And who determines currency values?

The answer to the second part is easy. Currency value is determine by the purchasers of the currency. These are primarily travelers, governments and Forex traders. FOREX stands for Foreign Exchange. There are many factors that currency traders, governments and businesses take into consideration in determining the Fair Market Value of a currency.

Fair Market Value is the price at which a willing buyer and a willing seller come together. The buyer must factor in many elements and considerations to try to accurately assess a currency's value at any given time. There are approximately 180 different currencies in the world now. Let's consider some of the factors that are used to determine a currency's value

Factors Affecting Currency Value:

1. Political Conditions in the Country - This includes the stability of the government, the amount of corruption, bribery and the degree of law and order. Also includes a country's relationships with other countries and especially their relationship to US, UK, China and Russia. The form of government in the country is also a factor used to assess the value of a currency. Consider the widely varying forms of government in Saudi Arabia, China, UK, Venezuela and Thailand, just to name a few.

2. Economic Situation - This includes factors such as jobs, unemployment, work ethic, infrastructure, inflation and direction of the economy. Is it older or newer in orientation; computers and high tech, or more farming and manufacturing.

3. Perception from Outside - The perceptions and attitudes of other countries toward a country are as important as the reality of the country's actual situation. News, media, movies, newspapers, rumors and spin can create perceptions. How much is known about a country? The less that is known, generally, the lower the value of a currency.

4. Demographics - A young population may mean better prospects for the future, people who are more open to change and development and a growing size of the workforce. The overall population of a country is a factor. How much weight does this country have on the world scene.

5. National Leaders - The openness, trustworthiness and likeability of visible leaders is a factor. This includes political leaders, sports figures, business owners and celebrities. Here are some national figures who affect their countries, either for better or for worse. Kim Jung Il, David Beckham, Nicole Kidman, Madonna, Osama bin Laden, Barack Obama and Vladimir Putin. These help form the world's perception of a country.

6. Isolation versus Openness - Continuum China is becoming more open, more transparent. This helps. Cuba is very closed and isolated. Venezuela is becoming more isolated by some of its recent actions. China's markets are becoming more open. Cuba, Kyrgyzstan, Russia and Japan, all have differing levels of openness with the outside world, which affects the value of their currency.

7. Natural Resources - The kind of and amount of exploitation of a country's natural resources certainly helps create a perception of value, or lack thereof, of a country's currency. Mining of minerals, forests, oil, fish and other resources are considered. Also the level of technology to development these resources.

8. Weather Factors such as drought, tsunamis, earthquake and floods are taken into consideration. How frequent are they and how is the country's response to them. These also affect desirability, safety and perception of a country. Is it a tourist destination?

9. War and Conflicts - With which other country is a country at war, and who is it’s allies? Their military strength and technology, their willingness to go to war and for what, are important factors in assessing a country's strength, stability and the value of its currency.

10 . Education - This includes languages spoken, level of computer know-how, Internet connectedness, culture and religion. Scientists, entrepreneurs, authors and inventors are all affected by the type and quality of education in a country.

How is the currency value determined (e.g. gold reserves in the country etc.,)?

Ok here is the basic idea of how currency value is determined. After the gold standard and the US dollar standard fell, the world entered an age of the floating currency exchange. This means that everyday a nations currency might be more valuable or less valuable than the day before. What determines the fluxuations? Buyers. Countries all over the world purchase other countries currencies, which determines the value. The American Dollar is strong because many many countries buy a whole lot of US Dollars. If investors and buyers decide to stop buying US Dollars, then the value of the US dollar would drop significantly. Now about your Japan question, some economists argue that a country will intentionally keep the exchange rate low so that buyers on the world market will not purchase the Yen for example. You would think that a weak national currency would indicate that this country is poor. Not always the case (China is a good exampe), the argument is that nations like Japan and China want their currency to be low in value so that other nations (like the US) will buy more Japanese and Chinese products imported. Think about it, if the US dollar is twice as strong as the Yen, than it can buy twice as many Japanse goods. If a computer costs 1,000 dollars in the US, but 1000 Yen in Japan, than you could buy two Japanese computers. make sense?

Source(s):

No formal sources used in this answer.I am a student of world economics and political science at the university of missouri-columbia

Forex: Fibonacci & Price Action

Fibonacci is used many ways, but how many of you ever use it to determine the balance point between long and short? Fibonacci can be used to help identify reversal points in the market as they are unfolding and help give us one more tools in our inventory; to give you that ever so hard to keep edge in trading. Reversal signals are key in keeping pace with market sentiment. There are ways that we can use the Fibonacci tool as an aid in seeing these reversal points and to be able to look past its levels as merely support and resistance points. Used properly the Fibonacci tool can give you that looking glass that measures overall market sentiment. A simple observation is all that’s needed with the application of the Fibonacci tool to measure the balance between a long and short market sentiment. One day to the next can give us the direction that the market is most likely to take the following day along with a few basic rules of using the Fibonacci tool

Multi-Timeframe Fibonacci Forex Trading Setup

Many times I’ve seen a trader with one Fibonacci retracement tool on a small timeframe and wondering why price is not reaching a level or seemingly turning at a empty space on the charts. The reasoning for this is that Fib levels are traded from many different timeframes all at the same time and its best to know where all the higher timeframe levels are especially when trading from a small timeframe of 1 hour.

