One of the oldest and most basic fundamental approaches to determining the “fair” exchange rate of one currency to another relies on the concept of Purchasing Power Parity. This approach says that an identical product should cost the same from one country to another, with the only difference in the price tag accounted for by the exchange rate. For example, if a pencil costs €1 in Europe and $1.20 in the US, the “fair” EURUSD exchange rate should be 1.20. For our purposes, we will use the PPP values provided annually by the Organization for Economic Cooperation and Development (OECD). We compare these values to current market rates to determine how much each currency is under- or over-valued against the US Dollar. Currencies pairs that are undervalued against their PPP exchange rate have the size of the value gap denoted in RED, while those that are overvalued are denoted in GREEN.
*Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. FXCM Holdings LLC will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
Friday, September 11, 2009
Euro - US Dollar Valuation Forecast
The Euro has been treading water above the 1.2450 level as oscillations in risk sentiment turn price action choppy. However, EURUSD remains substantially overvalued – indeed, the single currency is now the most expensive against the dollar among its major counterparts when compared to its “fair” exchange rate. The broad-based fundamental bias supports a bearish scenario, adding to downward pressure and suggesting that EURUSD has scope to make substantial inroads into the value differential in the period ahead.
Euro - US Dollar Interest Rate Forecast
The correlation between the EUR/USD and interest rate outlook spread has started to strengthen. After the ECB cut rates to 1.25% the interest rate outlook for the Euro turned positive which has narrowed the spread between it and the dollar to -11 from -84. President Trichet following the rate decision signaled that next month could see the committee pause their easing policy which is a driving factor in the increased expectations. Although the spread is still showing a bearish signal, we could see it turn bullish as we approach the next policy decision. Indeed expectations for the U.S. don’t figure to rise with the economy showing continued weakness.
However, the ECB also forecasted that they would make a decision on taking quantitative easing measures which could be a weighing factor for the Euro and wouldn’t be reflected in the interest rate outlook. Therefore, traders shouldn’t assign significant weight to yield differentials when making trade decisions.
EUR/USD Monthly Technical Forecast
After a 3 week advance, the EURUSD should resume its long term decline. To review; since 1.60, price has declined in a series of 1st and 2nd waves. Most recently, the rally from 1.2475 is wave ii of 3. As long as price is below 1.3740, anticipate a break below 1.2327 and much lower in wave iii of 3
US Dollar Reaches Record Lows Affects Trade
The US dollar plunged to a record low against the Euro in April. This happened immediately after the economic growth figures for the U.S. were released by the U.S. Commerce Department reporting the weakest results in four years. The release of these figures has people worried that the United States is in danger of falling behind the rest of the world economically, especially with the USD losing over 3.1% to the Euro already this year. The USD low was partnered with a Euro high, reaching past its previous high in December of 2004, above $1.3680, for the first time ever.
Euro and USD extremes are going to have significant affects on trade within both Europe and the United States. Some groups are happy and are benefiting from the weakness of the dollar and the strength of the Euro, whereas others are losing large amounts of both money and business. A number of American exporters have gained significant amounts as a result of the weakness of the dollar; however one major U.S. business has suffered greatly due to these exchange rates. Walmart, who produces over 70% of their goods in China, is suffering due to the weakness of the dollar. The company has tried to find less pricey areas for production; however there is only so much they can do to battle the plummeting dollar.
Euro strength and dollar weakness are also affecting many European companies. The economy of the Eurozone is one that is export dependant. Under normal circumstances, export driven economies benefit from a weaker currency and typically hurt when the currency is too strong. With the rise of the Euro, European exporters and manufactures have much higher costs, which lead them to lose money unless they raise their prices, which most companies are reluctant to do.
It is not just European and American companies that are suffering from the prices of the USD and Euro. Any country that trades with either the United States or an EU nation is at risk for exchange rate fluctuations affecting their imports and/or exports.
Although, there is no way to completely eliminate foreign exchange rate risk and it will always be an issue for exporters and importers, there are ways to make yourself or your company less vulnerable. Hedging foreign exchange rate risks is not a new idea, but many companies are just recently learning the importance of hedging against these risks. As more companies take advantage of this financial technique, exchange rate losses lessen, and the price of a currency at any point in time has less of a chance of making or breaking a company. Individual investors can also hedge their foreign exchange rate risk through currency trading.
Currency trading allows investors to speculate on the value of a currency. This can be done whether you are looking to hedge to lock in a specific rate or if you are looking to take advantage from currency rate fluctuations. There are many currency trading firms that allow you to trade online and also provide educational resources. You can learn more about the foreign exchange market at: Forex for Beginners.
