foreign Exchange ("Forex") brokerage. In addition to Forex, GCI is a primary market maker in Contracts for Difference ("CFDs") on shares, indices and futures, and offers one of the fastest growing online CFD trading services. GCI has over 10,000 clients worldwide, including individual traders, institutions, and money managers. GCI provides an advanced, secure, and comprehensive online trading system. Client funds are insured and held in a separate customer account. In addition, GCI Financial Ltd maintains Net Capital in excess of minimum regulatory requirements.

Forex Basics Mesothelioma

GREATER LEVERAGE
Forex trading provides greater leverage than is found in traditional stock trading, which allows traders to control larger positions with smaller amounts of capital. This also allows you to trade the same size positions you might take with a stock broker, while leaving you with more available capital to trade more markets. GFT offers its customers up to 400:1 leverage. Please note that without appropriate use of risk management, a high degree of leverage can lead to large losses as well as gains.
NO MIDDLEMEN
Currency trading is done by the trader, online. By trading directly with GFT, a dealer and a primary market maker, there are no extra parties between you, the trader, and the buyer or seller of the currency pair. This elimination of the middleman can save traders in time and fees. This is different than the stock market, where you may deal with a broker and the exchange, both who charge fees and commissions. This translates to quicker access and cheaper costs for currency traders.
BUY/SELL PROGRAMS DO NOT CONTROL THE MARKET
How many times have you heard that “Big Business A” was selling “X” or buying “Z,” with an explanation of how this buy or sell will affect the entire stock market? The stock market is very susceptible to large buys and sells. On the other hand, forex is the largest, most liquid market. This makes the likelihood of any one fund, bank or company controlling a particular currency extremely slim. The extreme liquidity of the forex market is reflective of its many large participants from around the world, including banks, hedge funds, futures commission merchants (FCMs) and governments.
8000 STOCKS VS 4 MAJOR CURRENCY PAIRS
There are approximately 4,500 stocks listed on the New York Stock exchange, and another 3,500 on the NASDAQ. Which are you going to follow? Do you have time to research all the companies? In spot currency trading, there are 4 major currency pairs – EUR/USD, GBP/USD, USD/JPY and USD/CHF. If you want, you can branch out to the second-tier currencies. But most traders choose to concentrate on the major currency pairs. So choose your currency pair. Decide if you’re going to buy or sell. Then spend your afternoon on the golf course or with your family.
COMMISSION-FREE
Simply put: no commissions, no clearing fees, no exchange fees, no government fees, and no brokerage fees. With the buy and sell prices, what you see is what you get. All you pay is the spread. This is because GFT is compensated by revenues from its activities as a currency dealer, including proceeds from buying, selling, converting as well as holding currencies and interest on deposited funds and rollover fees.
SAME PRICE FOR BROKER ASSISTED TRADES
While forex trading with GFT, there is no premium for placing orders, whether you call your forex orders in, or use market orders, stop orders, limit orders or even contingent orders. In currency trading you, do not have to worry about extra charges. Ever wonder why a broker charges you more if they have to guarantee you a price than if you give them a market order with no price qualifier? Trade the currency market and stop worrying about it.
TRADE WITH YOUR REAL-TIME PROFITS
Ever been up on a stock and wished you could leverage that profit and to buy a little more of the stock? In currency trading you can use your profits to trade. Use your realized profits to add to your positions. As you gain experience, you can experiment with pyramid trading strategies. The options are endless.

BUY/SELL PROGRAMS DO NOT CONTROL THE MARKET

How Mesothelioma many times have you heard that “Big Business A” was selling “X” or buying “Z,” with an explanation of how this buy or sell will affect the entire stock market? The stock market is very susceptible to large buys and sells. On the other hand, forex is the largest, most liquid market. This makes the likelihood of any one fund, bank or company controlling a particular currency extremely slim. The extreme liquidity of the forex market is reflective of its many large participants from around the world, including banks, hedge funds, futures commission merchants (FCMs) and governments.

