US Nonfarm Payrolls and Unemployment Rate surprise to the upside. JPY disappears over a cliff.

arket seems to be tiring of weak USD theme, as the USD initially storms higher despite equity rally and bond sell-off.

MAJOR HEADLINES – PREVIOUS SESSION

* Australia Jul. AiG Performance of Construction Index out at 39.5 vs. 42.6 expected
* Switzerland Jul. Unemployment Rate out at 3.9% as expected and vs. 3.8% in Jun.
* Germany Jun. Trade Balance out at 12.2B vs. 10.6B expected and 9.5B in May
* Norway Jun. Industrial Product Manufacturing out at -1.4% MoM vs. -0.8% expected
* UK Jul. PPI Input/Output out at -1.4%/+0.3% MoM vs. -0.8%/0.0% expected, respectively
* Germany Jun. Industrial Production out at -0.1% MoM vs. +0.5% expected
* Canada Jul. Unemployment Rate steady at 8.6% vs. 8.8% expected
* Canada Jul. Net Change in Employment fell -44.5k vs. -15.0k expected and -7.4k in Jun.
* US Jul. Change in Nonfarm Payrolls out at -247k vs. -325k expected
* US Jul. Unemployment Rate falls to 9.4% vs. 9.6% expected and 9.5% in Jun.
* US Jul. Average Hourly Earnings rose 0.2% MoM vs. 0.1% expected
* US Jul. Average Weekly Hours rose to 33.1 vs. 33.0 expected and 33.0 in Jun.
* Canada Jul. Ivey PMI out at 51.8 vs. 54.0 expected and 58.2 in Jun.


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

* US Jun. Consumer Credit (1900)
* New Zealand Jul. QV House Prices (Sun 1200)
* Japan Jun. Current Account (Sun 2350)
* Australia Jun. Home Loans (Mon 0130)
* China Jul. Producer/Purchasing Price Index (Mon 0200)
* China Jul. Consumer Price Index (Mon 0200)
* Japan Jul. Machine Tool Orders (Mon 0600)

Market Comments:

The positive US employment report touched off very unambiguous reactions in equity and bond markets, but the FX reaction has been a real circus. The very first reaction saw the normal reaction of the USD weakening on good economic news, but within a few minutes, the action reversed to USD strength - and then back to weakness and now back to strength as we are writing this a few minutes before the US open. This suggests the market is really struggling to get a grip on what it wants to believe at the moment and whether good US economic news will ever be a reason to buy the greenback. Clearly it shows some caution in playing the . Less caution was shown in the JPY crosses as the bottom dropping out of the bond market sent an unambiguous sell JPY signal. This probably caught a complacent USDJPY market by surprise, judging from the aggravated upside there.

A bit more on the US employment report: seasonal adjustments brought about a fall in the unemployment rate (with 5 of the 6 statistical flavors of unemployment showing a actually showing a rise before adjustment), but there are a number of factors that suggest we need to wait for the September to January time frame to know for sure if we are out of the woods with this employment crisis, as that is the season when the biggest headcount reductions usually take place, if they are going to. For the short term here, the market is uncorking another bottle of Green Shoots champagne, and equities are higher, bonds are lower and the USD is mixed.

It would seem to us that perfection is already largely priced in here for many risk assets and the big risk is that end demand will not coming storming back even if the US job market is stabilizing (and we have reason to believe that it may worsen further in the fall/winter time frame). We doubt whether the market will be able to celebrate this employment report beyond the very shortest term.

Another note about the payrolls: the US has the smallest Nonfarm Payrolls number for a July print (non statistically manipulated) since 2000, when the population of the US Was about 8% smaller than it is now…..

Of most interesting going forward into next week is 1)whether the USD can follow through on its rally today if the world remains in risk willing mode. This has not happened in ages, but the greenback is putting up a fight today. 2)whether today proves the climax in the risk rally (in which case, we would certainly expect the US rally to follow through). One of the key indicators we will be watching today and in the coming week is the US bond market, where the 10-year benchmark yield has crossed above key resistance at 3.75%. That benchmark rallied to 4% at the most recent inflation scare back in June. This rise of rates will be an interesting set up to next Wednesday's FOMC meeting.