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Euro and USD extremes are going to have significant affects on trade within both Europe and the United States. Some groups are happy and are benefiting from the weakness of the dollar and the strength of the Euro, whereas others are losing large amounts of both money and business. A number of American exporters have gained significant amounts as a result of the weakness of the dollar; however one major U.S. business has suffered greatly due to these exchange rates. Walmart, who produces over 70% of their goods in China, is suffering due to the weakness of the dollar. The company has tried to find less pricey areas for production; however there is only so much they can do to battle the plummeting dollar.
Euro strength and dollar weakness are also affecting many European companies. The economy of the Eurozone is one that is export dependant. Under normal circumstances, export driven economies benefit from a weaker currency and typically hurt when the currency is too strong. With the rise of the Euro, European exporters and manufactures have much higher costs, which lead them to lose money unless they raise their prices, which most companies are reluctant to do.
It is not just European and American companies that are suffering from the prices of the USD and Euro. Any country that trades with either the United States or an EU nation is at risk for exchange rate fluctuations affecting their imports and/or exports.
Although, there is no way to completely eliminate foreign exchange rate risk and it will always be an issue for exporters and importers, there are ways to make yourself or your company less vulnerable. Hedging foreign exchange rate risks is not a new idea, but many companies are just recently learning the importance of hedging against these risks. As more companies take advantage of this financial technique, exchange rate losses lessen, and the price of a currency at any point in time has less of a chance of making or breaking a company. Individual investors can also hedge their foreign exchange rate risk through currency trading.
Currency trading allows investors to speculate on the value of a currency. This can be done whether you are looking to hedge to lock in a specific rate or if you are looking to take advantage from currency rate fluctuations. There are many currency trading firms that allow you to trade online and also provide educational resources. You can learn more about the foreign exchange market at: Forex for Beginners.
Our monthly reports tell you what countries and currencies offer the best deals. Travel and buy smart!
Subscribe and enjoy!
The Foreign Exchange Market for Beginners
The foreign exchange market or forex market as it is often called is the market in which currencies are traded. Currency Trading is the world's largest market consisting of almost $2 trillion in daily volume and as investors learn more and become more interested, the market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets. In addition, there is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter. Unlike the stock market, this decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to pass that on to their clients. The spot currency market is open twenty-four hours a day, five days a week, with currencies being traded around the world in all of the major financial centers.
All trades that take place in the foreign exchange market involve the buying of one currency and the selling of another currency simultaneously. This is because the value of one currency is determined by its comparison to another currency. The first currency of a currency pair is called the "base currency," while the second currency is called the “counter currency.” The currency pair shows how much of the counter currency is needed to purchase one unit of the base currency. Currency pairs can be thought of as a single unit that can be bought or sold. When purchasing a currency pair, the base currency is being bought, while the counter currency is being sold. The opposite is true, when the sale of a currency pair takes place. There are four major currency pairs that are traded most often in the foreign exchange market. These include the EUR/USD, USD/JPY, GBP/USD, and USD/CHF.
Forex Capital Markets (FXCM) is an online currency trading firm that offers a free demo account to traders who are new and interested in the foreign exchange market. Registering for a demo account allows a new trader to download the online trading platform that is used by the company's clients trading live accounts and make trades as if they were doing it with real money. The demo account is an excellent way to experiment with the foreign exchange market while learning your way around the trading platform. It allows you to experience every step of currency trading including choosing currency pairs, deciding how much risk to take, tracking the time and dates of placed trades, deciding how long to stay in the trade, and when to exit the trade. It also allows the placing of stop and limit orders on trades.
Information about trading and specifically about how to use the online trading platform can be found on the FXCM webpage. In addition, FXCM offers FREE interactive online seminars that are extremely useful to both new and experienced currency traders. These "educational webinars," as they are called are run by experienced financial strategists and range in topics from trading specific news events to trading the Euro. In addition to the webinars, FXCM also offers numerous online courses that teach investors how to trade the currency market.
All trades that take place in the foreign exchange market involve the buying of one currency and the selling of another currency simultaneously. This is because the value of one currency is determined by its comparison to another currency. The first currency of a currency pair is called the "base currency," while the second currency is called the “counter currency.” The currency pair shows how much of the counter currency is needed to purchase one unit of the base currency. Currency pairs can be thought of as a single unit that can be bought or sold. When purchasing a currency pair, the base currency is being bought, while the counter currency is being sold. The opposite is true, when the sale of a currency pair takes place. There are four major currency pairs that are traded most often in the foreign exchange market. These include the EUR/USD, USD/JPY, GBP/USD, and USD/CHF.
