Spot Forex Vs Forex Futures

Being the trader/trainer in the Extended Learning Track (XLT) Futures and Forex classes, I get this question all the time. Due to the ongoing evolution of these two markets, the answer is not as simple as you may think. In this piece, I will discuss what these markets are, identify the advantages and disadvantages of each of these two markets, and discuss how we deal with these markets in the XLT.

To begin with, both of these markets are where global currency values (exchange rates) are determined. These are fantastic markets as they are always moving and the moves and trends are larger than you will find in any other set of markets. The "spot" market is the cash market which means the current value (exchange rate) of where the currency pair is trading at right now. The "futures" market represents the perception of where that same currency pair will be trading at on a specific date in the future. For example, if you are trading the March 2009 Dollar / Yen, the price represents today's perceived value of the future (March 2009) exchange rate.





Here is a trade some traders in the XLT took not long ago in the Euro / Dollar. Both charts show the same opportunity on the same day in the same time frame. The only difference is that the chart on the left is the Euro Futures and the chart on the right is the Euro Spot. This was a buying opportunity on a pullback in price to a pre-determined demand zone. While the charts and this trading opportunity look almost identical, undertand that these two markets are very different. Before trading either of these markets, there are certain facts about these markets you must know. Let's first discuss the Spot market, and its pros and cons.

Cash (Spot) Forex

No Central Exchange
This means that the market you're trading is the market your broker is making for you. This can lead to manipulation at times. There is a reason you hardly see volume in Spot Forex. It is because the real volume is very different than the "trillion dollar" volume you read about in all the marketing. The volume in this market is specific to the volume of order-flow from a specific broker, depending on how many accounts they have and the size of those accounts.
Non – Regulated
Slowly but surely, the Spot Forex market is being regulated. It is still one of the least regulated markets around which really can lead to manipulation and risk. Most importantly, if you run into a problem with your account, you really have little to no recourse as there is no regulating body that 100% regulates the Forex markets as much as other markets.
Broker Trades Against Client
Most but not all Forex brokers don't charge any commissions or fees. Instead, they get paid on the spread. What they do is constantly make a spread that ensures they will profit from your trades. When you push the button to buy or sell, they are on the other side of your trade. This means that your goals and their goals cannot be in alignment as you are trading against each other.
Counterparty Risk
When you are trading a semi-non-regulated market, you have to make sure you know exactly where your account is actually being held. Is it being held at a large bank or some account that the broker has rights to? There have been some disaster stories such as Refco not long ago and others that come to mind. Make sure you know where your account is being held and how safe it is.
No Commissions
You will see marketing for the spot Forex market that suggests "free trading"… If you believe that, I have some beautiful land in the desert for sale with a huge lake in the backyard and plenty of green grass, trust me… Anyway, most but not all Spot Forex brokers don't charge commission, they instead widen the spread in the real market, offer that artificially wide spread to you and get paid on the spread. Typically, a spread in a major pair might be 2-3 pips but can easily go as wide as 5–10 pips at times. At $10 a pip for most, this can mean that you are paying $20 - $30 to get into the trade. At that rate, commissions would be very cheap so don't be fooled when you see the "no commission" trading marketing material.
Huge Leverage
In Spot Forex, 400:1 leverage is not uncommon. You can open an account with as little as $500 dollars and begin trading. That is not ideal but it can be done. Don't forget, leverage can work for you and against you, so be careful.
Large Trends
The Forex market experiences large moves almost daily. There is always a currency pair trending strongly which means very frequent trading opportunity.

Forex Futures

One Central Market (CME)
The Chicago Mercantile Exchange (CME) is the home of the Forex Futures. The CME is one of the largest exchanges in the world and is very well capitalized. Some of the largest Banks use the CME Forex Futures to hedge currency risk. I actually began my trading career on the Currency floor of the CME and understand the power of a central exchange.
Transparent Volume
Because there is a central exchange, we can see trading volume and open interest easily.
Very Regulated (SEC, NFA)
The CME actually has double regulation. They are a futures exchange so they are under the watchful eye of the NFA and the SEC. They are also a publicly traded company so they have another level of regulation that comes with that.
Trades Matched on the Globex system
As with other Futures markets, the Forex Futures are traded in the trading pit but also on the Globex system. The Globex system is an order matching system much like NASDAQ for stocks. There is no broker on the other side of your trade. Instead, when you buy, your order is matched up with a seller like you, not a broker. This leads to a very fair and free market.
Trading Times and Markets
While people are trading the Spot market at all hours of the day and night, this is not so in the Forex Futures. The higher volume time to trade is the US day session from early in the morning until about 2pm CST. Outside of those times, there is a substantial drop off in volume, especially overnight. Also, while the CME has most of the Forex pairs that the Spot market has available, at this time, there is not enough volume to trade any Forex pairs outside of the majors against the Dollar. For example, trading the Dollar / Pound futures during the day in the US is fine. Trading that market or almost any other during the US night session may not be a good idea as there is so little volume.
Much more information on Forex Futures can be found on the CME website or by emailing me. The CME is: www.cmegroup.com.