Why Forex?: Forex vs. Stocks

Remember that both stocks and forex trading involve risk. Forex trading is not conducted on a regulated exchange and as a result, there are additional risks associated with forex trading.

Though stocks were traditionally viewed as an investment, recent volatility and instability has led to stock trading taking on a more speculative role. Many stock traders are also trading another speculative market with many differences – forex. Instead of trading stocks of individual companies, traders are switching to trading currencies in the world’s primary market. Greater leverage, sophisticated software and strong market trends have led many former stock traders to explore the benefits of currency trading.

Markets Await Final Stimulus Vote; G7 Also in Focus (Cross Country) Mesothelioma

The markets are now anxiously awaiting the passage of the stimulus bill and equity prices are trading relatively flat. Sterling has given back much of its overnight gains this morning on the news that Lloyds subsidiary HBOS had lost Gbp8.5B last year.
MIDDAY SNAPSHOT & ANALYSIS OF SELECTED CROSS RATES

On the data front this morning, Reuters/University of Michigan confidence came in weaker than expected at 56.2 (60.6 expected), while the earlier release of Canada vehicle sales came in at -14.8% just under the consensus -15.0% estimates. The markets are now anxiously awaiting the passage of the stimulus bill and equity prices are trading relatively flat. The Fed has announced that it will expand all of its FOMC meetings in 2009 to two day affairs to allow for more time to discuss policy in the challenging market environment. Sterling has given back much of its overnight gains this morning on the news that Lloyds subsidiary HBOS had lost Gbp8.5B last year. UK Chancellor Darling in response to earlier rumors of pressures on him from Eurozone officials regarding the depreciated UK currency, has said that FX is only likely to be talked about in general terms at G7 and he also reemphasizes familiar rhetoric that the BoE targets the inflation rate rather than a particular FX level. UK PM Brown hasn’t done anything to help Sterling’s cause saying that a weaker currency has made Britain more competitive. The topic of protectionism seems to be of central importance at this weekend's G7 meeting.

US Dollar Down as Consumer Confidence Nears 28-Year Lows

After a conspicuously choppy session, the US dollar would finish the week with a modest buffer from major breakout levels (the exception being USDJPY). The University of Michigan's consumer confidence index fell more than expected in February to 56.2 from 61.2, nearing the 28-year lows, as expectations for the future of the economy remain dour. However, the component of the index gauging Mesothelioma sentiment on current conditions rose to 67.1 from 66.5, suggesting that aggressive discounting by retailers and hopes for a successful fiscal stimulus plan are having a temporary impact. Indeed, as we saw on Thursday, US retail sales surprisingly rose 1 percent in January, but with the index still down 9 percent from a year earlier and job losses climbing, the increase marks little more than a blip on the radar. In the very near-term, the US dollar

Looking ahead to next week, the February 18 release of minutes from the January Federal Open Market Committee (FOMC) meeting, when Mesotheliomathey left the fed funds target range at 0.0 percent - 0.25 percent, are likely add to indications that they will leave the target unchanged throughout much of 2009. In fact, the FOMC said in their post-meeting statement that their focus had shifted to “support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level.” The minutes may have an impact on risk trends if the Committee’s outlook proves to be more bearish than currently perceived. However, if the news happens to be positive for the stock markets, it may also be negative for the greenback, which has been trading solely as a safe-haven asset lately. On February 20 at 8:30 ET, the release of the January reading of the US Consumer Price Index (CPI) could lead the term “deflation” to be used abundantly in coming weeks and months. Indeed, CPI is forecasted to have edged a slight 0.1 percent higher during January, while the annual rate is anticipated to have fallen negative for the first time since 1955 by 0.1 percent.

Euro Forecast Dims on Worst GDP Result in 13 Years

How long will the market demand a safe haven? This is the question on most investors minds regardless of their asset class or trading method. Perhaps a more interesting question for the FX market, however, is how long can the Japanese yen retain its position as the favored safety of funds currency. These will be the key drivers for the yen over the coming week and beyond.

Forex Basics

What's Forex?