The object is to start from a higher timeframe here so that the trader can be aware of where the higher timeframe support and resistance levels are. In this example Ill set up a chart and make an analysis of each timeframe before stepping down to the next lower one. What this can do is help you to gain a perspective of price movement so that you can be prepared once price begins to move and you will not be at a loss as to why your trades do not work out.

In this example I'll use the EURUSD which is currently the most commonly traded pair and is easiest to trade. We want to start with the weekly and determine if there is trending in the markets and what direction is of that trend. First lets separate the chart into recent trending movements and ranging periods. Figure 1 depicts the ranging periods

Fap Turbo

Fap Turbo took the industry by storm when it was released on 25 November 2008. The creators of Fap Turbo promised to deliver the most advanced Forex trading robot there has ever been on the market and so far they have not dissapointed the thousands of traders that were eagerly waiting for the launch. The reason why Fap Turbo is so popular is the fact that it offers a system that is more profitable, but less risky than the famous Forex Autopilot..exactly what the market has been waiting for.
I purchased Fap Turbo on the day that it was launched and 3 days after that it had already earned me more than 500 pips in profit on my demo account. Fap Turbo is a fully automated trading system that requires virtually no human intervention or in depth understanding of the Forex markets. If you are interested in Forex trading, but have limited time and don’t want to spend more than a few minutes every day in front of the charts, then Fap Turbo is the system for you.

us dollar, japenes yen weaken

The US dollar and Japanese yen dropped on Wednesday, as enhanced risk appetite profited riskier assets such as the commodity dollars and stocks, with the DJIA and S&P 500 both finished the day up more than two %. Much of this was attributed to news that China is anticipated to reveal a 2nd stimulus package throughout Friday’s opening of the National People’s Congress, indicating that Chinese demand can hold up as much as necessary to maintain other international economies. In the meantime, the forex markets indicated little reaction to news that conditions in the US non-manufacturing division - which forms around 70 % of entire economic activity in the country and includes retail, services, and finance - deteriorated in February as the Institute for Supply Management (ISM) index dropped to 41.6 from 42.9.

Forex Market Development

The history of the Forex market as an international capital speculation market is much shorter compared the stock, the gold, the stock, the interest market, but it is developing in an astonishing speed. Today, the foreign exchange market daily trading volume has amounted to 150 billion US dollars, it’s scale has gone far beyond the stock, the stock and other finance commodity markets, it has became the world's most biggest sole finance market and the also the speculation market. Since the birth of the foreign exchange market, the fluctuation of the exchange rate of the Forex market is becoming bigger. In September 1985, 1 US dollar exchanged 220 Japanese Yen, but in May 1986, 1 US dollar only could exchange 160 Japanese Yen, in 8 months, the Japanese Yen has revalued 27%. In recent years, the foreign exchange market wave amplitude has been bigger, on September 8, 1992, 1 pound exchanged 2.0100 US dollars, on November 10, 1 pound exchanged 1.5080 US dollars, in the short two months, the pound exchanged US dollar exchange rate to fall more than 5,000, depreciated 25%. Not only that, presently, everyday the fluctuation of the exchange rate of the Forex market enlarges unceasingly, within a day the rise and drop 2% to 3% is commonly seen. On September 16, 1992, the pound exchanged US dollar from 1.8755 to fall to 1.7850, the pound on first lowers 5%.
Due to the large fluctuation of the Forex market, it has created more opportunities for the investor, attracted more and more investors to join this ranks