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British Pound Forecast ahead of BoE Rate Decision

This Thursday, the Monetary Policy Committee of the Bank of England is expected to cut rates by 50 bps to 1 percent. This will bring the overnight rate to the lowest level in the bank’s more than 300 years of history which could make the British pound very vulnerable going forward.

Implications of Lower Interest Rates for the British Pound

In 2008, a rapid weakening of economic growth in the United Kingdom led the Bank of England to cut rates from 5.75% to just 1.5%. The BoE aims to promote sustainable growth and price stability but since inflationary pressures diminished substantially as a result of declines in energy prices, the central bank decided to focus entirely on promoting economic growth. However, by changing its monetary policy objectives, the BoE made the Sterling an easy target. In fact, like “vultures”, who feed mostly on the carcasses of dead animals, global macro traders have no mercy for a currency with an ongoing deterioration of interest rate differentials and the sterling ended up depreciating sharply against several the world’s most liquid currencies. In 2008, the British pound lost more than 67 percent against the yen, 44 percent against the Swiss franc and nearly 36 percent against the U.S. dollar.

Prime Minister Gordon Brown must go

The British economy is officially in a recession, the first one since 1991 when Margaret Thatcher was the Prime Minister of the United Kingdom. Like the current Prime Minister Gordon Brown, Thatcher inherited the economy in a very bad shape. However, Thatcher’s tough-talking style, which gained her the nickname of "Iron Lady", helped the British economy to recover from its downward spiral. However, unlike Gordon Brown’s policy of bailouts, Thatcher’s safeguarded free markets and reduced state intervention. These are two simple concepts which may hold the key to solve the current financial crisis but unfortunately they have been completely forgotten by several policy leaders across the world. So, one has to question the ability of the current Prime Minister to tackle this economic crisis with tough measures since the only thing the PM has been doing well is to give free money to banks which was taken away from the pockets of the British taxpayer.


A Weak Sterling May Trigger a new Wave of Problems in the British Economy

A weak currency has some great benefits for British companies with overseas operations. For example, if British Airways earned USD$100 billion in 2008, at a GBP/USD exchange rate of 2 that would be worth 50 billion pounds. However, since the GBP/USD exchange rate fell recently to 1.4 that repatriated value increases to 71 billion. However, a weak currency also makes the U.K. economy more vulnerable to the outside world since they have to pay a higher price for foreign products and for their government debt. In fact, the purchasing power of an average British has been decreasing sharply over the last few months since it takes more pounds to buy the same foreign products. That is another way to say that further declines in the value of the sterling could trigger an upward movement in inflation which could create a difficult puzzle for the BoE to solve.

Forecast for the British Pound

We expect the British economy to contract by more than 3 percent in 2009, the most since World War II. In fact, recent economic data continues to show a very dark picture of the U.K. economy. House prices continue to fall and conditions in labor markets are worsening quickly. Eventually, this will force the BoE to cut rates to zero percent and trigger a significant shift in interest rate differentials which could keep the GBP/USD under pressure over the next few months.

The History of the Forex Market

Money has been around in one form or another since the time of Pharaohs. Middle Eastern moneychangers were the first currency traders who exchanged coins from one culture to another. However, during the middle ages, the need for another form of currency besides coins emerged as the method of choice. The Babylonians are credited with the first use of paper bills and receipts. These paper bills represented transferable third-party payments of funds, making foreign currency exchange trading (also referred to as Forex or FX) much easier for merchants and traders.

From the infantile stages of foreign currency exchange during the Middle Ages to WWI, the Forex markets were relatively stable and without much speculative activity. After WWI, the Forex markets became very volatile and speculative activity increased tenfold.

From 1931 until 1973, the Forex market went through a series of changes – many of which have paved the way for the road ahead. The Forex market, as we know it today, originated in 1973.
A Transitional Era

The Bretton Woods Accord:
The first major transformation, the Bretton Woods Accord, took place toward the end of World War II. The United States, Great Britain and France met at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire to design a new global economic order. The location was chosen because, at the time, the U.S. was the only country unscathed by war; most of the major European countries were in shambles.

The Bretton Woods Accord was established to create a stable environment by which global economies could restore themselves. The Bretton Woods Accord established the pegging of currencies and the International Monetary Fund (IMF) in hopes of stabilizing the global economic situation.

Up until WWII, Great Britain 's currency, the Great British Pound, was the major currency by which most currencies were compared. This changed when the Nazi campaign against Britain included a major counterfeiting effort against its currency. In fact, WWII vaulted the U.S. dollar from a failed currency after the stock market crash of 1929 to a benchmark currency by which most other international currencies were compared.

