US Dollar Pulls Back From Multi Month Low

Dismal figures posted by General Electric and Bank of America have triggered a rise in risk aversion causing the US dollar to pull back from a 14 month low. General Electric reported a 42% decline in profits and Bank of America posted a quarterly loss sending investors and traders in search of safe haven assets. Investors were disappointed with the results after earlier in the week JP Morgan posted positive figures. Philip Lawlor of Nomura stated, “JPMorgan set the hurdle rate very high, and at the margin it’s difficult for the banks - you saw it with Goldmans yesterday - to now come in and have the same type of positive reaction.”

US Consumer Sentiment Down

US consumer sentiment fell as consumers remain concerned that recovery will be slow and drawn out. The combination of poor stock performance in Europe and the US and low US consumer sentiment triggered a round of risk aversion benefiting the US dollar. Shaun Osborne of TD Securities in Toronto stated, “It’s not a particularly good report as we saw a big drop in the outlook. It’s a case of poor data hurting equities but supporting the dollar in a risk-off and risk-on mentality.”

Commodity Based Currencies Perform Well

The dollar gained 0.5% on the euro and traded at $1.4872 on Friday and against the Japanese yen the dollar gained 0.6% trading at 91.09 yen. The pound fell to $1.6270 after hitting a three week high of $1.6401. The Canadian dollar fell for the second straight day as risk aversion trimmed demand for risky assets. The two day decline came after a rally that many believed would push the Canadian dollar to parity with the US dollar. Against the greenback the Canadian dollar was the fourth best performer after the Aussie dollar, the Brazilian real and the Mexican peso. All are commodity based currencies which have performed well in forex markets.

Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.

Trading forex has become incredibly popular during the past few years and can be incredibly lucrative. Forex traders have access to incredible amounts of leverage which can mean incredible profits and, unfortunately, losses. Successful forex traders share several characteristics in common including discipline, long term focus and extensive preparation and education. Forex trading is also high risk and currency markets can be volatile. During the current recession many successful forex traders have learned how to profit from a dismal economy. Like any kind of investing forex trading has its pitfalls but by avoiding common mistakes novice forex traders can mitigate some risk. Here are the top 10 mistakes commonly made by novice traders.

1.    Dealing with unlicensed forex traders.

Licensed forex traders are subject to regulations and will do everything in their power to make sure your trades are based on the best current market information. Unlicensed traders may take excessive risks especially when they are using the funds of others.

2.    Dealing With Offshore Forex Traders

Investing offshore is a real risk. While some offshore traders may be reputable there have been many scams reported and some would be traders have been swindled. If things go badly you will have no legal remedies available if you account goes south.

3.    Lack of Education

Forex trading is complex and without the proper education bad and costly decisions are bound to be made. Traders need to be able to analyze market news and act accordingly. Novice traders should have extensive knowledge of forex trading before the first trade is made.

4.    Failure to Understand leverage

Using the leverage available to forex traders can be a double edged sword. Traders who do not understand leverage are setting themselves up for huge losses. The greater the amount of leverage assumed by the investor the greater the risk.

5.    Not Checking References

Not checking the references of a forex trader can be a fatal mistake that could cost the investor dearly. Any successful forex trader should be able to provide multiple references.

6.    Investing Too Much Money

Forex trading is very high risk and traders should never invest more than they are willing to lose. Although the forex market can be very lucrative market conditions can change several times during the course of a day.

7.    Pursuing High Yields

As has been stated several times forex markets are volatile and long term stability should be the goal. New traders should use low or moderate risk strategies.

8.    Over Trading

New forex traders should limit their trading to one or two markets at first.

9.    Lack of a Trading Plan

Forex traders should establish both long and short term goals. Do not base the trading plan on hypothetical profits and use a clear logical approach. Set daily, weekly and monthly trading goals along with a long term plan.

10. Failure to Use   Use Logic and Reason

There are many websites hawking ‘foolproof’ forex trading methods and many other sites offering ‘hot’ forex tips. While many forex software trading platforms are based on scientific formulas and algorithms many other software platforms are scams. There is no substitute for a thorough education. Forex traders should always use logic and reason when making trading decisions.

While this list is by no means complete these are some of the most common mistakes novice forex traders make. Avoiding these mistakes can easily make the difference between profit and loss.

Quick Forex Tip: Interbank forex trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank forex trading, s/he must do so through the use of a broker.

