Why learn forex? Why trade forex? By reaching GoLearnForex, you must already be aware that Forex trading is a very lucrative way to make money from home or from work. Moreover, I'm sure you know someone, or have heard of someone who's already making good money in FX trading. Why not you ?

What you might not know though, is that 7 out of 10 traders keep on losing money in the Forex market! That's right, 70% of individual FX traders keep losing their hard-earned money in the market; while the other 30% work freely at home and make a solid living out of Forex.

So what is the major difference between the losing 70% and the winning 30%?

Forex trading knowledge and a sound trading system! If you want to have financial freedom by trading Forex and confidence in your trades; you need to get educated in Forex before you start trading it. Those who trade the Forex market with some knowledge and practice are taking advantage of one of the most lucrative markets anywhere in the world.

By golearnforex

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Let’s pick up where we left off in the last article on the basic happenings of the foreign exchange market. We mentioned that people buy and sell currencies for one another, but we need to establish how these prices are set.

In forex, prices for currencies are relative to one another.

How forex prices work

It’s hard to imagine giving a price for a currency in another currency. That just doesn’t make sense; it’s much easier to understand currency value as what we can exchange it for.

We can easily know that 1.25 US Dollars is enough to buy a soda–a Coca-Cola. However, how can traders know that $1.25 is equal to 1 Euro, .80 Pounds, or 10 Mexican Pesos?

It’s the economy!

In many ways, the value of each currency is tied to the performance of the economy it represents.

When the American economy is performing well, the dollar is likely to rise in value against other currencies. Thus, holding dollars is very much like investing in every person, company, and government in America, since the value of the dollar is dependent on everyone’s success.

Isn’t it great we all benefit from the success of everyone else? A strong economy almost always leads to a stronger national currency.

Taking that point to its logical conclusion, it would make sense that when the US economy is strong, so too is the dollar. Thus, the dollar’s value rises against other, weaker economies. A new perspective: if the US economy is growing and Mexico was experiencing a recession, the US dollar would likely be a stronger investment than the Mexican Peso. The market would reflect this, and it would take more Pesos to buy a dollar.

Investors who notice this trend can profit by speculating on the changes in currency values. If the dollar is soon to rise against the Peso, a trader could exchange Pesos for dollars through a currency broker. This trader would make a profit after the exchange rates change in his or her favor.

For example: Assume that we borrow 10 Mexican Pesos and trade them for 1 US Dollar.

If the currency rates change so that now it takes 11 Pesos to buy 1 US Dollar, we can exchange our US Dollar for 11 pesos, pay back the 10 pesos we borrowed, and enjoy a 1 peso profit. That one peso profit, at the current exchange rate of 11:1, is worth $.09. We made a 9% return on our dollars!

This is the very simple core of the foreign exchange market. When traders speak of buying and selling currencies, they’re really just talking about swapping one currency for another to make a profit. Of course, the full story is slightly more complicated, but keep reading and we’ll share all the nitty-gritty details.

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To put it in very simple terms, the foreign exchange market is a currency market, where investment banks, institutions, commercial companies, and individual investors go to buy, sell, and ultimately swap one currency for one another.

Different currencies are used in different places around the world. In the United States, we use the US dollar, which is our currency. In Australia, the official currency is the Australian Dollar. In Great Britain, they use the Pound. Europe uses the Euro.

All of these currencies have a different value, which is dependent on other currencies.
So what is forex?

Forex is the foreign exchange market. The foreign exchange market is a virtual market where investors buy and sell currencies for other currencies.

If you’ve traveled out of your home country before, you’ve interacted with the foreign exchange market and you didn’t even know it.

If you were to travel from the United States to Canada, you would trade your US Dollars for Canadian dollars at a bank, airport teller, or any currency exchange service. In trading your US dollars for Canadian Dollars, you participated on the global forex market.

But we’re just small fry in this massive global market.

You see, we’re just individuals. We don’t have tons and tons of money like banks, institutional investors, hedge fund managers, or mega-corporations. In comparison to these oversized professionals, we’re merely a drop in the bucket.

Mega-corporations rely on the foreign exchange market to trade in their currencies that they earn all around the world. Walmart, one of the largest retail companies in the world, has stores in 44 countries around the globe, even though it is based in the United States.