Now, major currencies were pegged to the U.S. dollar. These currencies were allowed to fluctuate by one percent on either side of the set standard. When a currency's exchange rate would approach the limit on either side of this standard, the respective central bank would intervene to bring the exchange rate back into the accepted range. At the same time, the US dollar was pegged to gold at a price of $35 per ounce further bringing stability to other currencies and the world Forex situation.

The Bretton Woods Accord lasted until 1971. Ultimately, it failed, but did accomplish what its charter set out to do, which was to re-establish economic stability in Europe and Japan.

The Beginning of the Free-Floating System:
After the Bretton Woods Accord came the Smithsonian Agreement in December of 1971. This agreement was similar to the Bretton Woods Accord, but allowed for a greater fluctuation band for the currencies.

In 1972, the European community tried to move away from its dependency on the dollar. The European Joint Float was established by West Germany, France, Italy, the Netherlands, Belgium and Luxemburg. The agreement was similar to the Bretton Woods Accord, but allowed a greater range of fluctuation in the currency values.

Both agreements made mistakes similar to the Bretton Woods Accord and in 1973 collapsed. The collapse of the Smithsonian agreement and the European Joint Float in 1973 signified the official switch to the free-floating system. This occurred by default, as there were no new agreements to take their place. Governments were now free to peg their currencies, semi-peg or allow them to freely float. In 1978, the free-floating system was officially mandated.

In a final effort to gain independence from the dollar, Europe created the European Monetary System in July of 1978. Like all of the previous agreements, it failed in 1993.


The Foreign Exchange Market Today:
The major currencies today move independently from other currencies. The currencies are traded by anyone who wishes. This has caused a recent influx of speculation by banks, hedge funds, brokerage houses and individuals. Central banks intervene on occasion to move or attempt to move currencies to their desired levels. The underlying factor that drives today's Forex markets, however, is supply and demand. The free-floating system is ideal for today's Forex markets.

EDUCATION CENTER

Taxation of forex is confusing and uncertain in the tax code and that makes tax filings difficult for forex traders. The tax problem is that some types of forex are treated as IRC 1256 contracts with lower 60/40 tax treatment and other types of forex are treated as IRC 988 foreign currency transactions with ordinary gain or loss treatment. Plus, IRC 1256 and IRC 988 are conflicting tax-code sections.

An article by Robert A. Green, CPA of GreenTraderTax CPAs written in February, 2008.
See several earlier articles by Mr. Green on forex tax below as well.

Retail spot forex traders are different from professional forward forex traders.
The forex Interbank market has been around for many decades. Robert A. Green founded Green & Company CPAs in 1983 to handle the special tax and accounting needs of several leading professional forex traders and Interbank brokers (they used phones only before the Internet).

It's important to understand some key differences between professional forex traders and this newer breed of online forex traders.

Professional forex traders often trade "forward contracts" (rather than spot forex) because forwards have more transparency and better pricing than spot. Most professional traders in forward forex understand they are trading major currencies (for which regulated futures contracts [RFCs] exist); therefore they can claim IRC 1256 60/40 tax treatment.

Most professional forward forex traders make a good living trading forwards and they count on lower 60/40 tax rates each year (up to 12-percent lower tax rates). Remember, IRC 1256 losses may be carried back three tax years, but only applied against IRC 1256 gains in those years.

Contrast professionals with the newer breed of online forex trader. Most online forex traders are new to forex; some moved from the online securities or futures trading space. Many have very low account sizes ($2,000 to $25,000) and they lack the capital, clout and connections to trade forwards in the (non-retail) Interbank market.

JPY: Trade the range between 88.60 and 90.00

EUR
Comment: Very slow work but hauling itself up from retracement support around 1.2800. Momentum should turn bullish on a sustained break above 1.3300.

Strategy: Attempt longs at 1.3045; stop below 1.2800. First target 1.3100, then 1.3300.




EUR/JPY
Comment: Rallying slowly from the bottom of the range established since October as all too many are still predicting even more Yen strength for this year. Expect a squeeze up towards the trendline and the 26-day moving average at 120.32.

Strategy: Attempt small longs at 116.50, but only if prepared to add to 113.75; stop below 112.00. First target 118.00, then 120.00.




GBP
Comment: Small gains mean Cable is trying to hold above the bottom of the downward-sloping ‘wedge’ formation and above the 9-day moving average. It is currently struggling with the 26-day average at 1.4437 and only a sustained break above 1.4550 would add bullish pressure and a break above 1.5500 would send many scurrying for cover. With a little luck some other major currencies, notably the Swiss franc, might help the pound higher.

Strategy: Buy at 1.4395, adding to 1.4200; stop below 1.4000. Add to longs on a sustained break above 1.4550 for 1.4800 short term, eventually 1.5000.