Dollar Falls Against 15 of !6 Major Currencies

The US dollar experienced a slight dip after three straight days of gains as investors and currency traders sought out higher yielding assets putting downward pressure on the dollar. The dollar fell against 15 of the 16 major currencies as Asian stock markets rose due to a report from the Asian Development Bank said that regional economies will grow at a better than expected pace and demand for emerging market assets will increase. U.K. Prime Minister Gordon Brown expressed concerns about removing government stimulus programs too soon. Brown, who will be attending the G 20 summit, stated, “The stimulus that we have still got to give the world economy is greater than the stimulus we have already had. What we want to do is safeguard a recovery from a recession we feared would develop into a depression.”

Rising Risk Appetite Pressures Dollar

The US dollar vs. euro traded bear a one year low due to rising risk sentiment and a widespread belief that the worst of the recession is over. Many economists believe that the Fed will continue to keep rates at record lows sending currency traders in search of higher yielding assets. Lee Hardman of the Bank of Tokyo stated, “The dollar is likely to remain weak in the near term, what’s driving the dollar lower is the exceptionally loose liquidity conditions, and this encourages its use as a funding currency.”

Concern Over Euro’s Strength

Once again New Zealand’s dollar was a big winner on forex exchanges. The Kiwi rose 0.8% to $0.7250. The euro took a hit after a French official expressed concern about the Euro’s strength. In midday trading the DXY was up slightly at 76.211 after hitting a low of 75.892, the lowest since last September. Forex traders remain cautious in advance of the expected Fed statement and the G 20 summit scheduled to take place in Pittsburgh.

Quick Forex Tip: Interbank fx trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank fx trading, s/he must do so through the use of a broker.

Dollar vs. Yen at Two Week High

The US dollar rose on Monday hitting a near two week high against the Japanese yen. The dollar rose slightly more than 1.0% against the yen and trade was muted in Asia as many major cities closed for holidays. In midday trading in New York the dollar vs. yen rate rose 1.1% to 92.26.  A dearth of economic data caused traders to take profits on other currencies that have recently rallied against the dollar. Many force traders are awaiting the results of the Federal Open Market Committee meeting Wednesday. The FOMC is expected to keep rates at between 0% and 0.25% and many forex traders will be watching for any signs of the Feds exit strategy from quantitative easing. Vassili Serebriakov of Wells Fargo stated, “The markets are consolidating and correcting ahead of the Fed decision this week.”

Dollar Correction Due

Some forex traders and currency analysts noted that investors are concerned about short dollar positions and said a correction may happen in the near future. Vassili Serebriakov commented, “We have also seen from the speculative positioning an increase in dollar shorts, in particular euro longs. So it’s surprising to see that outstanding short exposure is being scaled back.” Forex traders increased short dollar positions, betting that the greenback will depreciate, last week to the highest since March 2008 according to the Commodity Futures Trading Commission.

Dollar Gains on Euro

The euro vs. dollar fell 0.3% to $1.4659 down from a high of $1.4766 last week, the highest since September 2008. Against a basket of currencies the DXY, ICE dollar future index rose to its highest since September 10th at 76.50 up 0.6 % for the day. Stocks were down dampening risk sentiment benefiting the greenback. Investors are watching the Fed closely watching for changes in the Fed’s economic assessment.

Bernanke Says Recession “Very Likely” Over

In a statement last week Fed Chairman Ben Bernanke said that the recession was “very likely” over. Marc Chandler of Brown Brothers Harriman believes that the Fed is likely to be cautious about the US economy and will keep interest rates at record lows for an extended period of time.

Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.

Dollar Hits One Year Low

The US dollar fell to its weakest level in almost a year against the euro. Rising stocks and increased US industrial production are seen as signs of recovery causing forex traders to sell the dollar in favor of higher yielding currencies. The Kiwi dollar posted the biggest gains vs. the US dollar and investors were attracted by the three-month deposit rate that is almost ten times higher than US deposit rates. Lauren Rosborough of Westpac Banking Corp. stated, “We are in an environment that is constructive for growth. It is positive for high- yielding, high-beta currencies. We are seeing evidence that cash is moving out of banks.”