The action in the Aussie has been rather uninspiring since yesterday, considering the strength of risk appetite here and the RBA mentioning overnight that the next rate move may be an increase.

Chart: USDJPY
USDJPY exploded through resistance on the US employment report after inconclusive ranging over the last couple of weeks. The move will need a continued sell-off in bonds in coming sessions to maintain support and drive it through the Ichimoku cloud to higher levels.

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Producer Price Index

The Producer Price Index (PPI) is a measure of the average level of prices of a fixed basket of goods received in primary markets by producers. The monthly PPI reports are widely followed as an indication of commodity inflation.

The PPI is considered important because it accounts for price changes throughout the manufacturing sector.

The PPI is often followed but excludes the food and energy components as these items are normally much more volatile than the rest of the PPI and can therefore obscure the more important underlying trend.

Studying the PPI allows consideration of inflationary pressures that may be accumulating or receding, but have not yet filtered through to the finished goods prices.

A rising PPI is normally expected to lead to higher consumer price inflation and thereby to potentially higher short-term interest rates. Higher rates will often have a short term positive impact on a currency, although significant inflationary pressure will often lead to an undermining of the confidence in the currency involved.

Payroll Employment

Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the net number of new jobs created or lost during the month and changes are widely followed as an important indicator of economic activity.

Payroll employment is one of the primary monthly indicators of aggregate economic activity because it encompasses every major sector of the economy. It is also useful to examine trends in job creation in several industry categories because the aggregate data can mask significant deviations in underlying industry trends.

Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term. If, however, inflationary pressures are seen as building, this may undermine the longer term confidence in the currency.

Durable Goods Orders

Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Monthly percent changes reflect the rate of change of such orders.

Levels of, and changes in, durable goods order are widely followed as an indicator of factory sector momentum.

Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order. Often, the indicator is followed but excludes Defence and Transportation orders because these are generally much more volatile than the rest of the orders and can obscure the more important underlying trend.

Durable Goods Orders are measured in nominal terms and therefore include the effects of inflation. Therefore the Durable Goods Orders should be compared to the trend growth rate in PPI to arrive at the real, inflation-adjusted Durable Goods Orders.

Rising Durable Goods Orders are normally associated with stronger economic activity and can therefore lead to higher short-term interest rates that are often supportive to a currency at least in the short term.

Retail Sales

Retail Sales are a measure of the total receipts of retail stores. Monthly percentage changes reflect the rate of change of such sales and are widely followed as an indicator of consumer spending.

Retails Sales are a major indicator of consumer spending because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity.

Often, Retail Sales are followed less auto sales because these are generally much more volatile than the rest of the Retail Sales and can therefore obscure the more important underlying trend.

Retail Sales are measured in nominal terms and therefore include the effects of inflation. Rising Retail Sales are often associated with a strong economy and therefore an expectation of higher short-term interest rates that are often supportive to a currency at least in the short term.

Housing Starts

Housing Starts are a measure of the number of residential units on which construction is begun each month and the level of housing starts is widely followed as an indicator of residential construction activity.

The indicator is followed to assess the commitment of builders to new construction activity. High construction activity is usually associated with increased economic activity and confidence, and is therefore considered a harbinger of higher short-term interest rates that can be supportive of the involved currency at least in the short term.

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Consumer Price Index

The Consumer Price Index (CPI) is a measure of the average level of prices of a fixed basket of goods and services purchased by consumers. The monthly reported changes in CPI are widely followed as an inflation indicator.

The CPI is a primary inflation indicator because consumer spending accounts for nearly two-thirds of economic activity. Often, the CPI is followed but excludes the price of food and energy as these items are generally much more volatile than the rest of the CPI and can obscure the more important underlying trend.

Rising consumer price inflation is normally associated with the expectation of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.

Working with statistics

Trade Balance

The trade balance is a measure of the difference between imports and exports of tangible goods and services. The level of the trade balance and changes in exports and imports are widely followed by foreign exchange markets.

The trade balance is a major indicator of foreign exchange trends. Seen in isolation, measures of imports and exports are important indicators of overall economic activity in the economy.

It is often of interest to examine the trend growth rates for exports and imports separately. Trends in export activities reflect the competitive position of the country in question, but also the strength of economic activity abroad. Trends in import activity reflect the strength of domestic economic activity.