JPY
Comment: Small signs of instability with yesterday’s ‘doji’ though we continue hovering unsteadily below a very large Ichimoku ‘cloud’ and the 26-day moving average. If not today then very soon this currency pair will start looking for direction.

Strategy: Trade the range between 88.60 and 90.00.

US Pending Home Sales Index +6.3% In December - NAR

US Pending Home Sales Index +6.3% In December - NAR

By Jeff Bater
Of DOW JONES NEWSWIRES


WASHINGTON (Dow Jones)--A forecasting gauge of home sales unexpectedly increased during December, a realtors' group said.

The National Association of Realtors' index for pending sales of previously owned homes increased 6.3% to 87.7 from 82.5 in November, the industry group said Tuesday.

Private analysts projected pending sales would fall 0.5% during December.

Last week, the NAR reported existing-home sales shot higher in December, spurred by buying of discounted property in distressed markets. Home resales rose 6.5% to a 4.74 million annual rate from 4.45 million in November; 45% of the 4.74 million were distress sales at discounted prices. The median home price dived 15.3% to $175,400 from $207,000 in December 2007 - the largest drop on record.

Lower prices elevated the index for pending sales, the NAR said. "The monthly gain in pending home sales, spurred by buyers responding to lower home prices and mortgage interest rates, more than offset an index decline in the previous month," said Lawrence Yun, chief economist for NAR. "The biggest gains were in areas with the biggest improvements in affordability."

The gauge had gone down 3.7% during November; that's a revision down from a previously estimated 4.0% decline.

The NAR pending sales index, based on signed contracts for previously owned homes, was 2.1% above the level of 85.9 in December 2007.

Despite improved affordability, the housing market needs stimulus, the NAR said. "We need to take additional steps to meaningfully draw down inventory and stabilize home prices," NAR President Charles McMillan said.

In its monthly forecast on the industry, the NAR projected existing-home sales at 5.12 million this year and 5.44 million in 2009. That compares with 4.91 million in 2008.

The median price for an existing home is seen at $192,800 in 2009 and $201,700 in 2010. It was $198,600 in 2008.

A month ago, the NAR forecast 2009 sales at 5.22 million and 2010 sales at 5.58 million. The 2009 median price was projected at $198,100 and the 2010 price at $207,700.

The NAR's pending home sales index was designed to try measuring which way the housing market is going in the future. It is based on pending sales of existing homes, including single-family homes and condominiums. A home sale is pending when the contract has been signed but the transaction hasn't closed. Pending sales typically close within one or two months of signing.

By region, the Northeast decreased 1.7% in December from November; it had gone down 14.5% since December 2007. The Midwest increased 12.8% in December from November; it had gone down 1.2% since December 2007. The South increased 13.0% in December from November; it had gone up 1.6% since December 2007. The West decreased 3.7% in December from November; it had gone up 17.5% since December 2007.



-By Jeff Bater, Dow Jones Newswires; 202-862-9249; jeff.bater@dowjones.com


Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=EJTwVQxAciiTOu%2B572Wsgg%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

February 03, 2009 10:03 ET (15:03 GMT)

Canadian Dollar Rises as Oil Shows Strength

Canadian DollarThe Canadian dollar rose against the 3 other major currencies today, completely reversing the daily trend, as the oil and commodity markets become more attractive after the holidays.

Today the loonie (another name for the Canadian currency) is growing for the third day against the Japanese yen and the Euro and for the second day against the U.S. dollar. The Canada’s currency gained an additional momentum after the crude oil gained more than 1.3 percent in New York today.

The commodity economies that rely heavily on the export of the oil and some other raw supplies, such as metals, will experience an uprise in their currencies’ demand as the analysts believe that the oil bottom has been already reached. On the other hand, if the oil loses its bullish trend, the Canadian dollar will return to the levels significantly below its current rates.

USD/CAD declined from 1.2054 to 1.1916 as of 17:54 GMT today. CAD/JPY rose from 76.36 to 78.33 and EUR/CAD fell from 1.6736 to 1.6159 today.

Euro at 3-Week Low vs. Dollar on Low Inflation

European Central BankThe European single currency bottomed near the 3-week low against the U.S. dollar and significantly fell against the Japanese yen and the British pound today as the investors expect further rate cuts from the European Central Bank.

There are two factors for the euro’s current weakness that the analysts name as the main — the new proposed stimulus plan by the U. S. President-elect Barack Obama (adds great advantage of the optimism for the U.S. dollar) and the low expectations for the Eurozone’s CPI, which would allow ECB to cut the interest rates.

As the first January daily trading sessions show the euro failed to rally against the dollar, showing the lack of euro bulls’ commitment to push the currency up against its major counterparts. The situation in the economies of the European countries isn’t much better than the ones of the U.S. or U.K. and with a lot of space for the rate reductions, euro won’t be too popular among the Forex traders.