When it earns money in France, the company isn’t paid in dollars. Walmart gets paid in Euros. The company has to trade its Euros in for dollars to account for profits and losses.

Naturally, Walmart participates in the foreign exchange market to convert its foreign currencies into its home currency.

You Don’t Have to Be Big to Trade Forex

But you don’t have to be a Fortune 500 company to trade on the foreign exchange market. In fact, many traders make money in foreign exchange in buying and selling currencies for a profit. We’ll get to this in the following tutorials, but the point needs to be made that:

There are many reasons currencies are swapped for one another
You don’t have to be a millionaire or billionaire to trade forex

By now you’re probably wondering how we establish a price for money. We’ll get to that in the next tutorial…

forexonlinelearning

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FXstreet.com (Córdoba) – High-yield currencies moved considerably during the American session, as initially reached fresh highs against the Dollar but then turned lower, to new monthly lows to then bounced sharply back to the upside erasing losses. The Kiwi is outperforming the Loonie and the Aussie on Friday.

Commodity currencies are moving in line with Wall Street main stock indexes. The Dow Jones bottomed earlier at 11,140, the lowest level since early December but then jumped more than 300 points and currently is rising 97 points or 0.86%.

AUD/USD bottomed at 1.0375, fresh 4-month lows but then rebounded sharply to test daily highs at 1.0525. Currently it is struggling to close the week above 1.0500.

NZD/USD reached the lowest level on Asian hours at 0.8275 but currently is testing levels on top of 0.8420.

USD/CAD is trading at 0.9780/85, just a few pips below the price it had at the beginning of the day after peaking at 0.9852, the strongest level since June 29.

Market sentiment improved after reports suggested that the ECB was willing to buy Italian bond and following a press conference where Italian Premier, Silvio Berlusconi, announced a G-7 meeting of Finance ministers and also said that the budget will be balanced by 2013.

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FXstreet.com (Barcelona) - The United States lost its AAA debt rating, on late Friday, from Standard & Poor’s for the first time in history. The credit-rating agency said the political system of the world’s top economy has become less stable and is still concerned about the government's budget deficit and rising debt burden.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.

The outlook on the new U.S. credit rating is "negative," S&P added, which means another downgrade is possible in the next 12 to 18 months.

US government says S&P is wrong

The White House reacted with indignation to Standard & Poor's credit rating downgrade from AAA to AA-plus. A government spokeswoman said to media that S&P was wrong in its calculation, the debt value was overestimated by 2 billion, she stated.
Republicans asked President Obama division.

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Daily Client Note

Global Markets Review

Bull or Bear? It Does Not Matter

The topsy-turvy world of global trade continues its path of one day up and one day down, in reaction to breaking news sentiment. The unique set of fundamental circumstances unfolding as a consequence of years of miss-directed fiscal policies and institutional investment faux pas is likely to continue throughout the summer.

Wall Street opened lower which dragged the USD higher, while bullion was bought in the daily tango of global trade. It will be a relief to get the push-me pull-you farcical debt issues out of the way so that focus can switch to mid-term momentum reads.

Patience is required as the mid-term global charts go through a sideways spiral. We have been here before, many times, but this period of trade does seem to be going on forever.

Whether equity bull or bear, bullion buyer or seller, or a bond investor on the long or short end of the curve, the outlook remains the same; intra-day volatility as fair value is sought in milliseconds rather than historically over a period of days and weeks.

There are near-term trade opportunities in all markets when buying at the low of the previous session and selling at the high. These trades are available as a strategy because of the lack of mid-term chart directional sentiment and momentum.

The USD/S&P 500 inverse correlation remains strong, with equity and bond markets dominating intra-day direction across all global asset classes. Gold and Oil have started to form a near-term inverse correlation, with gold buying being met with oil selling, and vice versa. Silver trade does not yet have the strength of upside momentum seen in gold, but that may be more to do with Exchange floor margin requirement threats more than anything else.

The trade desk has highlighted over the last four years the changes that have happened in regard to electronic trading dominance, and the increase in algorithm trade that tracks momentum, headlines, price action, and sentiment. Who would have thought that Buy-and-Hold would so quickly cover just few days as a strategy, rather than the previous connotation that buying-and-holding could last decades.