Typically, a nation that runs a substantial trade balance deficit has a weak currency due to the continued commercial selling of the currency. This can, however, be offset by financial investment flows for extended periods of time.

Gross Domestic Product

The Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity.

GDP represents the total value of a country's production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and the government.

As GDP reports are often subject to substantial quarter-to-quarter volatility and revisions, it is preferable to follow the indicator on a year-to-year basis. It can be valuable to follow the trend rate of growth in each of the major categories of GDP to determine the strengths and weaknesses in the economy.

A high GDP figure is often associated with the expectations of higher interest rates, which is frequently positive, at least in the short term, for the currency involved, unless expectations of increased inflation pressure is concurrently undermining confidence in the currency.

Expert View

David Karsbøl
Manager/Market Strategist, Saxo Bank

David Karsbøl holds a Master of Science degree (Economics) from the University of Copenhagen and has previously been employed as an insurance analyst. Mr Karsbøl works with fundamental analysis and research and contributes to Saxo Bank's strategy products. He also develops and maintains macroeconomic models and a number of trading models, which are designed to profit from co-variations between the Forex and fixed income markets. Mr Karsbøl is regularly appears on major financial news networks and comments several days a week on the financial markets via Saxo Bank's live Market Call webcast. He is a native Danish speaker and is fluent in English.
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Economic calendar for week 31 from 6 Aug. 09 to 7 Aug. 09