EUR/USD fell from 1.3628 to 1.3356 as of 12:12 GMT today — the lowest level since December 12. EUR/JPY declined from 127.01 to 125.58, while EUR/GBP went down from 0.9281 to 0.9128.

AUD, NZD Down on Aroused Risk Aversion

Australian dollarThe Australian and New Zealand dollars both showed a second day of decline today on the Forex market as the stocks, commodities and the confidence in the fast recovery from the recession fell world-wide.

Both currencies have been showing a nice daily rally against the U.S. dollar and the Japanese yen until they began to go down yesterday, almost paring the gains of the previews 3-5 days. The carry trade wave, which started in the last decade of December didn’t live for too long and the risk-averting mood now dominates over the Forex market again.

The fundamentals from the Australia are continuing to come out worse than the traders expect — the housing and the employment markets are still highly depressed. Commodities are the large part of the Australian exports and they aren’t very popular these days with the price on many types are already at the levels of 2004/2005.

AUD/USD fell from 0.7132 to 0.6998 as of 8:16 GMT today. AUD/JPY declined from 65.98 to 64.23. NZD/USD went down from 0.5914 to 0.5862, while NZD/JPY slid from 54.70 to 53.77 today.

Korean Won Declines on Rate Cut

South Korean wonThe South Korean won continued to decline against the U.S. dollar today almost completing a third week of drop as the country’s central bank reduced the interest rate to the record low value.

The decline in the global stock markets also helped the won to come down against the other currencies. Traders move out their investments from the Korean economy in fear of the recession. The Bank of Korea cut the interest rate from 3 percent to 2.5 percent — the fifth time in the series of reductions that started as the response to the global financial turmoil.

However, analysts warn the market participants from going short on won en mass as it’s hard to predict the further behavior of the country’s central bank. Buying the Korean won at what it seems a bottom may also prove dangerous as the financial crisis is still a menace for the Asian region.

USD/KRW rose from 1328.4 to 1342.3 as of 10:42 GMT today after reaching its 2009 maximum value at 1345.0 several hours earlier.

Euro Declines on Dovish ECB Expectations

European Central BankThe euro declined against the U.S. dollar and the Japanese yen today after opening with a rather large negative weekly gap against these currencies as the traders expect that ECB will continue rate reduction this week.

The European currency fell to the one-month lowest against they yen and the weakest level since January 6 against the dollar. The currency analysts and Forex traders expect that the European Central Bank will cut its main interest rate to the lowest level since 2005 on its next meeting this Thursday — January 15. The today’s decline in the Asian stock markets also helped the yen to grow against the euro as the investors ran away from the carry trade.

Apart from the ECB rate decision, this week will feature some important macroeconomic reports from the world-leading economies. Analysts expect these reports to show the further worsening of the overall situation that will spur the risk-aversion and inevitably push the yen and the dollar up against the euro. If the ECB’s cut will exceed 50 basis points, euro may fall significantly faster than the markets are showing currently.

EUR/USD fell from 1.3459 to 1.3361 as of 9:54 GMT today. EUR/JPY declined from 121.12 to 120.43 — the lowest level since December 12.

NZD Drops as Credit Rating Outlook Revised

New Zealand dollarThe New Zealand dollar dropped to the monthly low against the U.S. dollar today as the S&P rating agency revised the country’s foreign currency credit rating outlook from stable to negative.

Standard & Poor’s, one of the world’s leading credit rating agencies, confirmed New Zealand’s AA+ foreign currency credit rating and revised its outlook to negative yesterday. The country’s currency reacted with a drop as the confidence in the national economy and the ability of the business to get the refinancing declined significantly after the aforementioned event.

The kiwi (a nickname, by which the New Zealand dollar is known) also fell sharply against the Japanese yen and the Australian dollar. The decline against the latter signals that the current bearish trend is caused almost solely by the credit rating outlook change and has little to do with the currently popular carry trade unwinding.

Analysts point at the New Zealand dollar as one of the clear Forex outsiders. Its position is worse than the one of the Australian dollar and, while those two are closely related (both Australia and New Zealand are export-orientated economies), the AUD/NZD becomes an attractive investment opportunity today.

NZD/USD fell from 0.5730 to 0.5563 as of 8:38 GMT today with the daily low at 0.5556 — the minimum level since December 16. NZD/JPY declined from 51.19 to 49.39, while AUD/NZD rose from 1.1853 to 1.2086 today.

Dollar Weakens before Important Reports

U.S. dollarThe U.S. dollar declined today against the other major currencies, except yen, after rallying for three days, as the investors sought a technical correction before some important macroeconomic reports to be released today in United States.