Traders and investors have not been in such reactive market arenas before, which is a pure reflection of the technical advancements globally that has all aspects of daily life impacted by the speed in which information now travels.

The relentless desire to get information quicker than yesterday, in an effort to respond sooner, has transposed itself into traded markets that are truly 24-hours and are so completely globalized now that regional 9-to-5 trading is virtually obsolete.

Those looking for a flowing bell curve effect on their investment portfolio will not get it by trading and investing in regional markets only; gaps in closing/opening prices due to global momentum swings are prevalent. The long-term investor will have to introduce a near-term mix of global exposure to their portfolio.

Global exposure can be achieved via futures trade, which most see as specialized market verging on the dark side of the moon, via overseas accounts, which the US administration is determined to end, or via currency trading which remain the most liquid of all global traded markets.

As a balance to equities and bonds held over the longer term, exposure to forex offers easy access, low margin requirements, and access to global momentum. Equity and bond sentiment leads, and historically forex follows, creating a tradable balance to the buy-and-hold swings and dips.

Whether equity markets go on a bull run that has S&P 500 breaking 1350 and 1370, or has a bearish reversal that tests 1295 and 1275 is literally a coin-flick in the current headline-dominated trading environment. The reaction to either move however is tradable, via the currency markets that will track both bull and bear equity trade with a high daily correlation.

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FXstreet.com (Córdoba) - After rising toward a 2-day high of 80.92 on risk appetite following the NFP report, USD/JPY has retraced part of the initial spike and is consolidating around 80.50.

According to Valeria Bednarik, chief analyst at FXstreet.com, "Despite recent spike, 4 hours chart shows price still contained below a bearish 20 SMA yet indicators had erased past days bearish tone and are now aiming higher, helping keep the downside limited. A recovery, as long as above 80.00 should then be expected for this end of the week."

With USD/JPY currently at 80.55, Bednarik sees next support levels at 80.40, 80.10 and 79.80, while she locates next resistance levels at 80.90, 81.15 and then 81.40.

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FXstreet.com (Córdoba) – The EUR/USD peaked earlier at 1.4540/47, the highest price since January 14, 2010 but lost bullish momentum, moved in ranges for some hour and currently is testing levels below 1.4500. The pair is retreating after rising 200 pips from today’s opening price, extending to almost 400 pips the distance from Monday’s low.

The EUR/USD hit recently at 1.4987 the lowest price since early European session and remains hovering barely below the 1.4500 level.

Fan Yang, Chief Technical Strategist at FXTimes points out that the pair “is likely returning to its bullish mode”. “A swing projection seen in the daily chart is suggested by a positive reversal signal where the RSI low is lower, but the price low is higher”, Yang says. He affirms that the swing projection targets 1.4675, “this is the short-term target at the moment”.

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FXstreet.com (Córdoba) – The Swiss Franc continues its rally against the Dollar. The USD/CHF fell further below 0.8900 and reached a new all time low at 0.8878. The pair remains trading near session low, holding a bearish bias. Greenback is headed toward the tenth daily decline out of the last 12 trading days.

The recovery of the Dollar earlier found resistance at 0.8930 and the pair resumed its downtrend as the Swissy strengthened across the board.

To the downside, support levels could be located at 0.8860 and below at 0.8820 while to the upside, probable resistance levels lie at 0.8890 and above at 0.8930 and 0.8965.

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FXstreet.com (Córdoba) – Stocks rose sharply in Wall Street with the Dow Jones ending at the highest level since June 2008. Gold reached fresh record highs above $1,500 an ounce as the Dollar posted losses across the board.

The DOW rose 1.52% on Wednesday and has risen more than 300 point in three days. Earnings reports and better-than-expected housing data triggered optimism in Wall Street.

In the currency market, the Aussie and the Swiss Franc were among the best performers. The Yen trimmed losses on American hours but finished mostly lower in the market.

The EUR/USD reached fresh 15-month highs at 1.4545, pulled back afterwards to 1.4485 but managed to rise back above 1.4500. Cable remained steady on American hours consolidating around 1.6400, barely below April highs.

The USD/CHF extended its decline to fresh record lows at 0.8870/80 and remains under pressure. Greenback is also trading at record lows against the Aussie.