"Forex" stands for foreign exchange; it's also known as FX. In a forex trade, you buy one currency while simultaneously selling another - that is, you're exchanging the sold currency for the one you're buying. The foreign exchange market is an over-the-counter market.

Currencies trade in pairs, like the Euro-US Dollar (EUR/USD) or US Dollar / Japanese Yen (USD/JPY). Unlike stocks or futures, there's no centralized exchange for forex. All transactions happen via phone or electronic network.

Who trades currencies, and why?

Daily turnover in the world's currencies comes from two sources:

• Foreign trade (5%). Companies buy and sell products in foreign countries, plus convert profits from foreign sales into domestic currency.
  
  
• Speculation for profit (95%).

Most traders focus on the biggest, most liquid currency pairs. "The Majors" include US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. In fact, more than 85% of daily forex trading happens in the major currency pairs.

The world's most traded market, trading 24 hours a day

With average daily turnover of US$3.2 trillion, forex is the most traded market in the world.
A true 24-hour market from Sunday 5 PM ET to Friday 5 PM ET, forex trading begins in Sydney, and moves around the globe as the business day begins, first to Tokyo, London, and New York.

Unlike other financial markets, investors can respond immediately to currency fluctuations, whenever they occur - day or night.

More Info

"All About the Foreign Exchange Markets in the United States", from the Federal Reserve Bank of New York.

>" border="0" height="10" width="10">Next: Forex Quotes

Japanese Yen Safe Haven Status In Jeopardy From 'Unimaginable' GDP

While the dollar exhibited incredible volatility this past week; for the most part, the increase in price action would not come with any defined direction from the world’s most liquid currency. Instead, the majors would further carve prominent wedge formations that will ultimately demand breakouts and a decision for direction some time soon – and that resolution may come this week.

ForexCharts by eSignal

ForexCharts by eSignal is a complete charting package developed by a leading provider of real-time market information and award-winning products and services.

The ForexCharts by eSignal package provides indicators and drawing tools for trend analysis and to identify potential entry and exit points, and includes the following features:

• Real time data feed powered by FOREX.com for the majors and several crosses
  
• Composite data feed from Global Treasury Information Services, Inc. (GTIS), that provides a broad representation of the market as a whole
  
• Line, bar and candlestick charts
  
• More than 30 analytical studies
  
• Page-saving system to organize charts and layouts, and more
  

ForexCharts by eSignal is available at no cost to FOREXPlus, FOREXPremier and FOREXPro clients. Click here for more information on FOREX.com Premium Services.

FOREXTrader Charts

Traders seeking a robust, yet easy-to use charting tool will find FOREXTrader Charts to be a comprehensive technical analysis package. A streamlined layout makes it easy to access commonly used features and indicators.

Whether you use Stochastics, Bollinger Bands, Moving Averages or Fibonacci, you can find over 60 technical and line studies right within the charting application.

• Monitor currency trades and orders directly on the charts.
  
  
• Use the template saver to save your technical indicator setups and apply them to future charts.
  
  
• Get a closer look at the markets with FOREXTrader Tick Chart.
  
  
• Customize and save fonts, colors, indicator parameters, and more

FOREXTrader Charts are available on the FOREXTrader Windows platform. To learn about forex charts available on FOREXTrader.java and FOREXTrader.web, click here.

Forex risk management strategies

The Forex market behaves differently from other markets! The speed, volatility, and enormous size of the Forex market are unlike anything else in the financial world. Beware: the Forex market is uncontrollable - no single event, individual, or factor rules it. Enjoy trading in the perfect market! Just like any other speculative business, increased risk entails chances for a higher profit/loss.

Currency markets are highly speculative and volatile in nature. Any currency can become very expensive or very cheap in relation to any or all other currencies in a matter of days, hours, or sometimes, in minutes. This unpredictable nature of the currencies is what attracts an investor to trade and invest in the currency market.

But ask yourself, "How much am I ready to lose?" When you terminated, closed or exited your position, did you understand the risks and taken steps to avoid them? Let's look at some foreign exchange risk management issues that may come up in your day-to-day foreign exchange transactions.