Federal Reserve Chairman Ben Bernanke said yesterday that the new fiscal policies wont’ produce a long-term recovery effect on the whole economy, hinting that the additional monetary measures will be used to ease the financial conditions. But those measures may also press on the dollar. Traders already started to include this information into their bets against the greenback.

Although many analysts believe that the first-in-first-out rule will work when the current crisis will be over — meaning that the U.S., which entered the recession first, will be out of it before Europe or Japan, some point out that the bad news are still coming out mostly from United States. Some even say that the consequences for U.S. will be much more serious than for any other developed country.

EUR/USD rose from 1.3178 to 1.3206 as of 9:05 GMT today after reaching as high as 1.3336 earlier. GBP/USD went up from 1.4507 to 1.4605, while the daily high was reached at 1.4706; USD/JPY rose from 89.35 to 89.57.

Yen Grows on Stocks Slump and Bad Reports

Japanese yenThe Japanese yen continued to advance today against the dollar, the euro and the British pound as the the other major currency pair are stuck in the neutral zone before the ECB rate announcement.

The yen gained for the three out of four days of the current week as the stock markets declined in all the world’s regions and fell sharply in Asia today. The bad macroeconomic reports from U.S. and Europe and the yesterday’s late reports on the Japanese machine orders forced traders to sell the risky assets and turn to their favorite safe haven currency — the Japanese yen.

While other currencies are vulnerable to their central banks’ decisions and the negative reports on the important fundamental indicators, the yen can boast the ability to gain when everyone is losing, even the domestic stock market. Nikkei benchmark index lost 4.92 percent today after November machine orders fell by 16.2 percent.

USD/JPY fell from 88.91 to 88.63 as of 9:30 GMT today. EUR/JPY declined only slightly — from 117.01 to 117.00, while GBP/JPY went down from 129.66 to 129.58 today.

Pound Gains against Euro

Great Britain poundThe British pound rose against the euro today along with some other major currencies as the euro suffers from the trade balance deficit, while the traders long for some high-yielding European currency, which the pound still is.

Eurostat agency reported that the November 2008 trade balance deficit of the European Union countries was at €7 billion compared to €2.3 billion surplus in November 2007. That statistics hurt the euro as the market paritcipants expected that the trade balance would have a surplus of about €1 billion this November.

While the Eurozone’s stats aren’t impressive, the traders a feeling very risk-hungry today after the growth in the U.S. and Asian stock markets during the latest sessions. The Great Britain pound is one of the currencies that can allow the traders to gain their «safe risk». That’s why the pound is currently showing 3rd day of growth against the euro.

EUR/GBP fell from 0.8967 to 0.8895 as of 11:23 GMT today. GBP/USD went up from 1.4651 to 1.4930, while GBP/JPY advanced from 131.62 to 135.18 today.

Emerging Markets Less Attractive, Yen Rises

Japanese yenThe Japanese yen rose today against the U.S. dollar and recovered the gap-losses against the euro and the pound after the Russia’s central bank devalued the national currency again, reducing the attractiveness of the emerging markets.

After two days of decline against the major currencies, the yen is currently posting a daily growth even after the strong negative weekly opening gap. When the investors and the traders become more risk-aware they tend to move out of the high-yielding currencies and buy the Japanese currency or the other yen-denominated assets.

The Bank of Russia expanded the ruble’s trading band against the bi-currency basket that consists of 55 percent U.S. dollars and 45 percent euros. That was 6th devaluation made by the country’s central bank since the start of the year.

Analysts believe that each devaluation signal received from the influential emerging markets, such as Brazil, Russia, India or China (the so called BRIC), will press on the overall condition of the high-risk assets. The yen has a great potential as the reserve and safe haven currency, while the bearish sentiments are support by the central banks of the emerging economies.

USD/JPY fell from 90.97 to 90.52 as of 8:43 GMT today. EUR/JPY declined from 121.44 to 120.27; GBP/JPY went down from 135.24 to 133.15 today.

Pound Hits New Record Low vs. Yen

Great Britain poundThe British pound fell to the record low level against the Japanese yen and declined significantly against the other major currencies today as the market participants are concerned that the U.K. recession will continue deepening and the Bank of England will have to reduce the rates further.

The pound declined to the lowest level against the U.S. dollar since June 2001 and posted its fourth negative daily result against the European currency. The yen gained against the all high-yielding currencies and renewed its 8-year high against the New Zealand dollar today, while reaching a new absolute maximum against the pound.

Analysts believe that the Bank of England minutes for the last Monetary Policy Committee meeting, that are going to be released today, will show that the bearish sentiments are still very strong in BoE. Traders should be careful though, the the pound will likely to get to a strong support level against the U.S. dollar soon.

GBP/USD fell from 1.3870 to 1.3775 as of 8:53 GMT today. GBP/JPY declined from 124.39 to 123.74, while the daily low was at 122.94 — its new all-time minimum. EUR/GBP rose from 0.9273 to 0.9368 today.