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By: Jamie Coleman

Hopes for robust US growth have been dialed back further in the wake of the US trade data which has pressured US yields lower. The buck, which suffers from many woes, seems to latch on to the latest one to float across the screens, and yields are today's problem du jour for USD bears to hang their hats on... 10s are down 10 bp in yield with 5 over 12 bp lower.

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FXstreet.com (Buenos Aires) – USD/CHF remains steady around 0.8960, near daily low set at 0.8942 just around US opening. The pair has been falling straight for 5 days already, accumulating over 400 pips to the downside this month. All time low, set on March 16th following Japan’s earthquake, lies at 0.8860.

The pair, that seems extremely oversold according to Valeria Bednarik, Fxstreet.com chief analyst, holds its “bearish momentum intact both in 1 and 4 hours charts, and despite extreme oversold readings are clear in both, pair seems not ready for a bullish corrective movement. Lose of 0.8940 daily low, should accelerate the slide towards mentioned record low”.

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FXstreet.com (Córdoba) – Despite moving away from session lows against commodity currencies, Cable reached fresh lows against its European rivals and the Yen while GBP/USD failed to hold above 1.6300 and fell below 1.6270, approaching daily lows.

The Pound weakened earlier across the board following inflation data in the UK and after pulling back, started to fell once again as stocks in the US decline, with the Dow Jones reaching weekly lows.

The EUR/GBP broke above 0.8900 for the first time since October of last year and is approaching to 0.8940; if it rises further it would be trading at the highest level in a year.

Against the Swiss Franc and the Yen, the Pound is currently at daily lows. GBP/CHF has fallen more than 300 pips since the beginning of the week and at the moment trades below 1.4550 while GBP/JPY is back below 136.00, looking for a new low.

The Pound only managed to hold against AUD, CAD and NZD; the three currencies weakened considerably in the last hours amid a decline in commodity prices and risk aversion.

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FXstreet.com (Córdoba) – The Euro rebounded on American hours at 1.4435 and rose to 1.4495. The EUR/USD has been steady in the last hours, hovering below 1.4500, consolidating a gain of 50 pips from the price it had at the beginning of the Asian session.

“The pair is trading above the critical support level at 1.4480 and so long the pair remains above this level, the target is set at the 1.4625 resistance level, but breaching the support at 1.4480 would send the pair to the support at 1.4375”, the ecPulse.com Analysis Team said.



The EUR/USD reached on European hours a fresh 14-month high at 1.4517, extending its rally from January lows that lie at 1.2865/70. Andrei Tratseuski from Forex Club attributes the rise to three main reasons: 1) interest rate differentials between the ECB and the FED, 2) European Union sovereign debt fears receding and 3) technical weakness in the Dollar Index.

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DailyFX provides forex news on the economic reports and political events that influence the currency market.

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Overnight Headlines

• US Dollar Gains vs Euro, Pound on Safety Demand as Stocks Decline
• New Zealand Dollar Outperforms on Rising Payouts for Dairy Farmers
• UK House Prices Surge in February, Overall Trend Still Disappointing

Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.3574	1.3745
GBPUSD	1.6165	1.6328

The Euro and the British Pound declined, falling as much as 0.3 and 0.2 percent respectively against the US Dollar as stocks sold off in overnight trade, boosting safety-seeking demand for the benchmark currency. We remain short EURUSD.

Asia Session: What Happened

CCY	GMT	EVENT	ACT	EXP	PREV
JPY	15:00	Cabinet Office Monthly Economic Report	-	-	-
NZD	21:30	Performance Services Index (JAN)	50.8	-	52.1 (R-)
GBP	0:01	Rightmove House Prices (MoM) (FEB)	3.1%	-	0.3%
GBP	0:01	Rightmove House Prices (YoY) (FEB)	0.3%	-	0.4%
NZD	2:00	Credit Card Spending (MoM) (JAN)	3.8%	-	-1.7% (R-)
NZD	2:00	Credit Card Spending (YoY) (JAN)	5.6%	-	2.1% (R+)
JPY	4:30	All Industry Activity Index (MoM) (DEC)	-0.2%	-	-0.2% (R-)

The New Zealand Dollar outperformed in overnight trade, overlooking mixed economic data and a selloff across Asian stock exchanges, amid speculation that Fonterra Cooperative Group Ltd – the world’s largest dairy exporter – may raise its payout to farmers after milk powder prices hit a 31-month high. Higher payouts promise to boost hiring and spending in New Zealand’s top export industry, adding fuel to the sluggish economic recovery. The currency rose 0.5 percent on average against its major counterparts.