Forex market

1st, It consists market but no trading field The finance industry in the western countries consist two sets of systems, namely the centralism business central operation and there is no fixed place for such business network. Stock trading is being traded through stock exchange. Like the New York Stock Exchange, the London stock market, the Tokyo stock market, respectively is American, English, the Japanese stock main transaction place, it is a centralism business financial commodity, its quoted price, the transaction time and hand over to the procedure all consist of unification the stipulation, and has established the same business association, it has formulated the same business rules. The investor could buy and sells the commodity through the broker company, this is known as "consist of trading market and trading field".
But foreign exchange business is done without any unification operation market and business network, it has no centralism unified place like the stock transaction. But, the foreign currency trading network actually is globally, and it has formed a organization which has no formal organization, the market is relied through an approval way and the advanced information system, Forex traders do not consist any membership qualification for any organization, but must obtain colleague’s trust and approval. This kind of Forex market which has no trading field is known as "consist of market but no trading field". Each day, the trading volume in the global Forex market involves billions of U.S dollars, the so huge large amount fund, is being control under both the non-centralism place and non central governance system, plus it is settle based on non-government governance.
2nd, Circulation work Due to the different geographical position of the various financial centre, the Asian market, the European market, the Americas market because of the time difference relations, it has become an entire day 24 hour continued operation whole world foreign exchange market.
Early morning 0830 (New York time) New York market opens, 0930 Chicago market opens, 1830 Sydney opens, 1930 Tokyo opens, 2030 Hong Kong, Singapore open, before dawn 1430 Frankfurt opens, 1530 o'clock London market opens. So 24 hours uninterrupted movements, the foreign exchange market becomes a day and night market, only on Saturday, Sunday as well as the various countries' significant holiday, the foreign exchange market only then can close.
This kind of continued operation, provided no time and spatial barrier ideal outlet for investors, the Forex trader may seek the best opportunity to carry on the transaction. For instance, Forex trader buys up the Japanese Yen in the morning at the New York market, in the evening Hong Kong market opens the Japanese Yen rises, the Forex trader sells in the Hong Kong market, no matter Forex trader in where, he all may participate in any market, any time business. Therefore, the foreign exchange market may say is does not have the time and the spatial barrier market.
3rd, Zero and Game In the stock market, the rise or the drop of stock market could influence the value of the stock whether to rise or drop, for example the Japanese new date iron stock price falls from 800 Japanese Yen to 400 Japanese Yen, the value of this stock has been reduced to half. However, in the foreign exchange market, the value of a stock and a currency is being calculated differently, this is because the exchange rate is refers to the exchange ratio both countries currency, the exchange rate change will influence one kind of monetary value to reduce and at the same time another kind of monetary value increase. For instance in 22 years ago, 1 US dollar exchanges 360 Japanese Yen, at present, 1 US dollar exchanges 110 Japanese Yen, this explains the Japanese Yen currency value rise, but US dollar currency value drops, in the end the value will not reduce or increase. Therefore, some people described the foreign currency trading is "zero and the game", exactly said is the wealth shift.
In recent years, investment foreign exchange market fund has continuously increased, the exchange rate fluctuation expands day by day, urges the wealth shift to be larger, the daily trading volume of the global foreign exchange involves 150 billion US dollars, the rise or falls 1%, means that the 150 billion funds has been shifted. Although the foreign exchange rate change is very big, but, any kind of currency will not become waste paper, even if some kind of currency unceasingly falls, however, but generally it represents certain value, only if such currency has been abolished.

European market inflation

One of the reasons why the foreign exchange developed rapidly was the rapid development of the Euro dollar market. In a Euro dollar market, US dollar is stored beyond the border of America banks. Similarly, the European market is refers to property depositing outside the currency rightful owner country market. A Euro dollar market was formed at first in the 50's, at that time Russia deposited its petroleum income beyond the US border, avoid being freeze by the US government. This has formed a large offshore US dollar national treasury which is beyond the control of the US government. The American government has formulated a law to prohibited US dollar from lending money for the foreigner. Because the degree of freedom of the Euro dollar market is bigger and the rate of return is bigger, therefore it has large attraction. Starting from the 80's, the American company starts to borrow loan from the offshore market, they discovered that the European market is a wealth center which consists of large amount of floating capital which could provide short-term loan.
London once was (until now still is) one of the main offshore market. In the 80's, the Bank of England in order to maintain its global finance industry center dominant position, using US dollar as England pound substitution to make loan, thus to become a Euro dollar market center. London's convenient geographical position (is situated between Asian and Americas market) also helps to maintain the European market as the dominant position.

What is the Difference Between Forex and Stock?

The Forex market has a lot of advantages compare to stock market:
A Forex trader could make profit through the market no matter if it is bearish and bullish which is different from the capital market, Forex has no strict regulation in speculation, no matter whether it is a long-term or a short-term transaction there is still a hidden profit, moreover, Forex market is a double-transaction market which means Forex traders could make profit through both upward and downward trend.
Forex traders could obtain a much larger transaction compared to the stock market, through the Forex trading, Forex traders could obtain 100 times larger transaction compared to the stock market. According to the present US situation, if a Forex trader invests $1,000 in the stock market, the trader may obtain $2,000 of stock domination property with a proportion of 2:1, but through Forex trading, a Forex trader can do transaction with a proportion up to 100:1.
Forex trader may make profit from the ordinary news, like the interest rate change, Forex market is closely related to various countries' politic, economy and culture, Forex traders could also obtain profit from other kinds of news, for example interest rate level change, will influence the interest of the Forex deposit.
Forex traders could do 24 hours trading. The stock market can only be traded during daytime at a specific time, generally from 9:30a.m. to 4:00p.m.. If you too have your own full time job, then you will face the dilemma - either to give up your full time job or forgo the trading opportunity. But Forex market can be traded 5 days a week and 24 hours a day, Forex traders can trade during their free time which is normally at night after working hour.
If a trader analyze based on technical analysis, Forex trading would be much more suitable for such traders because the Forex market has a very large trading volume. Currently the Forex market has daily trading volume of 190 billion Dollar, such giant market will completely digest a fore trader's transaction cash, under such situation the accuracy of the technical analysis would be much higher then any financial market, the chances of using technical analysis to make profit would be much more higher.
In the stock market there are hundred and thousand kinds of stocks, then choosing stock will be a very difficult matter. But in the Forex market, the currency combination is extremely limited, this may enable Forex traders to concentrate on these currencies combination, and could follow the trend quickly.