SGD Up as Traders not Sure in Policy Change

Singapore dollarThe Singapore dollar gained against the U.S. dollar for the second day today as the traders reduced their bets that the monetary authorities are going to use the currency depreciation to stimulate the economy.

The market participants pushed the Singapore’s dollar up before the government reports on its stimulus package in the new budget. The fight with the recession may continue without the serious depreciation of the currency as the central bank said that they won’t change their stance on the dollar during the next few months.

Analysts believe that the current withdrawal of the bets that the monetary authorities are going to depreciate the currency will help the Singapore’s dollar to stand still against the U.S. dollar. Earlier, traders built up the confidence that the depreciation will be issued before April to stimulate the economy, now they will have to wait at least until that month for something to happen.

USD/SGD went down from 1.4978 to 1.4934 as of 8:32 GMT today after reaching 1.5120 during the trading session yesterday — its lowest level in 6 weeks.

Swiss Franc Grows against Euro

Swiss francThe appeal for the stock markets declined and the low-yielding assets became more attractive, boosting the demand for the Swiss franc against the Euro for a second day, today.

Despite the fact that the Swiss National Bank is going to intervene into the currency market in order to keep the currency appreciation down, the franc in its growth rate goes just behind the U.S. dollar and the Japanese yen. The confidence in the Swiss economy is above many other developed economies.

Analysts believe that the franc will have to rise close to 1.4 against the euro for the SNB to launch a full scale intervention that will influence the rates. On the other hand, the franc certainly will be a gainer during the ongoing recession and any financial troubles in the world.

EUR/CHF fell from 1.5002 to 1.4975 as of 6:38 GMT today after falling from 1.5039 yesterday. USD/CHF rose from 1.1525 to 1.1570 today.

NZD Falls as Service Industry Contracts

New Zealand dollarThe New Zealand dollar declined against the U.S. and Australian currencies today as the country’s services industry continued to decline for a ninth month in a row last December, according the Performance of Services Index that was released yesterday.

The index of the service industry was reported at 48.0 for December — up from 47.3 in November; but the reading below 50 means a contraction in all of the country’s service sectors. The report was released yesterday at 21:30 GMT and influenced Forex market tendencies during the early Asian trading session.

Although the economy of New Zealand isn’t currently doing worse than the similar Australian or Canadian ones, the analysts believe that it will probably be one of the last to exit the recession due to the social-aimed monetary policy. The bad news from New Zealand will continue to press on the NZD at least for the first half of 2009.

NZD/USD fell from 0.5270 to 0.5261 as of 8:36 GMT today. NZD/JPY rose from 46.57 to 46.70 after falling as low as 46.17 earlier today. AUD/NZD rose from 1.2364 to 1.2441.

Rupee Opens Higher Today on Stocks Revival

Indian rupeeThe Indian rupee advanced against the U.S. dollar during the Forex trading session opening today as the stock markets showed some strength world-wide and the investors used the short-term opportunity to enter the high-risk assets.

Almost 3 percent growth of the Bombay Stock Exchange Sensitive Index (SENSEX) was accompanied by the news from the Reserve Bank of India Governor Duvvuri Subbarao — the interest rate was left unchanged today after four cuts in a row during the last three months. The rupee bulls now have the cumulative advantage, while the investors seek the chance to buy the now-cheap Indian businesses.

Some analysts share the optimism of the markets and believe that rupee’s growth from 7-week bottom may be one of the last, if not the last, support level before a considerably long trend. Others focus on the coincidence of the decision to leave the rates unchanged and the growth of the global stock markets — they believe that when the world’s optimism is over (the next few days) the India’s currency won’t stand a chance.

USD/INR opened at 48.43 today after closing at 48.50 on January 25th and remaining unchanged during the holiday on January 26th. During today’s trading session the currency pair rose to 48.75 as of 8:14 GMT.

Dollar Falls on Banks Support Expectations

U.S. dollarThe U.S. dollar along with the yen declined against almost all other major currencies today as the traders expect that the bank bailout plan will be adopted soon in the United States.

The dollar declined also because the Federal Reserve will end its two-day meeting today and will probably announce some additional measures to ease the credit conditions, providing further pressure on the greenback. The drop against the high-yielding currencies was also dictated by the Obama’s «bad bank» plan, which will include setting up the special institution to buy out the «toxic assets» from the U.S. banks.

The analysts note that the «bad bank» plan if approved and used in reality will cause the global stock markets to grow and such currencies as the U.S. dollar and the Japanese yen to fall considerably below their current levels.

EUR/USD rose from 1.3182 to 1.3261 as of 9:37 GMT today after reaching as high as 1.3315. USD/JPY remained almost unchanged today rising from 89.11 to 89.22, while GBP/USD went up from 1.4115 to 1.4249. AUD/USD rose from 0.6633 to 0.6674.