Date GMT Release for Period Consensus Prior
6 Aug. 09 05:00 Leading Index CI (Japan ) JUN P - - 76.9
6 Aug. 09 05:00 Coincident Index CI (Japan ) JUN P - - 87.1
6 Aug. 09 05:45 SECO Consumer Climate (Switzerland ) JUL - - -38
6 Aug. 09 06:00 Finland GDP Indicator WD (Finland ) MAY - - -9.20%
6 Aug. 09 07:00 Trade Balance (Koruna) (Czech Republic ) JUN - - 11.7B
6 Aug. 09 07:00 Trade Balance (Mln Euros) (Hungary ) JUN P - - - -
6 Aug. 09 07:00 Industrial Output (YoY) (Hungary ) JUN P - - -22.10%
6 Aug. 09 07:00 Industrial Output (MoM) (Hungary ) JUN P - - 2.60%
6 Aug. 09 07:30 CPI (MoM) (Netherlands ) JUL - - -0.30%
6 Aug. 09 07:30 CPI (YoY) (Netherlands ) JUL - - 1.40%
6 Aug. 09 07:30 CPI - EU Harmonized (MoM) (Netherlands ) JUL - - -0.40%
6 Aug. 09 07:30 CPI - EU Harmonized (YoY) (Netherlands ) JUL - - 1.40%
6 Aug. 09 08:00 Industrial Production sa (MoM) (Italy ) JUN - - 0.00%
6 Aug. 09 08:00 Industrial Production wda(YoY) (Italy ) JUN - - -19.80%
6 Aug. 09 08:00 Industrial Production nsa(YoY) (Italy ) JUN - - -22.60%
6 Aug. 09 09:00 Consumer Price Index MoM (Cocos (Keeling) Islands ) JUL - - -0.10%
6 Aug. 09 09:00 Consumer Price Index YoY (Cocos (Keeling) Islands ) JUL - - 0.20%
6 Aug. 09 09:00 Trade Balance (Iceland ) JUL P - - - -
6 Aug. 09 10:00 Factory Orders MoM (sa) (Germany) JUN - - 4.40%
6 Aug. 09 10:00 Factory Orders YoY (nsa) (Germany) JUN - - -29.40%
6 Aug. 09 11:00 BOE ANNOUNCES RATES (United Kingdom ) aug-06 0.50% 0.50%
6 Aug. 09 11:45 ECB Announces Interest Rates (European Union) aug-06 1.00% 1.00%
6 Aug. 09 12:30 Building Permits MoM (Canada ) JUN 1.00% 14.80%
6 Aug. 09 12:30 Initial Jobless Claims (United States of America ) aug-01 - - - -
6 Aug. 09 12:30 Continuing Claims (United States of America ) jul-25 - - - -
6 Aug. 09 15:00 ICSC Chain Store Sales YoY (United States of America ) JUL - - -5.10%
7 Aug. 09 00:00 Switzerland Holds Federal Bond Auction (Switzerland ) Jul-08
7 Aug. 09 00:00 Eco Watchers Survey: Current (Japan ) JUN - - 36.7
7 Aug. 09 00:00 Eco Watchers Survey: Outlook (Japan ) JUN - - 43.3
7 Aug. 09 00:00 International Reserves (Latvia ) JUL - - 3943.1M
7 Aug. 09 00:00 Official Reserve Assets (Russian Federation ) JUL - - 412.6B
7 Aug. 09 00:00 Consumer Prices (MoM) (Russian Federation ) JUL - - 0.60%
7 Aug. 09 00:00 Money Supply Narrow Def.RUB (Russian Federation ) aug-03 - - - -
7 Aug. 09 00:00 Consumer Prices (YoY) (Russian Federation ) JUL - - 11.90%
7 Aug. 09 00:00 Russia Consumer Prices YtD (Russian Federation ) JUL - - 7.40%
7 Aug. 09 00:00 Consumer Price Index Core MoM (Russian Federation ) JUL - - 0.30%
7 Aug. 09 00:00 Core Inflation Year-to-Date (Russian Federation ) JUL - - 6.00%
7 Aug. 09 00:00 Trade Balance (Euros) (Portugal ) MAY - - -1275
7 Aug. 09 01:00 Westpac Consumer Confidence (Australia ) JUL - - 12.70%
7 Aug. 09 01:30 Home Loans (Australia ) MAY 1.30% 0.90%
7 Aug. 09 01:30 Investment Lending (Australia ) MAY - - 8.90%
7 Aug. 09 01:30 Value of Loans MoM (Australia ) MAY - - 1.90%
7 Aug. 09 04:00 Bankruptcies (YoY) (Japan ) JUN - - -6.70%
7 Aug. 09 05:45 Unemployment Rate (Switzerland ) JUL - - 3.60%
7 Aug. 09 05:45 Unemployment Rate (sa) (Switzerland ) JUL - - 3.80%
7 Aug. 09 06:00 Trade Balance (Germany) JUN - - 9.6B
7 Aug. 09 06:00 Current Account (EURO) (Germany) JUN - - 3.7B
7 Aug. 09 06:00 Imports SA (MoM) (Germany) JUN - - -2.10%
7 Aug. 09 06:00 Exports SA (MoM) (Germany) JUN - - 0.30%
7 Aug. 09 06:00 Consumer Prices (MoM) (Estonia ) JUL - - 0.00%
7 Aug. 09 06:00 Consumer Prices (YoY) (Estonia ) JUL - - -0.90%
7 Aug. 09 06:30 Bank of France Bus. Sentiment (France ) JUN 84 81
7 Aug. 09 06:45 Trade Balance (Euros) (France ) JUN - - -2.7B
7 Aug. 09 07:00 Industrial Output (MoM) (Romania ) JUN - - -0.30%
7 Aug. 09 07:00 Industrial Output (YoY) (Romania ) JUN - - -9.80%
7 Aug. 09 07:00 Retail Sales (MoM) (Romania ) JUN - - 0.20%
7 Aug. 09 07:00 Retail Sales (YoY) (Romania ) JUN - - -12.30%
7 Aug. 09 07:00 Industrial Production wda(YoY) (Somalia ) JUN - - -23.90%
7 Aug. 09 07:00 Construction Constant (YoY) (Somalia ) JUN - - -3.90%
7 Aug. 09 07:30 Wholesale Price Index (MoM) (Austria ) JUL - - 0.90%
7 Aug. 09 07:30 Wholesale Price Index (YoY) (Austria ) JUL - - -10.30%
