The Yen is rising once again, as another set of investors unwind their carry trade positions. No, it wasn’t the threat of higher borrowing costs, via a hike in Japanese interest rates, that spooked investors. Rather, it was general volatility in forex markets that jolted investors to re-assess their short positions in the Yen. Volatility is anathema to carry traders, as shorting a currency is similar to shorting a stock. Once any security that one has shorted begins to rise, short sellers are pressured to ‘buy to cover’ which only sends the currency higher and triggers further buying to cover. This phenomenon is known as a ‘short squeeze’ and seems to affect the Yen every time volatility surfaces. The Financial Times reports:

Analysts said the resulting rise in risk aversion had led investors to exit carry trades, in which the purchase of riskier high-yielding assets is funded by selling low-yielding currencies such as the yen.

Read More: Investors exit from carry trades

Your Money, Your Life

Does the value of the United States Dollar concern you? Find out how recent trends have contributed to its decline. Countless geopolitical factors have had an effect.

China has rapidly accelerated its monetary situation. Asia as a whole holds the foreign reserves ransom while the region regroups from its mid 90s financial debacle. And the Euro, not even a decade old, continues to strengthen—the currency is the newest and hippest kid on the block.

Has the dollar’s disease quickened due to Bush administration actions or was the economical situation a historical matter  that the latest White House only inherited? How much has the trip-up cost the U.S. currency its reputation among the foreign exchanges and have other more eligible currencies turned the heads of foreign reserve managers?

Presidential Administrations

Countless comparisons have been made between Bush and Clinton economics. The two dovetail temporally, but diverge ideologically. Clinton critics are eager to find fault first with his Administration. Statistically, when the graphs are all done and the brightly colored pie charts printed out, the Clinton administration managed to come out ahead in regards to overall economic strength. But most of this euphoria was based on domestic economy. The fact is that neither Clinton nor Bush managed to improve the overall trade deficit; both ran it into negative territory.¹  And while other robust factors have added combustibles to the fire, the trade deficit is a multi-faceted issue that figures prominently in the assessment of the USD value equation.

As much as trade is now a specter in currency value, it hardly functions on its own. Economic pedagogy teaches us that a strong domestic economy in any country makes for a more stable currency. Clinton did in fact produce favorable results in jobs, unemployment, national debt, poverty, and important economic factors like property ownership. Under the Bush Administration, every indicator but Productivity has slipped significantly. Fewer Americans are able to own homes, more are without health insurance, household incomes have fallen, and the number of well-paying full-time jobs has decreased.²  Add to this the alarming reversal of national debt and the recipe is one of economic volatility.

 Long-Term Tax Cuts

The President’s first order of business in his initial term was a long-term series of tax cuts beginning in 2001. The latent intent was to boost consumer confidence, and consequently the economy and the dollar. The tax plan was largely advertised, however, as a benefit for the middle and lower income demographics, especially families. Critical analysis now illustrates a number of fatal cracks in the plan: the tax cuts were too long-term to effect an immediate and necessary economic and dollar push; national debt continued to escalate out of control; and Social Security and Medicare costs increased.³

War and Gas Prices

Absolutes that have devalued the dollar are the Iraq War and gas prices. These taken together provide the traditional economics for a weak dollar. The war has contributed unheard-of debt.  The only reason, according to many economists, that the U.S. has any global monetary power is the fact that so much of the foreign reserves are still heavy with U.S. greenbacks; in this lies dollar value.

Early in the war and even leading into it, economists portended the global economic bedlam from a lengthy war. Primary arguments centered on the economic supposition that “uncertainty” would uproot the dollar’s value and “a global economy dominated by only one currency would break down.”⁴

Trade Deficit Blamed on China

As was pointed out before, both the Clinton and Bush administrations drove trade deficits into the red. According to many economists though, variables diverged between the two. Clinton’s trade deficit was the result of previous Bush Sr.’s economic policy and a rapidly expanding economy. In contrast the GW Bush trade deficit is driven by an imbalance of cheap imports to expensive exports, in which the current administration prefers to blame on Asia’s undervalued currencies, specifically the Japanese yen (JPY) and the Chinese Yuan.⁵

The China Syndrome

The Yuan, the unit of Chinese currency, has affected American workers, whether they know it or not. In many cases, when jobs have been cut, especially in areas heavy on manufacturing, international trade issues are to blame. Just look at the growing influx of Chinese products. China’s currency in technical juxtaposition to our own has deeply undercut the U.S. dollar value and concurrently dealt an upper-cut to American international trade, state the charges from the White House.