New Zealand Dollar Falls on Rate Cut

New Zealand dollarThe New Zealand currency declined against the U.S. dollar, the yen and its Australian counterpart today after the country’s central bank decided to cut the interest rate to a record low amidst the raging recession.

The Reserve Bank of New Zealand reduced the official cash rate (OCR) to 3.5 percent down from 5 percent. The same 1.5 percent cut was conducted also on December 4. Analysts didn’t expect one more cut of such extent in January.

As the New Zealand is the exporting country, the monetary authorities are worried with the worsening conditions in their trade partners’ economies. Stimulation of the national production is performed via the credit cost reduction and dumping of the currency, which makes the exported products more competitive.

Currency analysts see today’s monetary decision as a positive one that in the long-term period will prove to be helpful not only to the economy but to the New Zealand dollar as well. But in the meanwhile they expect more cuts (at least 100 basis points by the month of March) and probably some other measures to increase the NZD liquidity.

NZD/USD fell from 0.5246 to 0.5144 as of 8:21 GMT today after falling as low as 0.5130 — the lowest level since December 2002. NZD/JPY declined from 47.41 to 46.08, while AUD/NZD went up from 1.2684 to 1.2757 and reached its highest level since August 4.

Yen Grows against High-Yielders

Japanese yenThe Japanese yen is currently positioned as the locomotive of growth on the Forex market as the global economic slowdown takes its toll, keeping the traders and investors away from the risk-ridden high-yielding currencies.

Despite the great problems with the economic situation in the home countries of the so called «safe haven» currencies, the traders’ expectations for the deepening of the recession in all the parts of the world leads them to buying the Japanese yen and the U.S. dollar, while selling the euro and the pound. Today, investors expect that the Eurozone’s CPI estimate report for January will show a slowdown to the lowest rate in the last seven years.

Avoiding the risks that are usually associated with the high interest rates is the general trend that the investors and traders are currently following. Analysts believe that for as long as we keep getting more bad news than good ones from the developed economies that trend simply can’t change and the yen will continue to gain on the currency market.

USD/JPY fell from 90.02 to 89.37 as of 9:04 GMT today. EUR/JPY declined from 116.48 to 114.98, while GBP/JPY went down from 128.59 to 127.52 today.

Korean Won Leads Asian Currencies Decline

South Korean wonThe South Korean won was the worst-performing currency among the Asian ones this month as the investors moved out of the country’s assets and the exports to the developed economies fell sharply.

The drop of the Korean won against the U.S. dollar is already at 8.7 percent this year — that’s the worst January performance for this currency. The Asian shares tumble as the demand and consumer sentiment fall across the world. In the fourth quarter of 2008 the Korean GDP declined at a fastest pace during the last decade.

As the analysts state, the whole Asian region was experiencing a deepening of the recession in January after an already bad December. The risk-aversion can still grow further, pushing down both the stock markets and the currencies of the Asian region.

The MSCI Asia Pacific Index (a composite index of the Asian stock markets) fell 1.7 percent yesterday for a total of 7.1 percent in January. The composite decline of the 10 most-traded Asian currencies, excluding the Japanese yen was at 2.4 percent this month, according the Bloomberg-JPMorgan Asia Dollar Index.

USD/KRW closed its monthly trading at 1380.1 compared to 1259.5 rate at the beginning of January. USD/MYR fell from 3.7698 to 3.6075 this month.

NZD To Test Support At 0.5050 - ANZ

NZD To Test Support At 0.5050 - ANZ

1921 GMT [Dow Jones] Announcement tomorrow by Prime Minister John Key on plan to stimulate small business unlikely to save NZD from thorough test of support at 0.5050, says ANZ Bank in briefing note. "A break through this level will see markets quickly congregate around the more major 0.5000 level and determine whether or not it can be taken out first time." Adds holiday shortened NZ week may see reluctance to add to significant short positions later in week. Expected range today: 0.5030 - 0.5140 vs last 0.5088. (SML)

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=1ldgge1agLyPv%2F%2FL1X1QRg%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

February 01, 2009 14:36 ET (19:36 GMT)

NZD To Test Support At 0.5050 - ANZ

NZD To Test Support At 0.5050 - ANZ

1921 GMT [Dow Jones] Announcement tomorrow by Prime Minister John Key on plan to stimulate small business unlikely to save NZD from thorough test of support at 0.5050, says ANZ Bank in briefing note. "A break through this level will see markets quickly congregate around the more major 0.5000 level and determine whether or not it can be taken out first time." Adds holiday shortened NZ week may see reluctance to add to significant short positions later in week. Expected range today: 0.5030 - 0.5140 vs last 0.5088. (SML)

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=1ldgge1agLyPv%2F%2FL1X1QRg%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

February 01, 2009 14:36 ET (19:36 GMT)