The New ZealandPerformance of Services Index slid to 50.8 in January, showing the non-manufacturing sector expanded at the slowest pace in 15 months. Meanwhile, Credit Card Spending soared 5.6 percent from the preceding year, showing the fastest annual growth rate since May 2008. The MSCI Asia Pacific regional benchmark index fell as downward pressure from last week’s Chinese RRR increase was compounded by spreading tensions in the Middle East, with uprisings spreading to Libya, Bahrain and Iran.

UK House Prices surged in February, rising 3.1 percent from the previous month according to report from Righmove Plc, an online listing of for-sale properties. The increase is the largest in four months. Looking past month-to-month volatility however, the trend in house prices remains troubling. Indeed, the same report showed prices added just 0.3 percent from a year before, putting the annualized growth rate at the slowest in 16 months.

Euro Session: What to Expect

CCY	GMT	EVENT	EXP	PREV	IMPACT
CHF	8:00	Money Supply M3 (YoY) (JAN)	-	6.6%	Low
EUR	8:00	French PMI Manufacturing (FEB P)	55.3	54.9	Low
EUR	8:00	French PMI Services (FEB P)	58.0	57.8	Low
EUR	8:30	German PMI Manufacturing (FEB A)	60.3	60.5	Medium
EUR	8:30	German PMI Services (FEB A)	60.2	60.3	Medium
EUR	9:00	German IFO - Business Climate (FEB)	110.3	110.3	Medium
EUR	9:00	German IFO - Current Assessment (FEB)	113	112.8	Medium
EUR	9:00	German IFO – Expectations (FEB)	107.5	107.8	Medium
EUR	9:00	Euro-Zone PMI Composite (FEB A)	56.9	57.0	Medium
EUR	9:00	Euro-Zone PMI Manufacturing (FEB A)	57.2	57.3	Medium
EUR	9:00	Euro-Zone PMI Services (FEB A)	55.9	55.9	Medium

Risk sentiment is likely to remain a key catalyst for currency markets in European hours as investors continue to fret about mounting tensions sweeping the Middle East and North Africa. Stock index futures ticked lower and stocks sold off in Asia after Saif al-Islam Qaddafi, the son of Libyan leader Muammar Qaddafi, spoke out on state-run television warning of an impending civil war as Tunisian- and Egyptian-style protests were met with a harsh response from security forces. Libya is the world’s 12th-largest oil exporter.

On the data front, Germany’s IFO Survey of business confidence is expected to show sentiment soured a bit, with the closely-watched “Expectations” index down to 107.5 in February having hit a record-high 107.8 in the previous month. Meanwhile, February’s preliminary Euro Zone Purchasing Manager Index figures are set to reveal region-wide economic activity decelerated for the first time since October, driven by a slowdown in manufacturing-sector growth.

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The US Dollar finished the week lower against almost all G10 counterparts, continuing its multi-month downtrend ahead of a critical week of economic event risk. A fairly disappointing revision to Q4 GDP capped a week of mixed data, and all eyes now turn to the coming week’s critical US Nonfarm Payrolls report. The NFPs release needs little introduction as one of the most market-moving reports across global financial markets, and February’s result will be particularly significant given January’s sharply below-forecast jobs figure.

A busy week of economic event risk will shape expectations and likely force sharp short-term moves ahead of the NFP release, and it will be critical to monitor financial market moves as the US Dollar nears significant lows against major counterparts. Consensus forecasts currently call for a respectable 190k jobs gain through the month of February—consistent with expectations of substantial improvements on January’s clear disappointment. We will watch earlier-week ISM Manufacturing, ADP Employment Change, Initial Jobless Claims, and ISM Services results to gauge the likelihood that February payrolls meet lofty forecasts. Uncertainty surrounding the future of US Federal Reserve monetary policy puts all eyes on whether a broader economic recovery will be enough to produce similar improvements in the domestic labor market.