China has without argument rapidly matured into an ample geopolitical force. China’s haste to strengthen its domestic economy is the basis for their fattened foreign reserve coffers. China holds one of the biggest chunks of dollar denominated currency second only to Japan.⁶ The U.S. has challenged the Chinese government’s strategy which seeks to keep its own currency undervalued, a benefit to their growth. And up until 2005, the Chinese Yuan was pegged, or fixed, to the U.S. dollar, a design that both former and current Treasury Secretaries Hank Snow and Henry Paulson, respectively, vigorously railed against. But for both Bush terms this Chinese foreign exchange strategy has been used to rationalize the trade deficit and in turn serve as a primary argument for the depreciation of the dollar.⁷

China has been a juggling act for the current Administration, for both political and economic reasons. In 2003, just prior to the Presidential election, China was THE buzz in mainstream news. Key sticking points: How GW would approach the Asian power in relation to North Korea, and flagging U.S. trade on the other. Allegations were leveled at China for their currency manipulations. An undervalued Yuan is stronger internationally than the strong dollar.⁸

China’s influence in Asia, especially in regards to North Korea, cannot be impressed enough. On the other hand there’s the vast stores of U.S. greenbacks the Chinese foreign reserve has no intentions of parting with. Geopolitically the Chinese are expanding into other countries, buying industry and business. China as a key attribute in the dollar’s tumble is pure speculation. Financial power and international leverage may best describe the Chinese foreign reserves, then and now. A hot-button for the last two Bush administrations is the U.S. government’s inability to control the Chinese government’s leverage, or manipulation as some have suggested, of these vast stores of U.S. dollars for their own suggested swindle.⁹

Currencies On the Rise

Accounting by the European Central Bank shows that as of 2006 the share of reserve currencies, distributed among the international coffers of the world’s exchanges and banks, looked like this: U.S. dollars accounted for over 65%, the Euro over 25% and the sterling pound a bit over 4%. Not far behind the pound, the Japanese yen weighed in at just over 3%. “Other” currencies made up 1.5% and the Swiss franc accounted for .2%. The larger context, though, shows trends that underscore a diversification of reserves. For example, the reserve of U.S. dollars reached its peak in 2001 when it consumed 70.7% of the total.

While it has experienced mild fluctuations since, by far its largest drop was from this high in 2001 to its rank in 2002—it thudded to 66.5%.¹⁰ At or near this level the USD reserves have vacillated since. In contrast the Euro has gobbled up increasing bite-sized chunks of the total reserve pie.

On January 23, 2007, a Market Watch headline proclaimed: “The dollar fell to a 14-year low against the British pound and two-week low versus the euro Tuesday, on growing expectations of further interest-rate hikes in Europe and as oil prices rebounded.”¹¹  Headlines such as this may not be so uncommon in the future.

Diversification of Foreign Reserves

Chatter over diversification of foreign reserve currencies has heated up in the last few years. The dollar still consumes the biggest chunk of the reserve pie, but foreign fund managers have found traction in other more stable and liquid currencies. Indeed, it is this diversification search that best typifies current trends in reserve management, as well. In a paper published by the European Central Bank in 2006, an international task force explored the newest management techniques afoot. Concurrent with diversification, it seems increasing ranks of reserve fund managers are also expanding their investment tools in order to squeeze the most from their long-term asset piles.¹² The biggest concern not only nationally, but globally is the power the dollar has yielded up until now:

“Unlike country-specific economic indicators like GDP or consumer confidence, the dollar and its junior partners, the euro and the yen, track movements in the global economy. Since the early 1970s, the American dollar has been the financial glue holding the global economy together. But if the dollar falls too fast it devalues the worth of its holdings. Then a rush to the euro and the yen could easily occur.” (Schurmann, Pacific News Service)¹³

Euro

The Euro was first introduced in 1999. However, as a commonly traded currency the Euro should not be compared to the dollar until 2002, when it became a commonly traded currency. Since then the Euro has made regular and marked valuation increases in comparison to the USD. As of the close of 2006, most financial reports were identifying the total value in circulation of the euro to be rapidly gaining, if not overtaking, the dollar denominations.¹⁴