7 Aug. 09 07:30 Industrial Production sa (MoM) (Netherlands ) JUN - - -0.20%
7 Aug. 09 07:30 Industrial Production nsa (YoY) (Netherlands ) JUN - - -12.70%
7 Aug. 09 07:30 Industrial Sales nsa (YoY) (Netherlands ) JUN - - -27.20%
7 Aug. 09 07:30 Budget Balance (Sweden ) JUL - - -102.7B
7 Aug. 09 07:30 BBVA to Hold Board Meeting in Mexico City (European Union) Jul-08
7 Aug. 09 07:30 Caja Madrid's Blesa, CECA's Quintas Speak in Madrid (European Union) Jul-08
7 Aug. 09 07:30 Industrial Prod. s.a. (MoM) (Sweden ) MAY - - -2.10%
7 Aug. 09 07:30 Industrial Prod. n.s.a. (YoY) (Sweden ) MAY - - -21.20%
7 Aug. 09 07:30 Industrial Orders s.a. (MoM) (Sweden ) MAY - - 0.40%
7 Aug. 09 07:30 Industrial Orders n.s.a. (YoY) (Sweden ) MAY - - -30.00%
7 Aug. 09 07:30 Activity Index Level (Sweden ) MAY - - 102.4
7 Aug. 09 08:00 ECB's Gonzalez-Paramo Speaks in Madrid (European Union) Jul-08
7 Aug. 09 08:00 Mexican Central Bank's Ortiz Speaks in Madrid (European Union) Jul-08
7 Aug. 09 08:00 GDP sa and wda (QoQ) (Italy ) 2Q P - - - -
7 Aug. 09 08:00 GDP sa and wda (YoY) (Italy ) 2Q P - - - -
7 Aug. 09 08:00 Industrial Production SA MoM (Norway ) JUN - - -3.10%
7 Aug. 09 08:00 Industrial Prod. WDAJ YOY (Norway ) JUN - - -7.80%
7 Aug. 09 08:00 Ind Prod Manufacturing SA MoM (Norway ) JUN - - -0.70%
7 Aug. 09 08:00 Ind Prod Manufacture WDAJ YoY (Norway ) JUN - - -9.80%
7 Aug. 09 08:00 International Reserves (USD) (Czech Republic ) JUL - - 38.4B
7 Aug. 09 08:30 PPI Input NSA (MoM) (United Kingdom ) JUL - - 1.50%
7 Aug. 09 08:30 PPI Input NSA (YoY) (United Kingdom ) JUL - - -11.00%
7 Aug. 09 08:30 PPI Output n.s.a. (MoM) (United Kingdom ) JUL - - -0.20%
7 Aug. 09 08:30 PPI Output n.s.a. (YoY) (United Kingdom ) JUL - - -1.20%
7 Aug. 09 08:30 PPI Output Core NSA (MoM) (United Kingdom ) JUL - - -0.80%
7 Aug. 09 08:30 PPI Output Core NSA (YoY) (United Kingdom ) JUL - - 0.10%
7 Aug. 09 08:30 Trade Balance (EUR) (El Salvador ) JUN - - -0.045B
7 Aug. 09 09:00 Euro-Zone GDP s.a. (QoQ) (European Union) 1Q F - - -2.50%
7 Aug. 09 09:00 Euro-Zone GDP s.a. (YoY) (European Union) 1Q F - - -4.80%
7 Aug. 09 09:00 Euro-Zone Household Cons (QoQ) (European Union) 1Q F - - -0.50%
7 Aug. 09 09:00 Euro-Zone Gross Fix Cap (QoQ) (European Union) 1Q F - - -4.20%
7 Aug. 09 09:00 Euro-Zone Govt Expend (QoQ) (European Union) 1Q F - - 0.00%
7 Aug. 09 09:30 BRC June Shop Price Index (United Kingdom ) Jul-08
7 Aug. 09 09:50 ECB's Tumpel-Gugerell Speaks at Event in Frankfurt (European Union) Jul-08
7 Aug. 09 10:00 Industrial Prod. YoY (nsa wda) (Germany) JUN - - -17.90%
7 Aug. 09 10:00 Industrial Production MoM (sa) (Germany) JUN - - 3.70%
7 Aug. 09 10:00 Unemployment Rate (Ireland ) JUL - - 11.90%
7 Aug. 09 10:00 Live Register Monthly Change (Ireland ) JUL - - 11.4K
7 Aug. 09 10:00 Live Register Level SA (000's) (Ireland ) JUL - - 413.5
7 Aug. 09 11:00 Unemployment Rate (Canada ) JUL - - 8.60%
7 Aug. 09 11:00 Net Change in Employment (Canada ) JUL -20.0K -7.4K
7 Aug. 09 11:00 MBA Mortgage Applications (United States of America ) Jul-02 - - -18.90%
7 Aug. 09 12:30 Change in Nonfarm Payrolls (United States of America ) JUL -333K -467K
7 Aug. 09 12:30 Unemployment Rate (United States of America ) JUL 9.60% 9.50%
7 Aug. 09 12:30 Change in Manufact. Payrolls (United States of America ) JUL -100K -136K
7 Aug. 09 12:30 Average Hourly Earnings MoM (United States of America ) JUL 0.10% 0.00%
7 Aug. 09 12:30 Average Hourly Earnings YoY (United States of America ) JUL - - 2.70%
7 Aug. 09 12:30 Average Weekly Hours (United States of America ) JUL 33 33
7 Aug. 09 14:00 Ivey Purchasing Managers Index (Canada ) JUL - - 58.2
7 Aug. 09 16:55 Fed's Evans Speaks in South Bend, Indiana (United States of America ) Jul-08
7 Aug. 09 19:00 Consumer Credit (United States of America ) JUN -$4.2B -$3.2B
7 Aug. 09 22:45 NZ Card Spending (MoM) (New Zealand ) JUN - - 0.9
7 Aug. 09 23:50 Foreign Buying Japan Bonds (Japan ) Jul-03 - - -?666.7B
7 Aug. 09 23:50 Foreign Buying Japan Stocks (Japan ) Jul-03 - - -?195.1B
7 Aug. 09 23:50 Japan Buying Foreign Stocks (Japan ) Jul-03 - - ?150.5B
7 Aug. 09 23:50 Japan Buying Foreign Bonds (Japan ) Jul-03 - -