The US Federal Reserve shows little urgency in withdrawing extraordinary monetary policy stimulus amidst generally weak inflation and lackluster jobs growth. Controversial Quantitative Easing measures have been a major driving force behind US Dollar weakness, and it could arguably take a substantial shift in the Fed’s stance and rhetoric to force a sustained Greenback recovery. In the absence of such a change, the US Dollar may need a broader shift in financial markets to drive a major reversal.

The S&P 500 saw a sharp pullback on a broader flight to safety on geopolitical turmoil in the Middle East, and the USD rallied as one of the world’s foremost safe-haven currencies. Yet a later bounce in stock markets suggests bulls have yet to give up the fight, and we may need to see a more sustained shift to make any serious argument for a market top (and US Dollar bottom). CFTC Commitment of Traders data shows that Non-Commercial traders (typically large speculators) remain heavily net-short the US currency on a steady downtrend. And though such one-sided sentiment typically occurs near major market turns, sentiment extremes are only clear in hindsight and extremely difficult to time.

Trend traders will likely favor continued US Dollar weakness into the week ahead, and it is difficult to make the case for a substantive turnaround absent a material improvement in USD sentiment. FX Options market risk reversals likewise suggest that many traders have continued to bet on and hedge against Greenback weakness. It would likely take a material improvement in US economic data or a similarly large turn lower in ‘risk’ to force a substantive USD bounce. Given that the first week of the month quite often sets the pace for subsequent trading, we will pay special attention to whether the US currency shows any real signs of recovery through March.

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Forex - How Does an Oil Crisis Impact the U.S. Dollar?
By: Kathy Lien on February 22 11 10:01 EST

Oil prices are on the rise and everyone is talking about the possibility of $100 oil. Right now, the rise in oil is accompanied by a rise in the U.S. dollar but will this relationship last? Taking a look back at the two prominent oil shocks of the past four decades (1973 and 1979) and others beyond that, we see that the dollar eventually weakens.

1973 Oil Crisis: Initially Dollar Bullish, Eventually Dollar Bearish

In 1973, oil prices jumped 134% when the members of the OAPEC, which is OPEC plus Egypt and Syria, announced that they were no longer shipping oil to nations that supported Israel in its conflict with Syria and Egypt. This effectively shut down exports to the US, Western Europe and Japan. As a result, prices rose significantly to account for the sharp reduction in supply. At the same time, Saudi Arabia, Iran, Iraq, Abu Dhabi, Kuwait, and Qatar unilaterally raised prices by 17 percent and announced production cuts after negotiations with major oil companies.

In response to this oil shock, the trade weighted US dollar index* as measured against the major currencies first strengthened alongside oil and then sold off immediately. At that time, the Federal Reserve was combating inflationary pressures by raising interest rates. The jump in crude exacerbated the need for further rate hikes, forcing the central bank to bring the Fed Funds target rate from 7.5 percent in May 1973 to a high of 13 percent by the summer of 1974. The focus on inflation was initially dollar bullish but once the rate hikes started to have a serious impact on US growth, the trend turned dollar bearish. Between the third quarter of 1973 and the first quarter of 1975, GDP growth contracted five out of the seven quarters and in response to the deterioration in growth, the US dollar erased all of its gains.

1973oil

1979 Oil Crisis: Initially Dollar Bullish, Eventually Dollar Bearish

The US’ second oil crisis in 1979 was triggered by the Iranian revolution and exacerbated by a gasoline shortage. OPEC raised prices by 14.5 percent on April 1st and the US Department of Energy announced phased oil price decontrols which involved the gradual increased of old oil price ceilings. Shortly thereafter, OEC raised prices a second time by 15 percent, the US halted imports from Iran, while Kuwait, Iran and Libya cut production. Saudi Arabia also eventually raised their market crude prices to $24 per barrel and because of all of these factors, crude oil prices increased 118 percent between January 1979 and December 1979.

The price action of the US dollar during that time was very similar to the price action of the greenback in 1973; it first rallied and then sold off. At that time, the Federal Reserve was also hiking interest rates to combat inflationary pressures and the oil price spike exacerbated their degree of rate hikes. Between January 1979 and December 1979, rates where taken from 10 percent to 14 percent and by March of 1980, the Fed Funds rate hit a high of 20 percent. Quarterly GDP growth dropped 7.8 percent in the second quarter of 1980, triggering the dollar’s demise.

