One of the first things Forex traders both amateur and professional learn is how to read currency pairs. Forex traders quickly learn that the first currency listed in any pair is only worth something in relation to the second currency in that pair. As an example the pair EUR/USD tells the trader how much the Euro is worth in U.S. dollars. Forex traders know that only certain pairs can be traded and they all have symbols just as stocks have symbols. As an example the major currency pairs are listed below,
EUR/USD (euro/U.S. dollar)
USD/JPY (U.S. dollar/Japanese yen)
GBP/USD (British pound/U.S. dollar)
USD/CHF (U.S. dollar/Swiss franc)
USD/CAD (U.S. dollar/Canadian dollar)
AUD/USD (Australian dollar/U.S. dollar)
NZD/USD (New Zealand dollar/U.S. dollar)
The symbols are always listed in the order given above, but why? Markets need standardization and order in order to thrive and to facilitate trading. The first currency listed is the base currency and the second listed currency is the quote currency. The original standardization of currency pairs was done by the International Organization for Standardization, or the ISO. This organization is also responsible for setting industrial and commercial standards for international trade. This non governmental organization has a major influence in international commerce.
At first, since London traditionally has been the center for currency exchange the ISO put the UK at the top of the list so the currency pair GBP/USD makes perfect sense to Forex traders. The Euro started official trading on January 4, 1999 and took first position over the Pound in currency pair quotes. London bankers were aghast that another currency could displace the Pound in currency quotes. It was actually the international news agency Reuters that is responsible for the Euro GBP order.
As every Forex trader knows currencies have a hierarchy. Once this hierarchy was established Forex traders could always tell which currency would be listed first in any pair. The hierarchy is as follows,
Euro (EUR)
British pound (GBP)
Australian dollar (AUD)
New Zealand dollar (NZD)
United States dollar (USD)
Canadian dollar (CAD)
Swiss franc (CHF)
Japanese yen (JPY)
The higher the currency is on the list means it will be listed first in any currency pair. This hierarchy remains in effect to this day and is one of the least known Forex facts. In fact, many Forex traders would be at a loss to explain why currency pairs are structured the way they are.
Dollar Continues To Gain
The US dollar continued its astounding gains against the Euro for the third week in a row with Forex traders and investors seeking the safety of US government backed assets. The Japanese Yen continued its gain against the Brazilian real and the Mexican Peso as Forex traders and investors sell high yielding assets and pay back loans with the Japanese Yen.
Risk Aversion Still Prevelant
According to currency strategist Jacob Oubina, “Risk aversion is still prevalent.” The dollar traded at $1.2582 against the Euro up 0.2% from $1.2605 on Nov. 14. The Intercontinental Exchange’s Dollar Index which tracks the Dollar against the Euro, the Yen, the British Pound, the Canadian Dollar, the Swiss Franc and Sweden’s Krona rose to its highest level since April 2006 pointing Forex traders towards the Yen and the Dollar. According to JP Morgan the Yen will continue to advance against the Dollar and the Euro towards years end.
Bank of Japan Continues Low Rates
The Bank of Japan kept its lending rate at 0.3% and said it will consider putting more money into the financial system to prop up the Japanese economy that has already descended into a recession. Japan’s low interest rates have attracted Forex traders taking advantage of the low rates. Tohru Sasaki, chief currency strategist in Tokyo at JPMorgan Chase & Co. stated, “There’s strong possibility that the yen will continue appreciating as the global recession may deepen. “It’s an environment where losses in cross-yen currencies are likely to be even bigger than those in the dollar-yen.”
Euro To Gain as Much as 16% Next Year
Some analysts predict that the Euro may gain as much as 16% against the US Dollar next year due to demand for oil in China. The Chinese demand could drive up prices making the US dollar less attractive to Forex traders and investors. The Chinese economy is expected to expand in the coming year. The dollar may weaken as Forex traders demand higher returns.
Forex Traders Still Making Money
At present stock markets continue their chaotic performance making Forex markets and exchanges more attractive to investors. Savvy Forex traders are still making money and offering investors opportunities not available in stock and commodity markets.
We have all read about the recent strong performance of the US dollar and the Japanese Yen on Forex exchanges. Forex traders and invest0
Dollar Continues to Perform Well
Despite the inaction of the G20 summit the dollar continues to do well on Forex markets indicating the telltale signs of continuing risk aversion by Forex traders. The G 20 (Group of Twenty Finance Ministers and Central Bank Governors) met over the weekend in Washington to discuss the global financial crisis and what regulatory solutions could be taken to prevent future crises.
G 20 Promises Bold Action
The group, which met for less than six hours at the National Building Museum, promised bold action in several areas including increased oversight of financial markets, reform of the International Monetary Fund and the World Bank, and urged governments to implement fiscal policies to stimulate growth. The group left most of the difficult decisions for future meetings. A final statement issued by the group stated, “Against this background of deteriorating economic conditions worldwide, we agreed that a broader policy response is needed, based on closer macroeconomic cooperation, to restore growth, avoid negative spillovers and support emerging market economies and developing countries.”