Fundamental analysis in Forex trading

Fundamental analysis, in short, is referring to the dynamic studies of distinct plans, erratic behaviors and unforeseen events that influence the economic of certain entity.
The focus of fundamental analysis mainly lies on the political, social, and economic force that drives the supply/demand trends the currency. Government policies, bank policies, natural disasters, social stability, overall economic trends are some of the major factors that draw a fundamentalist’s attention.
Fundamental analysis comes very handy in making mid-long term invesment decisions. However as the analysis method is mainly focus on the major thing, it will not be a good tool for Forex day traders.
It is easy to understand that fundamental skills are useful in forecatsing currency overall trends but in term of detailing job, seems to be more appropriate

Simple Moving Average (SMA)

Simple Moving Average (SMA) is one of the easiest method in Technical Analysis. SMA indicates the average price (closing.opening) of a given time period, where each of the chosen periods carries the same weight for the average.
The maths behind SMA is simple. For example you are developing SMA chart for USD/JPY closing price in 5-day time frame. The first 5 days USD/JPY closing prices are 125.0, 124.0, 126.0, 123.0, 127.0 -- thus the first dots of your SMA graph will be 125.0 (average of the first 5 days USD/JPY closing price). Assume the USD/JPY closing price is 126.0 for day sixth, your second SMA point will be (124.0 + 126.0 + 123.0 + 127.0 + 126.0)/5= 125.2. The calculation goes on for the following dots and SMA chart is defined by joining these SMA dots.
SMA graph "moves" because for each calculation, we use the 'latest number of time periods' data and drop the oldest data.

Trade Forex anywhere from the world virtually

A computer with Internet connection plus an active Forex account are sufficient for you to execute a trade in Forex market.
Professional Forex traders have the privilege to travel around the world but yet still connected to the market anytime, anywhere. The freedom of this is something you could not get else where by being an employee of a cooperation

Trade Forex 24 hours a day

Forex market never sleeps. In Forex trading, you do not need to wait the market to open, you can always response to world latest movement and news immediately.

Every Sunday 5.00pm in New York, Forex market starts its week from Sydney, followed by Tokyo, Singapore, Hong Kong, London, and New York. In Forex tradng, you can always response to the market trend a lot faster than in any other trading market.

Also, with the flexibility of Forex market trading time, you can work on your trade in Forex during your free time. This means you can start small and work as part time trader before going full time on FX trading.

Equal Prospective in Rising or Falling Market Trend

There is no structural bias to the market and there are no restrictions on short selling in FX market. Trading in Forex gives you an equal prospective in rising and falling market.
As trades are always done in pair of currency pairs, Forex traders can always find chance to make money in anytime, regardless on the fall or rise period of one single country currency.

Japanese Yen (JPY)

The yen or en is the currency of Japan. It is also widely used as a reserve currency after the United States dollar, the euro and the pound sterling. The ISO 4217 codes for the yen are JPY and 392. The Latinised symbol is ¥ while in Japanese it is also written with the kanji 円.
While not a usage specific to currency, large quantities of yen are often counted in multiples of 10,000 in the same way as values in the United States are often quoted or rounded off to hundreds or thousands.
The yen was introduced by the Meiji government in 1870 as a system resembling those in Europe. The yen replaced the complex monetary system of the Edo period, based The New Currency Act of 1871 stipulated the adoption of the decimal accounting system of yen, sen, and rin, with the coins being round and cast as in the West.
The yen was legally defined as 0.78 troy ounces (24.26 g) of pure silver, or 1.5 grams of pure gold. The same amount of silver is worth about 1181 modern yen while the same amount of gold is worth about 3572 yen. The Act also moved Japan onto the gold standard. (The sen and the rin were eventually taken out of circulation at the end of 1953.)

Euro (EUR)

The euro (currency sign: €; banking code: EUR) is the official currency of the Eurozone (also known as the Euro Area), which consists of the European states of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia, and Spain, and will extend to include Cyprus and Malta from 1 January 2008.
It is the single currency for more than 317 million Europeans. Including areas using currencies pegged to the euro, the euro directly affects more than 480 million people worldwide.
With more than €610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro surpasses the U.S. dollar in terms of combined value of cash in circulation.
While all European Union (EU) member states are eligible to join if they comply with certain monetary requirements, not all EU members have chosen to adopt the currency. All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty have pledged to adopt the euro in due course. Maastricht obliged current members to join the euro; however, the United Kingdom and Denmark negotiated exemptions from that requirement for themselves. Sweden turned down the euro in a 2003 referendum, and has circumvented the requirement to join the euro area by not meeting the membership criteria.
Several small European states (The Vatican, Monaco, and San Marino), although not EU members, have adopted the euro due to currency unions with member states. Andorra, Montenegro, and Kosovo have adopted the euro unilaterally.