1979oil

1990 Oil Price Spike: Persistent Dollar Weakness

Between June and October of 1990, oil prices also jumped 113 percent as a result of the first Gulf War. Interestingly enough, the US dollar behaved very differently for two reasons. The first was the short-lived nature of the oil spike; prices started falling 6 months after the initial rise and the second was the Fed’s monetary policy cycle. Unlike the oil crisis of 1973 or 1979, the Federal Reserve started cutting interest rates before the spike and continued to reduce rates throughout 1990 and into 1991 and the dollar was already in a downtrend due to the loosening of monetary policy. The weakness continued as growth slowed with GDP remaining stagnant in third quarter of 1990, and then falling 3 and 2 percent respectively over the next two quarters.

Although the U.S. dollar is rising right now, the abundance of spare capacity and the muted level of inflation means that the Federal Reserve is not pressured by the increase in oil prices. The market basically doesn’t believe that the Fed will start raising interest rates – and they have good reason to feel this way because based upon the last 3 oil shocks, the recovery could suffer from higher commodity prices. Back in the 1990s, the Fed took a break from cutting rates like they are expected to do in June, but they quickly resurrected their rate cuts as the economy slowed. Of course, interest rates were much higher then than they are now, but if growth does not pick up, the Fed may be forced to prolong its asset purchase program.

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Forex - Survey: Sales of Distressed Homes increased in January
By: Calculated Risk on February 22 11 8:22 EST
From Campbell/Inside Mortgage Finance HousingPulse: HousingPulse Distressed Property Index Hits 49.6% in January

Perhaps the biggest news in the January data was a sharp rise in the HousingPulse Distressed Property Index or DPI, a key indicator of the health of the housing market. The DPI, or share of total transactions involving distressed properties, climbed from 47.2% in December to 49.6% in January. The increase was a continuation of a trend as the DPI registered just 44.5% back in November.
...
Already, in the key state of California, distressed property transactions account for 66% of the market. In Florida, distressed property transactions account for 63% of the market. And in the combined area of Arizona and Nevada, distressed property transactions are a stunning 72% of home sales.
...
The increase in distressed properties, combined with a reduction in first-time homebuyers, is causing downward pricing pressure to build in the market, especially for the categories of damaged REO and move-in ready REO.

This fits with other recent reports suggesting the percent of distressed sales was very high in January. The Case-Shiller house price data, to be released this morning, will be for last year (October, November and December) - and this survey suggests the repeat transaction house price indexes will show further weakness in 2011.

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Forex - Misc: Shiller says house prices could fall 15% to 25%, Solid Manufacturing Survey, Libya Updates
By: Calculated Risk on February 22 11 1:45 EST
House prices:
• From David Streitfeld at the NY Times: Home Prices Slid in December in Most U.S. Cities, Index Shows

Mr. Shiller, noting the unrest in the Middle East, a large backlog of foreclosed houses, the uncertain future of the mortgage holding companies Fannie Mae and Freddie Mac, and proposals to reduce the mortgage tax deduction, saw “a substantial risk” of declines of “15 percent, 20 percent, 25 percent.”

• Real House Prices fall to 2000 Levels, Update on NAR Overstating Sales
• Case-Shiller: National Home Prices Are Close to the 2009Q1 Trough

Other U.S. economic news:
• From the Richmond Fed: Manufacturing Activity Advanced at a Healthy Pace in February

In February, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — rose seven points to 25 from January's reading of 18. ... The manufacturing employment index added two points to end at 16, and the average workweek measure moved up three points to 20. Moreover, wage growth gained five points to 18. ... District manufacturers reported that raw materials prices increased at an average annual rate of 4.72 percent

All good news except prices.
• From MarketWatch: Consumer confidence jumps in February

The gauge for consumer confidence rose to 70.4 in February from 64.8 in January.

Libya updates:
• From the NY Times: Chaos Grows in Libya as Strife in Tripoli Intensifies

Libya appeared to slip further into chaos on Tuesday, as Col. Muammar el-Qaddafi vowed “to fight to the last drop of blood” and clashes intensified between rebels and his loyalists in the capital, Tripoli. ... Witnesses described the streets of Tripoli as a war zone.

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