Simply put, in early 2002 an American would have exchanged 88 cents for a Euro; in early 2007, one Euro costs $1.33.¹⁵

What’s startling is that back just a few years ago, the dollar’s decline was applauded as a necessary correction in an imbalanced economy.¹⁶  At the time most investors were high on their housing market takes, but current events have yielded a situation not imagined upon the Euro’s launch. Perhaps the dollar’s flimsiness is not  encouraging a “correction” anymore. If some speculators are correct, the euro could beat the dollar in the overall reserve market within the next twenty years.¹⁷

Pound Sterling

While some financial gurus plug London as the next hottest financial market Mecca, the British pound sterling (GBP) is about as shallow as the U.S. dollar, most say. The economics of England run similar to the U.S.’s in war and general national debt, the trade deficit is substantial, consumers are in personal debt up to their eyeballs, and the housing market went bust well before the U.S.’s. Economically this all adds up to a weak currency.¹⁸  Even though the GBP is falling in contrast to the dollar, an American would pay out close to two American dollars in exchange for one pound. Ironically, after all the bad domestic news out of London, the GBP “has become the ‘anti-Dollar’ of choice for the world’s central bankers.”¹⁹ 

The currency remains remarkably well received among governments whose goal is to diversify their portfolios of foreign reserve currencies. For a short-lived period of time the GBP was displaced by the Japanese yen in the top three foreign reserve currencies, but has since regained its spot among the leading power currencies.

Japanese Yen

Like China, Japan has vigorously stockpiled dollar denominated currencies in its foreign reserve since the Asian financial crisis of the 90s. Neither Japan nor China were as significantly impacted as the East Asian countries, but still their best defense to any further economic tremors was to fatten federal reserves full to the rim with U.S. dollars.

This has been most measurable since 2000.

As of 2004, according to the Federal Reserve Bank of San Francisco “[Total] worldwide foreign reserves holdings reached $3 trillion…up from $2.4 trillion in 2003,” with the biggest coffers belonging to Japan first and China second.²⁰  Regardless of the size of Asian reserves, the yen poses little challenge to the value of the U.S. dollar. Perhaps one day it will. Already the yen has made small advances in international portfolios, but it undoubtedly is much weaker than the leading currencies.

Dollar in Retrospect

The results are in on many economic fronts. The U.S. dollar has had its heyday. Whether in response to direct U.S. government maneuvers or as a result of inevitable economic maturation, the dollar has been shaken by financial globalization. Apocalyptic predictions have the dollar free-falling to a sudden collapse²¹, while moderate ideologues and economists point to the predictable balancing²² of a more ideally diversified global economy.

Did you enjoy this article?

Footnotes

1. Progressive Policy Institute, “Bush vs Clinton: An Economic Performance Index,” Robert D. Atkinson and Julie Hutto, October 2004.
2. Ibid.
3. U.S. News and World Report, “President Bush’s Tax Cut Suicide,” James Pethokoukis, March 2007.
4. Pacific News Service, “Watch the Dollar: Bush Needs a Lesson in Currency and History,” Franz Schurmann, Feb 2003.
5. Progressive Policy Institute, Atkinson and Hutto.
6. Federal Reserve Bank of San Francisco, “What if Foreign Governments Diversified Their Reserves?” Diego Valderrama, July 2005.
7. “U.S. Business Blames Poor Economy on Chinese Yuan’s Fixed Dollar Value,” Elizabeth Becker and Edmund Andrews, Aug 2003.
8. Ibid.
9. Ibid.
10. European Central Bank, “The Accumulation of Foreign Reserves,” Feb. 2006.
11. Market Watch, “Dollar Hits 14-Year Sterling Low; Euro/Yen at New Record,” Wanfeng Zhou, Jan 2007.
12. Ibid.
13. Pacific News Service, Schurmann.
14. Financial Times, “Euro Notes Cash In To Overtake Dollar,” Ralph Atkins, Dec 2006.
15. Oanda, FXHistory: Historical Currency Exchange Rates.
16. MSNBC, “Consumers Could Get Caught Under Falling Dollar,” Martin Wolk, Dec 2004.
17. “Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency?” Menzie Chinn, Jeffrey Frankel, Jan 2006.
18. Bullion Vault, “A Beauty Contest for Misshapen Half-wits,” Adrian Ash, Dec. 2006.
19. Ibid.
20. Federal Reserve Bank of San Francisco, Valderrama.
21. World Net Daily, “U.S. Dollar Facing Imminent Collapse?” Jerome Corsi, Dec 2006.
22. The Economist, “Sustaining the Unsustainable,” March 2007.