Pound Sterling (GBP)

The pound (symbol: £; ISO code: GBP), divided into 100 pence, is the official currency of the United Kingdom and the Crown dependencies.
The slang term "quid" is commonly used in place of "pound(s)". The official full name pound sterling (plural: pounds sterling) is used mainly in formal contexts and also when it is necessary to distinguish the currency used within the United Kingdom from others that have the same name.

The currency name — but not the names of its units — is sometimes abbreviated to just "sterling", particularly in the wholesale financial markets; so "payment accepted in sterling", but never "that costs five sterling". The abbreviations "ster." or "stg." are sometimes used. The term British pound is commonly used in less formal contexts, although it is not an official name of the currency.
The pound was originally the value of one pound Tower weight of sterling silver (hence "pound sterling"). The currency sign is the pound sign, originally ₤ with two cross-bars, then later more commonly £ with a single cross-bar. The pound sign derives from the black-letter "L", from the abbreviation LSD – librae, solidi, denarii – used for the pounds, shillings and pence of the original duodecimal currency system. Libra was the basic Roman unit of weight, which in turn derived from the Latin word for scales or balance.
The ISO 4217 currency code is GBP (Great Britain pound). Occasionally the abbreviation UKP is seen, but this is incorrect. The Crown dependencies use their own (non-ISO) codes. Stocks are often traded in pence, so traders may refer to Pence sterling, GBX (sometimes GBp), when listing stock prices

United States Dollar (USD)

The U.S. dollar uses the decimal system, consisting of 100 (equal) cents (symbol ¢).

In another division, there are 1,000 mills or ten dimes to a dollar; additionally, the term eagle was used in the Coinage Act of 1792 for the denomination of ten dollars, and subsequently was used in naming gold coins. In the second half of the 19th century there were occasional discussions of creating a $50 gold coin, which was referred to as a "Half Union," thus implying a denomination of 1 Union = $100.
However, only cents are in everyday use as divisions of the dollar; "dime" is used solely as the name of the coin with the value of 10¢, while "eagle" and "mill" are largely unknown to the general public, though mills are sometimes used in matters of tax levies and gasoline prices.
When currently issued in circulating form, denominations equal to or less than a dollar are emitted as U.S. coins while denominations equal to or greater than a dollar are emitted as Federal Reserve notes (with the exception of gold, silver and platinum coins valued up to $100 as legal tender, but worth far more as bullion). (Both one-dollar coins and notes are produced today, although the note form is significantly more common.)
In the past, paper money was occasionally issued in denominations less than a dollar (fractional currency) and gold coins were issued for circulation up to the value of 20 dollars.

Major Currencies Traded in Forex Market

The most traded currency in Forex market (the major seven) are United States dollar, Eurozone Euro , Japanese Yen , British Pound Sterling, Swiss Franc, Australian dollar , and Canadian Dollars.
Forex market is much USD-centered, where United States currency is involved in more than 80% of the trades. Major traded pairs in FX market are EUR/USD, which yields 28% from total trades. USD/JPY and GBP/USD come second and third, with take up 17% and 14% from the global forex trading respectively.

EUR/USD--

In light of a strong sell-off on the S&P 500 today, spot crude managed to move back above the $58.50 level which helped keep the euro fairly supported against the dollar. For those traders who were expecting to see a massive euro sell-off after Friday's mega run were disappointed and probably got stopped out yet again. I've not changed my personal trading bias and I will not buy the USD against any of the majors. The USD Index gained back a little ground but nothing to get too excited over and I still believe the dollar remains at risk, especially if the S&P 500 can hang on to its gains and keep pressing northbound. That being said, as we talked about this morning during the Q and A session, I still believe the closer we get to summer session trading conditions, especially into June and July, the higher the risk and probability of Wall St. giving up some of its gains, which would correlate into the USD gaining back against its counterparts. The liquidity will dry up considerably after Memorial Day and with a lack of buying conviction I find it hard to imagine how the S&P 500 could get back to 975 or 1,000 over the summer. So in addition to disinflation being one of the biggest risks for the global markets, summer trading conditions are also a very viable risk, especially in July and August.