Forex Trading Basics

The global foreign exchange market is the biggest market in the world. The 3.2 trillion USD daily turnover dwarfs the combined turnover of all the world's stock and bond markets.

There are many reasons for the popularity of foreign exchange trading, but among the most important are the leverage available, the high liquidity 24 hours a day and the very low dealing costs associated with trading.

Of course many commercial organisations participate purely due to the currency exposures created by their import and export activities, but the main part of the turnover is accounted for by financial institutions. Investing in foreign exchange remains predominantly the domain of the big professional players in the market - funds, banks and brokers. Nevertheless, any investor with the necessary knowledge of the market's functions can benefit from the advantages stated above.

In the following article, we would like to introduce you to some of the basic concepts of foreign exchange trading. If you would like any further information, we suggest that you sign up for a FREE Membership on this website, where you will be able to exchange views with other Forex traders and get answers to any questions you might have.

Margin Trading

Foreign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For trading the main currencies, Saxo Bank requires a 1% margin deposit. This means that in order to trade one million dollars, you need to place just USD 10,000 by way of security.

In other words, you will have obtained a gearing of up to 100 times. This means that a change of, say 2%, in the underlying value of your trade will result in a 200% profit or loss on your deposit. See below for specific examples. As you can see, this calls for a very disciplined approach to trading as both profit opportunities and potential risks are very large indeed. Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions.

Base Currency and Variable Currency

When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell euro. Or buy euro and sell Japanese yen, or any other combination of dozens of widely traded currencies. But there is always a long (bought) and a short (sold) side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening in relation to the other.

The trade currency is normally, but not always, the currency with the highest value. When trading US dollars against Singapore dollars, the normal way to trade is buying or selling a fixed amount of US dollars, i.e. USD 1,000,000. When closing the position, the opposite trade is done, again USD 1,000,000. The profit or loss will be apparent in the change of the amount of SGD credited and debited for the two transactions. In other words, your profit or loss will be denominated in SGD, which is known as the price currency. As part of our service, Saxo Bank will automatically exchange your profits and losses into your base currency if you require this.

Dealing Spread, but No Commissions

When trading foreign exchange, you are quoted a dealing spread offering you a buying and a selling level for your trade. Once you accept the offered price and receive confirmation from our dealers, the trade is done. There is no need to call an exchange floor. There are no other time-consuming delays. This is possible due to live streaming prices, which are also a great advantage in times of fast-moving markets: You can see where the market is trading and you know whether your orders are filled or not.

