Euro Moves Higher in Forex Trading

The euro is moving higher in forex trading today as economic data coming out of the 16-nation euro zone strikes a more positive tone. One of the biggest helpers for the euro today in forex trading is German retail sales, which have improved. GFT's Boris Schlossberg reports in FX360 on the economic data helping the euro in forex trading:

In Germany retail sales improved for the third month in a row rising 0.4% vs. 0.0% expected and helped to rally the EUR/USD  towards the 1.4100 figure at the start of the European open. The data from the region continues to show slow but steady improvement and for the time being remains supportive of the recovery trade, but analysts remain cautious about the second half of the year given the continued rise in German unemployment.

Positive economic data out of China is also helping. With continuing signs that the global recession may be coming to an end, the euro is gaining support in forex trading -- especially against low-yielding safe haven currencies like the yen, franc and dollar.

Euro Pulls Back Against U.S. Dollar in Currency Trading

The euro is falling to the U.S. dollar in currency trading on the FX market today. The euro is gaining in forex trading as China continues to say that it supports the dollar as the global reserve currency. And China does support the dollar. For now. (What China is doing for the long term is another story altogether.) For the short-term, China's continued use of the dollar will continue to provide limited support for the dollar in currency trading. 

Another issue affecting the euro in forex trading is economic data. Even though German employment saw some improvement, overall the euro zone is looking pretty grim. Yesterday's enthusiastic rally is being overshadowed as forex traders moderate their optimism. GFT's Boris Schlossberg reports in FX360 on the latest euro zone unemployment issues:

EZ unemployment rose to 9.5% from 9.3% projected as conditions in southern Europe deteriorated further. As we’ve stated before the risk of EZ unemployment rolls rising into the second half of 2009 remains quite high especially if German efforts at “short work week” arrangements begin to fail. Many analysts now expect the EZ rate to climb into double digits mirroring the labor conditions in US.
This renewed concern about the economy means that the U.S. dollar is once again ascendant in currency trading as a safe haven.

The top facts you should know about NFA’s Rule 2-43 (b) (FIFO)

The NFA recently imposed a rule (2-43 (b)) that will eliminate the ability of some dealers to offer stop-loss and limit orders. As a market-maker for forex, GFT is already fully compliant with this rule and will not be affected — you will still be able to place stop and limit orders with us.

Some dealers have gone as far as asking their customers to transfer their account overseas as to avoid the new NFA rule. At GFT, our customers can keep their account stateside and have full access to stop and limit orders through all DealBook® platforms.

The new rule also eliminates "hedging," which is really misunderstood when it comes trading currencies. Read the reasons why here.

Finally, some forex dealers have recently experienced a decline in net capital. As world-leading company, GFT has $80 million in net capital, which greatly exceeds the NFA's minimum net capital requirement and is $20 million above the next largest U.S. forex dealer.

U.S. Dollar Strengthens as Risk Aversion Sets In

The U.S. dollar is showing strength in currency trading on the FX market right now. Economic data in Europe is sending the sterling and the euro lower in forex trading. Additionally, the global economy in general appears further away from recovery than many had hoped.

The forex trading forecast for the greenback depends greatly this coming week. ISM data is expected, and that will provide further direction for the dollar. Additionally, a G8 summit is taking place this week, and forex traders will be looking for signs of monetary policy from the participants.

The U.S. dollar has become a popular safe haven currency in recent months. The greenback is considered so due to its backing by U.S. taxpayers, which are the most reliable in the world. As a result, when jitters arise with regard to the economy, forex traders turn to the greenback for capital preservation.

Likelihood of a New Reserve Currency Reduced

Ever since the subject of a new global reserve currency was broached earlier this year, there have been simmering conversations about the possibility. However, most of the G8 nations dismissed the notion as ridiculous back then, and the nations are still dismissing it now, ahead of this week's G8 summit.

Even China has backed off, making noises about how it supports the U.S. dollar for now. GFT's Kathy Lien comments in FX360 about how the U.S. dollar is likely to retain its supremacy for now:

Speculation about a new reserve currency being discussed at the G8 meeting later this week is also cooling. China’s flip flopping threats about the dollar is more bark than bite, especially since they have been backtracking on their own comments on a daily basis. G8 leaders have no interest in talking down the dollar because now is not the right time to experiment with reserve currencies according to a G8 source.

Of course, just because there is no desire to change things now does not mean that the desire won't manifest itself later. China has quietly been arranging for the yuan to be used in currency swaps, and recently, BRIC nations began discussions of how to diversify their own holdings. While a new reserve currency may not be immediately forthcoming, if things don't change for the U.S., it is possible that we could see one in the next two or three decades.

Forex Trading Forecast: USD/CAD

The forex trading forecast for USD/CAD looks to be weakening. On Monday, the greenback hit a one-month high against the loonie in currency trading, but since then the U.S. dollar seems to be losing steam.

The Canadian dollar is likely to do well as economic data shows some improvement. While the economy is not improving as quickly as some would like, there are still signs that things are looking up. Kathy Lien offers a forex trading forecast for USD/CAD in FX360:

We expect a further sell off in the currency pair on the heels of much stronger than expected economic data. The IVEY PMI report which measures manufacturing sector activity rose to the strongest level since September while building permits surged.

While the economy is improving in fits and starts, the general trend is toward improvement. And that means that the loonie is likely to be supported in forex trading as global trade improves, commodities gain and the stock market recovers.

Meltdown for USD/JPY in Currency Trading

Yesterday, the U.S. dollar had a complete meltdown in forex trading against the Japanese yen. This was relatively surprising at first, since the dollar has been expected to do better than the yen as economic conditions improve. GFT's Kathy Lien explains the USD/JPY meltdown in FX360:

U.S. interest rates are also sharply lower with bond yields falling across the board. The narrowing spread between 10 year U.S. Treasuries and 10 Year JGB (Japanese Bonds) yields may have also added pressure on the currency pair. Japan also imports the majority of its oil  and therefore the continual slide in crude prices provides exceptional relief for the Japanese economy and finally, the IMF released its updated growth forecasts and based upon their projections, sharply higher growth is expected in Japan next year. As you can see, it was a combination and not a single factor that triggered the meltdown in USD/JPY.

Today, the U.S. dollar appears to be on the road to recovery in currency trading against the Japanese yen, moving higher even as it falls to the euro and the sterling.

Risk Aversion Sends Euro Lower in Forex Trading

The euro is heading lower in forex trading on the currency market as risk aversion sets in. The latest economic data coming out of Europe and Britain are not very encouraging, and that has investors worrying over the speed of an economic recovery. Indeed, with concerns about the economy at the forefront, forex traders are eschewing high beta currencies that offer more risk.

Not only is the euro down in forex trading, but the U.K. pound is as well. The U.S. dollar is seeing some safe haven demand in currency trading, and other low-yielding currencies, like the yen and the Swiss franc, are seeing some gains as well.

Until economic recovery is well and truly underway, there is likely to be more volatility than usually, and some continuance of support for the U.S. dollar in currency trading.