Even if you’re an active trader in stocks, you may not be prepared to invest in forex, or the foreign exchange market. Forex trades 24 hours a day from 5:00 p.m. ET on Sunday until 4:00 p.m. ET Friday, so you won’t hear those opening or closing bells. And, there’s no central market like the New York Stock Exchange or Nasdaq. Instead, trade is conducted between participants through electronic communication networks (ECNs) and phone networks in various markets around the world. So, when you hear that the US dollar closed at a certain rate, it simply means that was the rate at market close in New York. But currency continues to be traded around the world long after New York’s close.

But, like securities, traders can go long or short and they can make a profit or lose money. As with stocks, it’s best to conduct some research into how the forex market works before you begin to trade. After you understand how the forex market works, you can begin to build a trading strategy.

The following list contains 37 tutorials, tools, and resources that will help you get started with investments in forex. If you’ve traded on any stock exchange in the past, some of these tools might feel or appear familiar, but they may have a new twist. The resources listed below were chosen for their clarity and simplicity as well as for their reputation.

Getting Started

The following information is for the forex beginner, but even intermediate-level forex traders might pick up a tip or two from these sites:

1. Baby Pips:
   A pip is the smallest unit of price for any foreign currency, so "baby pips" is a bit redundant. But you won’t find any redunancy on this site. Skip the news on the front page for now and go straight to the School of Pipsology that holds a complete course for beginners. If you walk through all the lessons contained on this site, you’ll have a solid basic forex education under your belt.
2. Forex Glossary: Although the previous tutorial might help you to understand some forex terms, this glossary is a great tool to have on hand for future reference. You’ll see some familiar terms here, like "selling short" and "limit order," and you’ll learn that they mean the same as they do when you use them for trading securities. But, you’ll also find new terms like "big figure" and "two-way price," terms that will set you apart as a forex trader.
3. Investopedia: This online financial encyclopedia contains an extensive 10-part article on forex investing, from an introduction to a recap that covers everything from benefits and risks to technical analysis. If you can’t get enough of Investopedia’s information, head to their Forex index, where you can find a list of articles and an opportunity to download their free e-Book entitled, "High Probability Trading Setups for the Currency Market."
4. National Futures Association(NFA): Now that you have a basic understanding about forex markets, visit the NFA to learn how to build a sound forex strategy. The NFA is "the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets," which basically means that this organization regulates any market that depends upon future cash flows. The "investor information" section contains materials about how to find a broker and basic lessons in forex trading. Plus, they publish forex warnings, news, and they offer a place for investor disputes and complaints.
5. Commodities Futures Trading Commission(CFTC): The CFTC operates along the same lines as the SEC (Securities and Exchange Commission), except this government organization focuses on protecting market users and the public from fraud in the futures and option markets. So keep this site handy to stay on top of any forex scams through their Consumer Advisory on Forex Fraud. You can learn quickly what to avoid in your learning curve through a detailed forex advisory that offers information about other resources as well.
6. Martket Traders Insitute (MTI): You don’t need to spend a lot of money to train in forex markets. Even MTI offers free resources such as videos and lesson plans that will help you get off the ground. If you like what you hear and see, you can invest in materials for the advanced trader down the road.

Learn about Currency

If you’re going to trade something, you better know what it is you’re trading. These currency sites will help you get up to speed on foreign currency exchange and markets.

7. Exchange Rate: Skip the top link box, as those links will take you to FXCM (Forex Capital Markets — see #13 and #33). Instead, try out the "hot" and "currency info" links that provide information about everything you’d want to know about worldwide currencies for 170 countries. Includes calculators, fun facts, serious facts, and more.
8. Oanda: With a free registration you can access customizable currency tools, including calculators and foreign exchange data. If you don’t register you can still access currency exchange tools that are great items for instant information, especially for travelers, let alone forex investors. The Traveler’s Cheat Sheet is indispensable for money-conscious globetrotters.
9. GoCurrency: This site offers a powerful and accurate currency converter, but don’t stop there. Learn about currencies by country, currency forecasts, and gather insights on foreign investments.
10. The Euro: Confused about the Euro? Over 13 European Union countries now use the Euro, and this Web site, brought to you by the European Commission, will teach you everything you want to know about this currency. But the Euro represents just one currency among hundreds. Which leads me to my next point…
11. List of Currencies: This is an extensive list provided by Wikipedia that covers everything from ancient coinage to the current Yen. As with most Wikipedia lists, you might run across a link or two that doesn’t contain information. But, you can use that information to search elsewhere if needed.