Forex Capital Markets (FXCM) is an online currency trading firm that offers a free demo account to traders who are new and interested in the foreign exchange market. Registering for a demo account allows a new trader to download the online trading platform that is used by the company's clients trading live accounts and make trades as if they were doing it with real money. The demo account is an excellent way to experiment with the foreign exchange market while learning your way around the trading platform. It allows you to experience every step of currency trading including choosing currency pairs, deciding how much risk to take, tracking the time and dates of placed trades, deciding how long to stay in the trade, and when to exit the trade. It also allows the placing of stop and limit orders on trades.
Information about trading and specifically about how to use the online trading platform can be found on the FXCM webpage. In addition, FXCM offers FREE interactive online seminars that are extremely useful to both new and experienced currency traders. These "educational webinars," as they are called are run by experienced financial strategists and range in topics from trading specific news events to trading the Euro. In addition to the webinars, FXCM also offers numerous online courses that teach investors how to trade the currency market.
Foreign Exchange Leader GFT Deploys Clickatell to Connect Traders to Fast-Paced Currency Market Prices Using Real Time SMS
Global Forex Trading (GFT), a worldwide leader in online currency trading, is working with Clickatell to provide real-time SMS alerts to its network of registered traders serving ~120 countries. Traders using GFT's forex trading platform, DealBook® 360, can opt-in to receive text message alerts to be immediately informed of critical market news, analysis, commentary, changes in markets prices, deal-closure notifications, and order limit status, to help traders make informed decisions when seizing critical up-to-the-minute opportunities in this $4 trillion dollar per day market. GFT has more than 20,000 traders registered worldwide to receive SMS alerts and sends over 50,000 messages per day.
"As forex trading increasingly appeals to a greater retail sector, companies like GFT are working aggressively to provide tools and information that not only encourage a safe trading environment, but also help traders maximize their returns. Our DealBook® suite of trading platforms is designed for trading online spread bets and spotting foreign exchange and contracts for differences," said Muhammad Rasoul, executive vice president and COO, GFT. "Clickatell has proven their ease of use and reliability, and our customers depend on receiving real-time critical data using Clickatell SMS to guide decisions, minimize potential risks and most of all, to profit," said Rasoul.
Forex trading is regarded as one of the world's main financial markets with a global daily average in turnover estimated at $3.98 trillion, concentrated mostly from London, New York and Japan. Euromoney's FX2009 report says foreign exchange is responsible for driving record profitability for institutions, despite the credit crunch that started 12 months ago. Another contributing factor to the exponential growth in turnover is the increase in number of individual retail traders and institutions turning to forex trading to profit. Currency trading markets operate 24 hours a day and 5.5 days a week, where most retail traders have other jobs and hectic schedules. Mobility via SMS offers the perfect solution, giving traders flexibility and necessary communications to track markets, stay informed, trade, and ultimately profit.
"In 2008, 50% more trades took place via mobile than the previous year, and the market is expected to double again by 2011," said Pieter de Villiers, Clickatell CEO. "Clickatell's expansive international network coverage and tested solutions allow traders the freedom of mobility and confidence that regardless of where they are, the critical data they need is within arm's reach. With SMS, they can make fast decisions, a critical factor in today's economic climate where traders would rather be safe than sorry."
"As forex trading increasingly appeals to a greater retail sector, companies like GFT are working aggressively to provide tools and information that not only encourage a safe trading environment, but also help traders maximize their returns. Our DealBook® suite of trading platforms is designed for trading online spread bets and spotting foreign exchange and contracts for differences," said Muhammad Rasoul, executive vice president and COO, GFT. "Clickatell has proven their ease of use and reliability, and our customers depend on receiving real-time critical data using Clickatell SMS to guide decisions, minimize potential risks and most of all, to profit," said Rasoul.
Forex trading is regarded as one of the world's main financial markets with a global daily average in turnover estimated at $3.98 trillion, concentrated mostly from London, New York and Japan. Euromoney's FX2009 report says foreign exchange is responsible for driving record profitability for institutions, despite the credit crunch that started 12 months ago. Another contributing factor to the exponential growth in turnover is the increase in number of individual retail traders and institutions turning to forex trading to profit. Currency trading markets operate 24 hours a day and 5.5 days a week, where most retail traders have other jobs and hectic schedules. Mobility via SMS offers the perfect solution, giving traders flexibility and necessary communications to track markets, stay informed, trade, and ultimately profit.
"In 2008, 50% more trades took place via mobile than the previous year, and the market is expected to double again by 2011," said Pieter de Villiers, Clickatell CEO. "Clickatell's expansive international network coverage and tested solutions allow traders the freedom of mobility and confidence that regardless of where they are, the critical data they need is within arm's reach. With SMS, they can make fast decisions, a critical factor in today's economic climate where traders would rather be safe than sorry."
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