Rate Comparisons

In yesterdays trading the dollar to euro exchange rate fell 0.5% to $1.4724 the lowest since September, 25th, 2008. The Japanese yen gained 0.1% against the US dollar trading at 90.95. The Kiwi dollar rose an astounding 1.5% to $71.53. The three month deposit rate in New Zealand is 2.73% compared with US rates of 0.28% and Japanese rates of 0.38%. The Aussie dollar rose 1.3 to $87.49 and offers a three month rate of 2.93%. Brian Dolan of FOREX.com stated, “The dollar is on its back heels. Until we get a setback in the risk markets, the dollar looks to remain under pressure.”

Rising Stocks Pressure Dollar

Stock gains put downward pressure on the dollar and pared safe haven demand. The Standard and Poor’s 500 Index rose 1.4 % and the DXY which tracks the US Dollar against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish Krona fell 0.5% to 76.151, the lowest since September, 23rd, 2008. Rising risk appetite has damaged the dollar on forex markets. Michael Woolfolk of BNY Mellon stated, “The trend is for continued improvement in risk appetite. The dollar remains under
pressure.”

It is clear that increased risk sentiment is putting the US dollar under pressure. Massive US deficits are also a concern among investors.

Quick Forex Tip: Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition - meaning that no market participant is large enough to set currency prices. As a result, forex trading has become popular with smaller investors because forex markets offer investors the opportunity to profit during troubled times , allowing them to offset losses in other markets.

Dollar’s Reserve Status Questioned

Speculation and rumors about the US dollar’s status as the world’s reserve currency have been widespread. Interbank forex exchanges around the world have been paying particular attention to these rumors and statements. The replacement of the dollar as a reserve currency would seriously disrupt currency markets including the interbank forex.

Dollar’s Reserve Status Will Not be Topic at G 20 Summit

In January the dollar was called into question by Russia’s Vladimir Putin. More recently China expressed concerns about the dollar and many interbank forex brokers expected it to be a topic of discussion at the upcoming G 20 conference in London. Recent comments by both Japanese and Russian officials say that the topic will not be discussed at the G 20 summit.

Geithner’s Remarks Questioned in Congress

In the US Minnesota Representative Michelle Bachmann asked Treasury Secretary Timothy Geithner and Federal Reserve Chair Ben Bernanke to “categorically renounce the United States moving away from the dollar and going to a global currency.” Representative Bachmann has also introduced a bill in congress that”would bar the dollar from being replaced by any foreign currency.” Interbank forex brokers took note of a contradictory remark by Treasury Secretary Timothy Geithner that he was open to the idea of an international reserve currency.

German Finance Minister Warns of Euro’s Decline

For now, the US dollar’s status as the world’s reserve currency seems to be safe. This week the Euro experienced a serious decline against the dollar. Last week many were predicting a good week for the Euro on interbank forex markets. Remarks by Peer Steinbrück, German finance minister, put pressure on the Euro. Steinbruck warned that fiscal irresponsibility in Europe threatened the Euro’s future.

G 20 Summit to be Closely Watched

Next week’s G 20 summit in London is sure to draw the attention of interbank forex brokers and investors. Quite possibly interbank forex brokers and traders can get a glimpse of what various governments will do to address the ongoing global recession.

Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.

Markets Depend on the Dollar

The idea of a reserve currency is centuries old. After the Second World War the US dollar was placed at the center of the international banking system by the Bretton Woods agreement. Interbank forex brokers calculated transactions against the US dollar and under the Bretton Woods system dollars could be exchanged for gold at a fixed rate. In the 70’s the system came undone but the US dollar remained as the world’

s reserve currency due to a lack of competitor currencies. Interbank forex markets have long depended on the dollar.

UN Panel to Recommend Replacement of the Dollar

Fast forward to 2009 and the dollar is in real trouble. Many countries are suggesting that the dollar be replaced by a basket of currencies that would become reserve currencies. Many interbank forex brokers took note of an announcement by a United Nations panel that will recommend that the  dollar be replaced as the world’

s reserve currency. Avinash Persaud, a member of the panel and a currency specialist has suggested the creation of something similar to the old European Currency Unit. Persaud stated, “It is a good moment to move to a shared reserve currency.”

China and Russia Desire New Reserve Currency

A move of this magnitude is bound to affect interbank forex markets and cause uncertainty among investors. Many countries desire a change from the dollar including China and Russia. Persaud believes that the Chinese Yuan will replace the dollar as a reserve currency within decades. Interbank forex brokers took note of the fact that last week the greenback was well on its way to the worst week in 24 years. Interbank forex traders blamed the decline on new Fed policies and rising risk sentiment.