Free Markets to Continue
Despite philosophical differences one of the only agreed upon conclusions was the continuation of free market capitalism. Brazilian President Luiz Inácio Lula da Silva called on the larger members not just to lend money as a band-aid to financial troubles, but to continue with policies which bolster growth and increase trade as a healthier solution to the recent economic crisis.
Dollar Rallies After Slight Decline
The US dollar is regaining its strength after a slight decline on Forex markets last week and continues to provide investors with Forex opportunity. The dollar continues to gain against the Euro which continues its decline on Forex markets. Forex traders have experienced volatile market conditions since the global crisis began and have been watching the G 20 summit with intense interest.
Dollar Gains Against Yen
The dollar has also gained against the high performing Japanese Yen in forex trading. The Japanese economy is in serious trouble and lower demand for Japanese products has caused the Japanese economy to contract and has affected the Yen in FX trading.
Forex Traders and the G 20
While the G 20 summit did little to calm troubled markets it is seen as a first step towards a global economic agreement. Uncertain economic conditions have caused Forex traders and investors to monitor economic data from around the globe with unprecedented intensity. The G 20 summit is only a small step towards stabilizing the global economy.
The Senate Passes the Revised Bailout Bill
The US Senate overwhelmingly passed a revised bailout bill in a late evening vote on Wednesday October 1st. Politicians from both parties hope the revisions make the bailout bill more palatable to the House Of Representatives. The bill allows government to purchase troubled assets from financial institutions and banks distressed by record home foreclosures. The revised bill contains two major revisions favored by House Republicans, The first, raises the limit on federal bank-deposit insurance while the second provision reiterates the authority of securities regulators to suspend asset-valuing rules that many blame for the crisis.
Supporters of the Bailout
Supporters of the bailout cited the 778 point drop in the Dow Jones Industrial Average caused by the defeat of the bill in the house. The drop was used as evidence of the urgency to bring stability to the banking system. It is hoped that the drop in the Dow will spur reluctant Republicans in the House to support the revised bill. The dollar rose against the Euro after the vote and advanced to $1.3883 per euro at 12:46 p.m. in London, from $1.4009 late yesterday in New York. Forex traders worldwide are awaiting Friday’s House vote.
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World Leaders To Meet in Washington
This month world leaders will meet in Washington to discuss the global economic crisis and try to find workable solutions. For reasons of his own president elect Obama will not attend a move that is seen by many as a mistake. The global crisis has affected all aspects of the global economy and Forex traders will be watching the conference with intense interest.
Bush Hosts Summit
US President Bush will host the summit but given his lame duck status expectations are limited. World leaders may be hesitant to make any kind of deals with a departing administration. The 20 nation gathering will include leaders of the ‘big 8’
including, the U.S., Japan, Germany, France, Britain, Russia, Canada and Italy, and will also include the leaders of other major economies such as, China, India, Brazil, Saudi Arabia and Australia.
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Forex Regulation Spotty
The retail Forex market is relatively young and has been open to the public since 1998. Many of the largest Forex traders did not enter the business until the early part of this century. Regulation has been spotty at best and until now there were no capital requirements for brokers.
New Capital Requirements For Forex Traders
This month the National Futures Association (NFA) will require all Forex Traders to have $5 million dollars in net excess capital to do business. For large firms and banks there should be no problem but almost 66% of Forex traders could be forced out of business under the new regulations. The new regulations will go into effect on December 21st and many Forex traders are scrambling to meet the new regulatory requirements.
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Posted on 09 November 2008
Downturn in US Economy
The US election has come and gone and the world still faces an economic crisis rivaling that of 1929. The president elect faces the challenges of an unpopular and expensive war and a downturn in the US economy. This year alone the US has lost almost a half million jobs and the national debt is at an all time high. So far the US dollar is holding its own and Forex traders have flocked to the dollar to avoid risk. At present the US dollar is the world’
s reserve currency but what if that changes?
Some Economists Pessimistic
Some analysts and economists are pessimistic about the ultimate future of the dollar citing several economic factors that could contribute to the dollar’
s demise. Some are even going so far as to suggest a total collapse of the dollar.
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Dollar Value and FX Traders
The US dollar has been the world’
s reserve currency since the Bretton Woods agreement reached after World War Two. Most governments maintain currency reserves in US dollars. There are many factors that determine the exchange rate of the dollar and Forex traders are constantly monitoring information from a variety of government and private sources.
The Federal Reserve
Forex traders and economists watch information released by the Federal Reserve which sets interbank lending rates and controls the supply of US dollars worldwide. There are several less well known economic indicators that help to determine the value of the dollar.
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