The dealing spread is typically 3-5 points in normal market conditions. This means that you can sell US dollars against the euro at 1.7780 and buy at 1.7785. There are no further costs, commissions or exchange fees.

This ensures that you can get in and out of your trades at very low slippage and many traders are therefore active intra-day traders, given that a typical day in USDEUR presents price swings of 150-200 points.

Spot and forward trading

When you trade foreign exchange you are normally quoted a spot price. This means that if you take no further steps, your trade will be settled after two business days. This ensures that your trades are undertaken subject to supervision by regulatory authorities for your own protection and security. If you are a commercial customer, you may need to convert the currencies for international payments. If you are an investor, you will normally want to swap your trade forward to a later date. This can be undertaken on a daily basis or for a longer period at a time. Often investors will swap their trades forward anywhere from a week or two up to several months depending on the time frame of the investment.

Although a forward trade is for a future date, the position can be closed out at any time - the closing part of the position is then swapped forward to the same future value date.

Interest Rate Differentials

Different currencies pay different interest rates. This is one of the main driving forces behind foreign exchange trends. It is inherently attractive to be a buyer of a currency that pays a high interest rate while being short a currency that has a low interest rate.

Although such interest rate differentials may not appear very large, they are of great significance in a highly leveraged position. For example, the interest rate differential between the US dollar and the Japanese yen has been approximately 5% for several years. In a position that can be supported by a 5% margin deposit, this results in a 100% profit on capital per annum when you buy the US dollar. Of course, an even more important factor normally is the relative value of the currencies, which changed 15% from low to high during 2005 – disregarding the interest rate differential. From a pure interest rate differential viewpoint, you have an advantage of 100% per annum in your favour by being long US dollar and an initial disadvantage of the same size by being short.
Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions!

Such a situation clearly benefits the high interest rate currency and as result, the US dollar was in a strong bull market all through 2005. But it is by no means a certainty that the currency with the higher interest rate will be strongest. If the reason for the high interest rate is runaway inflation, this may undermine confidence in the currency even more than the benefits perceived from the high interest rate.

Stop-loss discipline

As you can see from the description above, there are significant opportunities and risks in foreign exchange markets. Aggressive traders might experience profit/loss swings of 20-30% daily. This calls for strict stop-loss policies in positions that are moving against you.

Fortunately, there are no daily limits on foreign exchange trading and no restrictions on trading hours other than the weekend. This means that there will nearly always be an opportunity to react to moves in the main currency markets and a low risk of getting caught without the opportunity of getting out. Of course, the market can move very fast and a stop-loss order is by no means a guarantee of getting out at the desired level.

But the main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events, such as G7 meetings, are normally scheduled for weekends.

For speculative trading, we always recommend the placement of protective stop-lossorders. With Saxo Bank Internet Trading you can easily place and change such orders while watching market development graphically on your computer screen.

Investors' corner

FOREX RATES

Australian Dollar
68.70

69.70
Canadian Dollar
76.20

77.20
China Yuan
12.00

13.50
Euro
118.00

119.50
Japanese Yen
0.8590

0.8690
Saudi Riyal
21.90

22.20
U.A.E Dirham
22.40

22.60
UK Pound Sterling
138.00

139.50
US Dollar
83.45

83.95

Savings Bank A/c.

earn more about the Normal Interest Bearing Operative Savings Account from TMB.

This is the basic starting point for the urban and rural masses to start developing the habit of savings for a brighter future. It gives the customers the benefit of having the convenience of withdrawing money anytime anywhere as well as get decent interest on the savings at the same time. Further routine payments can be automatically made by giving standing instructions to the bank. Nomination and Power of Attorney facility is also available.

Deposit Interest Rates

TMB has been consistently offering higher rates of interest since the last many years for the benefit of its depositors since its cost of operations are low compared to other banks. The rates are split for different segments to offer the highest rate of interest possible. Apart from the Regular Domestic Deposits, we have special rates for High Value Deposits as well as even higher interest rates for Senior Citizens of India.