This issue is bound to be discussed at the upcoming G20 summit in early April. Interbank forex brokers will be watching the summit with rapt attention. If the dollar is dumped it could be a whole new ball game in interbank forex markets.

Quick Forex Tip: Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition - meaning that no market participant is large enough to set currency prices. As a result, forex trading has become popular with smaller investors because forex markets offer investors the opportunity to profit during troubled times , allowing them to offset losses in other markets.

Us to Have 40% Stake in Citibank

Markets have responded positively to the news that the US will have a 40% stake in Citibank calming fears of total bank nationalization. Interbank forex brokers were pleased with the news and the return to risk appetite. The Japanese Yen fell on Monday and surrendered some of its safe haven status on interbank forex exchanges.

Possible Austrian Credit Downgrade

The news affected both the dollar and the Yen as interbank forex brokers sought out higher yielding currencies. The Euro fell further against the dollar amid concerns about the possible downgrading of Austria’s AAA credit rating. Austria would join several Euro Zone countries with downgraded ratings. The US Federal Reserve Bank and the Treasury said that both agencies stand behind the US banking system.

Yen Pressured By Negative Economic Data

The Japanese Yen fell 1.1% against the Canadian dollar, 0.9% against the Swiss Franc, and 2.7% against the British Pound. The Yen was also pressured by dismal economic data and massive job losses in Japan causing the Yen to surrender some of its safe haven status on interbank forex markets.

Euro Surrenders Gains

The Euro surrendered gains against the US dollar and fell 0.2% to 1.2817. Comments by ECB President Jean-Claude Trichet pointed out the Euro Zone’s banking and economic problems. Interbank forex brokers have seen the Euro fall significantly during the global economic crisis. Interbank Forex brokers are cautious about more dismal news emerging from the Euro Zone and are waiting for the Ifo index on the German economy due on Tuesday.

Weekend Conference Disappointing

Interbank forex brokers were also disappointed with the results of a weekend conference of European leaders which failed to come to any agreement on how to address the ongoing Euro Zone recession. Ulrich Leuchtmann of Commerzbank stated, “There was disappointment that the main focus of the G20 meeting was on financial market regulation, which is not the most important problem at a time of global recession.”

Interbank forex brokers welcome the return to risk appetite which means increased profits for their respective banks and their investors. We can only hope this trend continues.

Quick Forex Tip: The average investor usually participates in the interbank market through a broker who handles funds for a large group of investors. The large amount of money given to the broker gives him access to the favorable spreads available in the interbank market. For small investors there are a huge number of interbank FX reviews available online. These reviews give the average investor the ability to research the positives and negatives of the brokers reviewed. Most interbank FX reviews will detail customer service experiences, reliability and investment track records.

Pound Very Troubled

The British Pound has probably suffered the most of any major currency during the ongoing global financial crisis. The Pound has fallen 35% against the US dollar, 51% against the Japanese Yen, and 44% against the Euro on Interbank Forex markets. Interbank Forex brokers report that the troubled Euro has fallen 32% against the Japanese Yen, 19% against the US dollar and

Health of British Banking Sector Questioned

Recent economic data from the UK and interest rate uncertainties are, in large part, responsible for the Pound’s poor performance on interbank Forex markets. Many interbank Forex brokers question the overall health of the British banking sector and data shows the UK in a more severe recession than was previously thought. The Bank of England has been faster and more aggressive than its European counterpart in addressing the Economy and interest rates but is far behind the actions taken by the US Federal Reserve.

Rates To Fall Further

Even though the Bank of England’s rates are at a 300 year low at 1.5% most interbank forex brokers expect rates to fall even further. Gross Domestic Product shrank 1.5% in 2008 the largest fall since 1980. Unemployment is at its highest since 1997 and stands at 6.1%. Manufacturing output shrank to 6.9%, and Industrial output declined 7.4%. It has also been reported that consumer spending and confidence are declining further.

Nationalization Possible

In the UK the financial services industry represents a large part of the overall British economy and this includes the interbank forex market. While the government does not mention bank nationalization recent actions have caused banks to become more dependent on government rescue packages and the government now owns large stakes in the nation’s banks. If and when the recession ends it is thought that a nationalized banking system will not be as profitable as privately run banks and will provide fewer jobs.