• Unexpected corrections in currency exchange rates
• Wild variations in foreign exchange rates
• Volatile markets offering profit opportunities
• Lost payments
• Delayed confirmation of payments and receivables
• Divergence between bank drafts received and the contract price

These are areas that every trader should cover both BEFORE and DURING a trade.

Forex candlestick chart patterns

his article provides insight into Candlestick patterns that can be extracted from Foreign exchange charts. A candlestick chart is a style of bar-chart used primarily to demonstrate price movements over a certain time period.

Doji
A name for candlesticks that provide information on their own and feature in a number of important patterns. Dojis form when the body of the candle is minimal as market's open and close are virtually equal.

Hammer
A price pattern in candlestick charting that occurs when the market trades significantly lower than its opening, but rallies later in the day to close either above or close to its opening price. This pattern forms a hammer-shaped candlestick.

Inverted hammer
A price pattern in candlestick charting that occurs when a security trades significantly higher after its opening, but gives up most of all of its intraday gain to close well off of its high. Gravestone - The market gaps open above the previous day's close in an uptrend. It rallies to a new high, then loses strength and closes near its low: a bearish change of momentum. Confirmation of the trend reversal would be an opening below the body of the Shooting Star on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has a higher reliability associated with it than a Shooting Star.

Forex-Forecasting

This article provides insight into the two major methods of analysis used to forecast the behavior of the Forex market. Technical analysis and fundamental analysis differ greatly, but both can be useful forecast tools for the Forex trader. They have the same goal - to predict a price or movement. The technician studies the effect while the fundamentalist studies the cause of market movement. Many successful traders combine a mixture of both approaches for superior results.

Technical analysis

Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action. Technical analysis is concerned with what has actually happened in the market, rather than what should happen and takes into account the price of instruments and the volume of trading, and creates charts from that data to use as the primary tool. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously.

Technical analysis is built on three essential principles:

1. Market action discounts everything! This means that the actual price is a reflection of everything that is known to the market that could affect it, for example, supply and demand, political factors and market sentiment. However, the pure technical analyst is only concerned with price movements, not with the reasons for any changes.

The Australian Dollar

The Australian dollar is a commodity-based currency and is currently the sixth most traded currency in the world currency market (behind the US dollar, the euro, the yen, the British pound and the Swiss franc). It accounts for approximately 5% of the total volume of foreign exchange transactions (approximately 1.9 trillion dollars a day). Its popularity is due to the fact that there is little government intervention in the currency and a general view that Australia has a stable economy and government.

For much of its history, the Australian dollar was pegged to the British pound however, that changed in 1946, when it was pegged to the US dollar under the Bretton Woods system. When this system broke down in 1971, the AUD moved from a fixed peg to a moving peg to the US dollar. Then in September 1974, it moved to a moving peg against a basket of currencies called the TWI (trade weighted index) because of concerns about the fluctuations in the US dollar. This continued until December 1983, when the then Labour government under Prime Minister Bob Hawke and Treasurer Paul Keating �floated� the Australian dollar. The Australian dollar is now governed by its economy�s terms of trade. Should Australia�s commodity exports (minerals and farms) increase then the dollar increases. Should mineral prices falls or when domestic spending is greater than exports, then the dollar falls. The resulting volatility makes the Australian dollar an attractive vehicle for currency speculators and is the reason why it is one of the most traded currencies in the world despite the fact that Australia only comprises 2% of the global economic activity.

Dollar-euro currency exchange

This article provides an overview of the factors affecting the leading currency pair: Euro-dollar exchange, commonly expressed as EUR/USD.

The euro to dollar exchange rate is the price at which the world demand for US dollars equals the world supply of euros. Regardless of geographical origin, a rise in the world demand for euros leads to an appreciation of the euro.