8/3/2009 3:20 PM: EUR/$..1.4410 $/JPY..95.30 GBP/$..1.6922 $/CHF..1.0595 AUD/$..0.8412 $/CAD..1.0670 USD Plunges to Multi-Month Lows by Korman Tam

8/3/2009 3:20 PM: EUR/$..1.4410 $/JPY..95.30 GBP/$..1.6922 $/CHF..1.0595 AUD/$..0.8412 $/CAD..1.0670

USD Plunges to Multi-Month Lows by Korman Tam

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The greenback tumbled to fresh multi-month lows against the euro at 1.4443 and the sterling at 1.6934 as traders move to break the major pairs out of recent ranges. With equities extending recent gains and commodities edging higher, the dollar remains under pressure amid a shift toward riskier assets. Optimism over a global economic rebound continues to improve, reinforcing sentiment that the worst of the recession may be over.

The week ahead will provide further insight into state of the US economy, providing fodder for equity market bulls and ultimately sending the dollar to fresh lows. The July manufacturing ISM report surged to its highest level since August 2008 at 48.9 versus 44.8 from June. The employment index rose sharply to 45.6 compared with 40.7 in the previous month.

The key highlights for foreign exchange traders this week will be a barrage of US economic reports, including personal consumption, personal income, pending home sales, durable goods orders and Friday’s key July labor report. The July unemployment rate is expected to climb higher to 9.7% from 9.5% in June. The non-farm payrolls report is seen improving sharply to post a loss of 340k jobs versus 467k jobs shed in June.

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USD: Breakout or Failure? by Angelo Airaghi [Guest Analyst] 7/27/2009

USD: Breakout or Failure?
by Angelo Airaghi [Guest Analyst]
7/27/2009

The U.S. dollar is at key support lines against major currencies and the short/medium/long term trend remains bearish. However, a breakout failure from current levels could signal a short (medium term) rebound for the green back.

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U.S: Recession is over or not?

During his testimony in front of the house panel last week, president Bernanke confirmed a tentative stabilization for the U.S. economy at these levels, although rates should remain low for the next months as well. In reality, the huge consumer and business debit will require years to be repaid. Private sector spending has fallen to record lows and savings have increased. The average duration of the unemployment rate in the United States is at a record high, while tax incomes have declined sharply for the government agencies. The decrease of spending by the private sector has been only marginally substituted by the various government interventions and the trend should continue in the years to come. Unemployment remains the weakest spot, as jobless claims rose to 554,000 in the week of July 18th from 524,000 the previous week. The housing market is at the contrary designing an interesting bottom, albeit prices are still declining. For the third consecutive month, home sales rose 3.6% in June (+1.3% expected) to 4.84 million. The increase was broad-based with condos rising 14% and single-family homes moving up 2.4%. Unsold home inventories declined instead to 9.4 months from the all-time high of 11.3 months registered in March of 2008. In effect, the worst might be over for the real estate market, if history repeats itself. Since1963 important bottoms occurred every 8/9 years: 1967, 1975, 1983, 1991, 2000, 2008/9 (?).


Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

This article contains the following sections:

# U.S: Recession is over or not?

# Europe: Investors still skeptics

# US DOLLAR: on focus

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RBI revises the interest rates on FCNR (B)

Reserve Bank of India has revised the interest rates on FCNR (B) deposits of all maturities contracted effective close of business in India on January 31, 2007 are subject to a ceiling of LIBOR/SWAP rates for the corresponding maturities MINUS 25 basis points (as against should not exceed LIBOR/SWAP rate) prevailing on the last working day of the previous month for relevant maturity and currency.

NASDAQ versus EUR/JPY

he 24-month correlation of -0.78 is attributed by the 54% climb in the NASDAQ during the Nov 98-Nov 2000 period, resulting from the great technology rally and impact of aggressive interest rate cuts by the Federal Reserve (Sep, Oct and Nov 1998). This contrasted with the Euro, which fell 15% in 1999 and 13% in the Jan-Nov period in 2000. Yet this negative correlation was reversed in the ensuing periods of the study as the NASDAQ rally floundered, while the Euro decline flattened. ; This continued to the extent of creating a full reversal of trends, which eventually recreated a negative correlation between the two variables in the 1-month period ending in November 2000.

Forex New's

Find the latest in the world of Foreign Exchange Markets both at TMB, Nationally and Internationally. Get the latest upto date news / report about the forex related information from us. Learn about the interest rate movements as and when they happen right here right now. This can be your one stop forex news point for the latest and upto date news about forex markets.