Upcoming Elections Could Affect Pound

Another major factor affecting the Pound on interbank forex markets is the upcoming national elections. Prime Minister Gordon Brown’s Labour Party is falling behind in national polls. In western countries the state of the national economy can easily determine election results. It is expected that the Labour government will do everything within its power to stimulate the economy but some of these actions could hurt the Pound on interbank Forex markets.

Currency markets have been volatile resulting in turmoil in currency markets including the interbank forex. As of late interbank forex brokers have had an unenviable job of coping with these constantly changing conditions.

Quick Forex Tip: Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition - meaning that no market participant is large enough to set currency prices. As a result, forex trading has become popular with smaller investors because forex markets offer investors the opportunity to profit during troubled times , allowing them to offset losses in other markets.

European Style Nationalization in US?

The recent action taken by the US government to rescue the ailing Bank of America has many discussing the possibility of a European style nationalization of banks in the US. Because of the global financial crisis what once had been unthinkable is now a distinct possibility. There is already speculation about how this would affect the Dollar and the Interbank Forex markets.

US Government Putting Pressure on Financial Sector

While few see the government nationalizing the entire banking system the US is becoming more willing to put pressure on many of the largest banks. One example is that of IndyMac Bank, a failed California thrift that the government operated for much of last year. Roy Smith, professor at New York University’s Stern School of Business stated, “We’re nationalizing banks one at a time now. The real question is, will the biggest ones need to be nationalized?”

US Banking System in Need of Capital

The US banking system is in dire need of capital and estimates of the shortfall range from $700 billion to more than $2 trillion. Since the losses are all but impossible to estimate it is unlikely that the needed capital will come from the private sector including Interbank Forex markets. Since it is unlikely that private investors will bail out the financial sector the U.S. government will have little option but to step up. The smooth functioning of the financial sector, including interbank Forex trading, is seen as the key to reviving an economy stuck in a recession.

Regulators Tighten Grip After Bear Stearns Fiasco

Last fall at the beginning of the financial crisis the US government tried to penalize investors to the smallest extent possible when it intervened in the financial sector. When Bear Stearns & Co Inc failed, the government brokered a deal that resulted in Bear shareholders getting money, while debt holders lost nothing. After the Bear Stearns deal regulators tightened their grip and allowed Lehman Brothers to fail causing chaos in financial markets.

CitiGroup Faces Government Pressure

When CitiGroup was about to fail the government bought preferred shares and warrants, giving the government exposure similar to owning shares without diluting shareholders. There are signs that Citigroup is facing significant government pressure. The bank supported new bankruptcy legislation that opponents say will give consumers an incentive to file for bankruptcy despite opposition from most of the banking industry. People familiar with the situation said that regulators have been exerting more pressure on the bank since late November, when Citigroup got a second round of funding under the U.S. Treasury’s Troubled Asset Relief Program.

Bank of America Faces Increased Scrutiny

Bank of America, which received more bailout funds from the, government, is facing increased scrutiny from government regulators. The transition team of president-elect Barack Obama, who takes office on Tuesday, has said it will seek more concessions from banks seeking capital than the Bush administration did.

Actions Fall Short of Full Nationalization

Although the US government has so far acted with quiet restraint, its actions fall short of full scale nationalization of banks. Most experts familiar with the industry and several interbank Forex traders question whether full nationalization of the biggest banks is likely any time soon. Nationalizing just one of JPMorgan Chase & Co, Bank of America Corp, or Citigroup, which together have about half the assets in the banking system, would double the Federal Reserve’s balance sheet instantly. This could put pressure on the Dollar in interbank Forex markets. The dollar fallen some 17 percent against the Japanese yen since August 2008.

Political Power Blocks Nationalization

If the government were to nationalize one large bank investors and shareholders would most likely lose confidence in other marginal banks. The banking industry is obviously opposed to nationalization and wields immense political power in Washington. Dean Baker, co-director of the Center for Economic and Policy Research stated, “If it weren’t for the political power of the industry, nationalizing is what you’d want to do. It’s almost a no-brainer.”

It remains to be seen whether US banks will be nationalized. If economic conditions worsen the US government may have little choice. How this will affect the dollar and interbank Forex market is open to speculation.

Quick Forex Tip: Interbank fx trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank fx trading, s/he must do so through the use of a broker.