Trade Balance--

The big data out of the US is the latest Trade Balance report. We've seen the Trade Balance continue to close what was once a very wide gap. In other words, the US used to have this thing called a 'consumer' and now we do not, therefore, America's trade gap has closed sharply with economies like China, Japan, Mexico, and Canada who are strongly reliant on the US consumer. The best case scenario for the markets would be to see the US Trade Balance print worse than expected, but only if the worse part is due to the fact more US consumers stepped up their buying from those other economies who rely on American consumerism. That would be a good sign of overall recovery for global economic trade and potential future growth. The markets would like to see the US consumer revive, borrow, and spend. I'll be closely scrutinizing the data tomorrow

S&P 500 and Treasuries:

Both the S&P and Treasuries were most responsible putting downside pressure on the markets today. Without any surprising and happy economic news for Wall St. to get euphoric over market participants decided the S&P 500 was a little too high and now was a great time to lock-in profits and take some risk off the table. The S&P 500 was trading at 4-month highs before losing 2.2% today and the Dow lost almost 2% after suffering from its own round of profit-taking and risk aversion. While participants were booking profits on the equities markets, money-flows were going into Treasuries as we saw the benchmark 10-year yield drop a hefty 12bps. Between the sell-off on Wall St., Treasuries making a bullish move, and with crude falling almost 1%, the EUR/USD stood no chance of sustaining a move and holding above the 1.3600 level during NY trading.

Disinflation in the new 'Holy Land' opens markets on negative tone:

After the markets went gangbusters last Thursday and Friday they all took a collective breather today. The markets got off to a rough start on Sunday and all signs started pointing to a down day for equities, commodities, and higher-risk currencies like the euro, pound sterling, and Aussie dollar. What was the first sign? China... The latest inflation data out of China was not pretty and came as an unexpected surprise to market participants. Don't forget, China has been hailed as the next Messiah who will save the global economic markets and that means more participants are watching and scrutinizing China's economic fundamentals much more so than in the past, including yours truly. I would almost never pay attention to China but now that the markets are putting their hope and faith in China to help revive the markets, I think it's important to watch some of their key data.As you know I'm all about inflation data right now because inflation is one of the only true catalysts that will drive these markets higher. Any signs of disinflation, especially in China, will not make the markets happy. Chinese CPI printed down 1.5% month-over-month while PPI print down a scary 6.6% month-over-month. Chinese CPI has dropped for three straight months while PPI was the worst print in the last 10-years of record keeping for this data out of China. The response from this data was felt across the board last night as the Shanghai Composite closed down 1.8% and the S&P 500 futures, Dow futures, and crude sold-off all through the Asian trading session while the JPY gained some ground back. And there's plenty more inflation data for the markets to play with the rest of this week

GBP/JPY price action pattern--

As you know my strategy with price action says when the GBP/JPY completes a pattern sequence of at least seven consecutive higher opens or lower opens over seven consecutive 30-minute time frames, there is a high probability the market has exhausted and over-extended itself and I will then play the market against itself, against all those traders who do not understand these concepts and will pile into the last 5% of the market's move which puts them on the wrong side of the market, ultimately either stopping them out or causing them to take a loss. Here's the pattern sequence:
0300 EST - 4718 pip differential of +37
0330 EST - 4773 pip differential of +55
0400 EST - 4840 pip differential of +67
0430 EST - 4862 pip differential of +22
0500 EST - 4887 pip differential of +25
0530 EST - 4905 pip differential of +18
0600 EST - 4920 pip differential of +15
So here we have seven consecutive higher opens and based on this pattern sequence, my trading strategy called for me to take a GBP/JPY short position at the price of the seventh higher open which was 149.20 targeting no less than 80-pips profit. The GJ's high of the day was around 149.48 if I recall, so what my strategy was showing me the market has exhausted and over-extended by the 0600 EST time frame and any move in price beyond the 149.20 level would only up the probability of a reversal, not a continuation because price would only further exhaust itself. By 0736 EST the price pattern paid the 80-pips profit and should the trade have been held longer it would have been paid in excess of 250-pips from entry to the low price of the trade day. That pattern sequence above has formed in the past and it will form again in the future because the market will complete the circle of price replication again in the future and when it does, I will get the same exact results unless an unforeseen geo-political event occurs to alter the emotions of humans and their decision making. But even if I did not know this was a replicated price pattern, just based on the sequence and the pip differentials alone I would know it's time to short, not to buy... but the geo-political factor is a whole other aspect of price action we'll need to save for another time. That's all the time and space I have for now. Don't forget tomorrow is a huge fundamental day and I expect more volatility and price swings in the market. Key levels will be posted in the morning before Wall St. opens. If you have any questions based on this commentary feel free to ask, whether in the chat or via email, I'm glad to help if I can.