Factors affecting exchange rates
Four factors are identified as fundamental determinants of the real euro to dollar exchange rate:

• The international real interest rate differential
• Relative prices in the traded and non-traded goods sectors
• The real oil price
• The relative fiscal position

The nominal bilateral dollar to euro exchange is the exchange rate that attracts the most attention. Notwithstanding the comparative importance of euro to US dollar bilateral trade links, trade with the UK is, to some extent, more important for the Euro zone than is trade with the US. The dollar and the euro have a strong predisposition to run together in the very short run, but sometimes there can be significant discrepancies. The very strong appreciation of the dollar against the euro in 2003 is one example of these discrepancies.

In the long run, the correlation between the bilateral dollar to euro exchange rate, and different measures of the effective exchange rate of Euroland, has been rather high, especially if one looks at the effective real exchange rate. As inflation is at very similar levels in the US and the Euro area, there is no need to adjust the dollar to euro rate for inflation differentials, but because the Euro zone also trades intensively with countries that have relatively high inflation rates (e.g. some countries in Central and Eastern Europe, Turkey, etc.), it is more important to downplay nominal exchange rate measures by looking at relative price and cost developments.

The explosion of the Euro market

The rapid development of the Eurodollar market, where US dollars are deposited in banks outside the US, was a major mechanism for speeding up Forex trading. Likewise, Euro markets are those where assets are deposited outside the currency of origin.

The Eurodollar market first came into being in the 1950s when the Soviet Union's oil revenue -- all in US dollars -- was being deposited outside the US in fear of being frozen by US regulators. This resulted in a vast offshore pool of dollars outside the control of US authorities. The US government therefore imposed laws to restrict dollar lending to foreigners. Euro markets then became particularly attractive because they had fewer regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euro markets an advantageous place for holding excess liquidity, providing short-term loans and financing imports and exports.

London was and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance. London's convenient geographical location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euro market.

The History of the Forex Market

An overview into the historical evolution of the foreign exchange market

This article will follow the historical roots of the international currency trading from the days of the gold exchange, through the Bretton Woods Agreement, to its current setting.

The Gold exchange period and the Bretton Woods Agreement.

Prior to Bretton Woods, the gold exchange standard -- paramount between 1876 and World War I -- ruled over the international economic system. Under the gold exchange, currencies experienced a new era of stability because they were supported by the price of gold.

However, the gold exchange standard had a weakness of boom-bust patterns. As a country's economy strengthened, its imports would increase until the country ran down its gold reserves, which were required to support its currency. As a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities would hit bottom, appearing attractive to other nations, who would rush in and amid a buying frenzy inject the economy with gold until it increased its money supply, driving down interest rates and restoring wealth into the economy. Such boom-bust patterns abounded throughout the gold standard until World War I temporarily discontinued trade flows and the free movement of gold.

Exchange rates

Because currencies are traded in pairs and exchanged one against the other when traded, the rate at which they are exchanged is called the exchange rate. The majority of the currencies are traded against the US dollar (USD). The four next-most traded currencies are the Euro (EUR), the Japanese yen (JPY), the British pound sterling (GBP) and the Swiss franc (CHF). These five currencies make up the majority of the market and are called the major currencies or "the Majors". Some sources also include the Australian dollar (AUD) within the group of major currencies.

The first currency in the exchange pair is referred to as the base currency and the second currency as the counter term or quote currency. The counter term or quote currency is thus the numerator in the ratio, and the base currency is the denominator. The value of the base currency (denominator) is always 1. Therefore, the exchange rate tells a buyer how much of the counter term or quote currency must be paid to obtain one unit of the base currency. The exchange rate also tells a seller how much is received in the counter term or quote currency when selling one unit of the base currency. For example, an exchange rate for EUR/USD of 1.2083 specifies to the buyer of euros that 1.2083 USD must be paid to obtain 1 euro.

An overview of the Forex market

The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.

The main enticements of currency dealing to private investors and attractions for short-term Forex trading are:

• 24-hour trading, 5 days a week with non-stop access to global Forex dealers.
• An enormous liquid market making it easy to trade most currencies.
• Volatile markets offering profit opportunities.
• Standard instruments for controlling risk exposure.
• The ability to profit in rising or falling markets.
• Leveraged trading with low margin requirements.
• Many options for zero commission trading.