Price action pattern formation--

Here's where another personal philosophy of trading comes into play... I do not believe price action in the currency market actually goes up and down, rather I believe it just goes in a continuous circle. I think the way price is displayed on a candle or bar chart is completely wrong and inaccurate because on a chart price is displayed as moving in an up and down motion which gives the false idea that price has a true starting and stopping point, a top or bottom, or a beginning and ending point. I believe the price of a currency has no top, bottom, beginning, or end. If a currency did have those things that would mean there's a starting and ending point, a place where price could ultimately be unable to increase or decline in value; a final resting place. There cannot be an absolute price for any currency purely on the nature of how they are paired together. There is no such thing as a single currency that stands alone, so there cannot be an absolute price because each currency is valued against another. Just because the EUR/USD went to 1.6048 last July and has not returned there since does not mean the EUR/USD will never go to 1.6049 and beyond. Price is continuously in a state of repeated replication. During today's trading the EUR/USD hovered roughly between the 1.3550 and 1.3700 level. In 2008 at a certain moment in time it hovered at the same exact levels. In 2007 at a certain point in time it hovered at the same exact levels. In other words, price has completed a circle of replication and this is exactly where I find price action patterns that have been repeated in the past. Pattern recognition is nothing more than observing the past, analyzing the data from the past, and connecting the past to the present to get a probability on the future when price is in the replication process. I'm running out of space to continue this commentary but hopefully this gives you some more insight to how I utilize this aspect of trading. I want to finish up by giving you a beautiful price action pattern for the GBP/JPY that formed this morning. This pattern formed today, it's formed in the past, and based on what the market did every time this exact pattern sequence formed, I was able to make a trading decision with a probability, knowing exactly what to expect because price had replicated itself which gave me a look into the future...

Price exhaustion

So everything we've discussed thus far is what leads up to how tradeable price action patterns develop and are formed. One of my philosophies on price action says that the price of any market, including currencies, will always over-extend and over-exhaust itself to the upside or downside. How this applies specifically to the spot Forex market stems from my belief that a larger degree of retail traders will buy or sell into the final 5% of a market move. The bulk of the buying power that propelled price from the "lift-off" point has either stopped buying or has begun the profit-taking process. Therefore, the demand is lacking to force price higher and lack of demand is one of the main contributing factors leading to price failing to continue higher or lower. Those market participants who pile into the last 5% of a market move lead price to exhaust itself in addition to the contributing factor of stop loss triggering. When you combine exhausted price and the effect of stop loss triggering, you get an over-extended price that will struggle and then ultimately fail to move beyond a certain point at that given moment in time. Then comes the addition of market participants who believe price is over-valued and the collective buying power of this group of participants contributes to price failing to continue and price will falter and begin to reverse.

Price action and price fluctuations--

Price is never wrong and price is the only honesty you will ever get in this market because the market itself is never wrong, it cannot be wrong. If the market says the price of the EUR/USD at 1.3594 is too low, is a good value, and should be valued and priced higher, a larger degree of the market will attempt to buy the euro at 1.3594 than what supply would be available to buy at that exact moment in time. More humans believe they can gain by purchasing the euro at that price as opposed to the amount of humans who fear the risk of loss. Conversely, there may be almost just as many humans who believe they can gain by selling the euro at the price of 1.3594. Both sides might be correct, but only the future holds the answer to that question and this is where the two emotions of fear and greed control the decision making once the trade has been made and must be managed by the human who decided to participate at the price of 1.3594.When the supply of available contracts at the price of 1.3594 cannot meet the demand of bidders who want to buy the available supply at 1.3594, the price changes, it goes up and forces those who wanted it at 1.3594 but didn't get it at 1.3594 to pay more to get what they want. As long as more humans demand to buy the euro than there is supply at any given price, price will have to go higher, it cannot work any other way. Now this doesn't mean those humans who thought the dollar was a better value when the euro was at the price of 1.3594 are ultimately wrong, it just means there were more humans who wanted something that was in greater demand but had lesser supply at that given moment in time.

Psychology behind inflation and price action--

Now that's all well and good, but what's the practical application and lesson for us traders? There are several lessons, especially for any traders who tried to buy the dollar or yen against the majors and crosses for lack of understanding how the underlying fundamentals of the markets drive price action. The main lesson has to do with sentiment, specifically, how inflation data drives market sentiment which drive money-flows... it's a pretty simple correlation and it goes like this:1. Higher prices for finished goods leads to:2. Higher usage of commodities to produce finished goods which leads to:3. Higher prices for commodities based on higher demand and usage which leads to:4. Producers passing their higher costs to the end user which leads to:5. Higher consumer inflation Think about it this way... when you combine the factors of a product costing more to produce and being in higher demand, the price has to go up and when more finished goods are being produced it also means the costs of those commodities used to produce and bring to market also go up accordingly, if all of those prices are going up they will get passed on to the consumer. So that means CPI could go up and when CPI and PPI both go up, commodities go up, and when commodities go up, equities go up. When the prices of both commodities and equities go up, higher-risk and higher-yielding currencies like the EUR, GBP, and AUD all go up. Wall St. needs inflation, bottomline. What's good for Wall St. is good for the EUR/USD and its higher-yielding comrades and bad for the USD. That's the psychology behind the fundamental factors for how good inflation data would cause bullish sentiment and positively effect money-flows into markets that offer the promise of better yields and higher returns in the future. Now, today was about as beautiful an example as we've seen in awhile for how good inflation data can cause a market rally, it doesn't always work so smoothly and succinctly, but I think it's important for traders to have a good fundamental understanding for how this all works. When the big money movers look at data like PPI, that's what they are thinking and their thinking leads to stronger risk appetites and a healthier demand for better yields.

Hot inflation data resurrects markets:

After equities, commodities, and the high-yielding currencies came under selling pressure yesterday, an upside surprise with today's Producer Price Index turned the market's right around. At 0830 EST this morning PPI printed up 0.3% month-over-month putting to rest deflation fears for at least today's trading... In case you might be skeptical or unconvinced how critical inflation/deflation is right now to the markets all you need to do is pull up a chart for the EUR/USD, EUR/JPY, GBP/USD, GBP/JPY, spot crude (cl_cont), and the S&P 500 futures (es_cont) and you can clearly see every single one of those inflation-sensitive, higher-risk, higher-yielding markets made their turn upwards within minutes of the PPI data hitting the market. Not only did they make their turn after market participants had a few minutes to digest the data, but they never looked back until they all exhausted themselves at the 1530 EST time frame. It's no coincidence those markets made their bottom for the day, turned back up and rallied within minutes after the PPI data hit the news wires because each and every one of those markets need price inflation and rising price pressures in order to keep moving higher. And within 30-minutes of the PPI data release the US dollar Index topped put and did nothing but fall, along with the Japanese yen

Making Profit in the Foreign Exchange Market

The currency fluctuate continuously due to reasons such as political, economical reasons, sometimes the changes could be extremely great, therefore, the Forex traders also can have the opportunity in among which makes a profit. For example, the Japanese Yen daily fluctuation is probably between 0.7% to 1.5%, Forex traders may make profit through buying and selling. All trading could be completed in a short time, the trading strategy could be carry up according to the market conditions, it is extremely flexible, even if the direction looks wrong, the lost could be stop immediately, the lost could reduce but profit potential is still great. Therefore, the Foreign Exchange margin trading is the most flexible and the most reliable investment method.Foreign Exchange Margin Trading elementary knowledge

Non-bank Foreign Exchange Companies

Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but currency exchange with payments. I.e., there is usually a physical delivery of currency to a bank account.
It is estimated that in the UK, 14% of currency transfers/payment are made via Foreign Exchange Companies.These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services

Retail foreign exchange brokers

There are two types of retail brokers offering the opportunity for speculative trading. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through or banks. Retail brokers, while largely controlled and regulated by the CFTC and NFA might be subject to At present, the NFA and CFTC are imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone. It is not widely understood that retail brokers and market makers typically trade against their clients and frequently take the other side of their trades. This can often create a potential conflict of interest and give rise to some of the unpleasant experiences some traders have had. A move toward NDD (No Dealing Desk) and STP has helped to resolve some of these concerns and restore trader confidence, but caution is still advised in ensuring that all is as it is presented

Determinants of FX Rates

The following theories explain the fluctuations in FX rates in a regime (In a regime, FX rates are decided by its government):
(a) International parity conditions viz; Though to some extent the above theories provide logical explanation for the fluctuations in exchange rates, yet these theories falter as they are based on challengeable assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the real world.
(b) Balance of payments model. This model, however, focuses largely on tradable goods and services, ignoring the increasing role of global capital flows. It failed to provide any explanation for continuous appreciation of dollar during 1980s and most part of 1990s in face of soaring US current account deficit.
(c) Asset market model views currencies as an important asset class for constructing investment portfolios. Assets prices are influenced mostly by people’s willingness to hold the existing quantities of assets, which in turn depends on their expectations on the future worth of these assets. The asset market model of exchange rate determination states that “the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.”
None of the models developed so far succeed to explain FX rates levels and volatility in the longer time frames. For shorter time frames (less than a few days) can be devised to predict prices. Large and small institutions and professional individual traders have made consistent profits from it. It is understood from above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of demand and supply. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, and factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: factors, conditions and

Money Transfer/Remittance Companies

Money transfer/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally

Foreign exchange market

The foreign exchange market (currency, forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies.FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when worldover countries gradually switched to from their erstwhile which remained as per the till 1971.
Presently, the FX market is one of the largest and most financial markets in the world, and includes trading between large banks, currency corporations, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over 3.2 trillion in April 2007 by the Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.
The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.

Why should I learn Forex currency trading

By reaching to our website, I think you are already aware that Forex trading is a good way to make money at home. More over, I bet you knew someone, or would have heard of someone, who's already making tons of good money in FX trading. But what you wouldn't know is that 7 out of 10 traders keep losing money in Forex market! That's right, 70% of individual FX traders keep losing their hard-earned money in the market; while the rest of the 30% work freely at home and earn millions annually) Wonder what differs between the losing 70% and the winning 30%? Forex trading skills and the trading system! If you want to work less than 20 hours a day at home, if you want to make millions by trading freely at home, if you want to have financial freedom by trading Forex; you better LEARN Forex trading before you start trading Forex. Forex market is definitely not a game for newbie and you need to brush up your skills before getting your hands wet