Get the News

Once you’ve learned the basics, the next best thing you can do before you begin to trade is to read up on forex information via traditional financial news sites and blogs. Use the tutorials listed above during this process so that you can grasp the language and learn the strategies involved in any reporting. Take advantage of forums or chats offered by these resources to ask questions:

12. Action Forex: This site offers an easy-to-read layout that includes news, insights, fundamentals reports, calculators, and tons of other forex resources.
13. Daily FX: An easy-on-the-eyes news source that offers a calendar, charts, and a forum. Sponsored by FXCM, this site offers a free weekly trading lesson and free quarterly outlook reports. You must be an FXCM client to access the market commentary, but the other "free" news offers a great resource for learning and for staying
    on top of forex news.
14. Forex Reader: The Forex Reader is a popular blog that offers updates on financial headlines relegated by currency. It also serves as a resource for individuals seeking a Houston trucking accident attorney along with other legal and financial information.
15. Forex News: Like most of the sites listed here, Forex News offers more than news. Check
    out their forums, their technical news, and their educational and research materials while you’re there. Register for free to take full advantage of the site’s resources, including a chat feature.
16. FXStreet: Global Forex Trading (GFX) sponsors this forex news site. Use the forums, chats, strategies, techniques, and trading tools to get a feel for forex. Additionally, several bloggers share their insights, including Wayne McDonell’s FX Boot Camp Training Videos (visit his FX Bootcamp
    site).
17. Profiting with Forex Blog: You might discover that this newsworthy blog is part of the network, "Profiting with Forex."
    The blog is interesting, but the backend reports, podcasts, and commentary at the "Profiting" site might appeal to you more.
18. The Forex Project: Lessons learned first-hand from a forex trader. This site has an unbelievably long list of topics, along with news about the blogger’s personal trading experiences, calculators, charts, news, and a perspective on forex psychology.

Participate in Forums

Speaking of forums, here are a few specific resources where you can tap into information from around the world that may help to answer your questions about forex trading and markets. Be aware that individuals who want to sell their ideas visit these forums, just like any other forums. But, you’ll find a wealth of valid information here as well.

19. MoneyTec: With over
    33,000 members, this traders’ forum offers a format to discuss trading ideas, share, learn, and build new trading techniques and strategies.
20. Global View Forums: Another free forum that’s been around since 1996. This one focuses solely on forex. You must register to participate.
21. Forex Factory Forum: You’ll find a Forex Beginner Q&A section as well as topics that focus on specific strategies and techniques. Free to register.

Learn Strategies

You’ll discover that some forex traders use Fibonacci (Fib) methods, and that others rely on current financial news to divine futures. There are as many strategies as personalities in the forex market, but — like the stock market — they rely either on fundamental or technical analysis. The following contains a mix of the two:

22. Fibonacci Lesson: Don’t know much ’bout arithmetic, Fibonacci numbers, or the Golden Section? This tutorial, offered by Dr Ron Knott from the Mathematics Department of the University of Surrey, UK will provide results. Simple to use, easy to understand, and filled with illustrations to help you learn why some numbers are so important to nature. Interstingly, these numbers are also of vast interest to many forex investors.
23. Fibonacci Forex Indicators: Forex Planet will begin to show you how to apply Fibs to forex in this easy-to-understand lesson. But, the lesson is short, so you might try the next resource as well:
24. Mini-Lesson on Fibonnaci: This lesson also applies to forex, and it offers a short tutorial on applications along with a downloadable Fib calculator.
25. Intro to Japanese Candlestick Charting: Altavest provides a short and succinct introduction to Japanese candlestick charting, another method that forex traders use to graph charts.
26. Candlestick Patterns: If you like the Japanese candlestick methodology, this site will thrill you. Extensive patterns are illustrated graphically from basic to single patterns and reversal to continuation formations. This entire site offers some great information on techniques and strategies beyond the candlestick information, so take some time to look around while you’re here. Basically, this site has it all as far as technical analysis goes.
27. Fundamentals of Forex: Forex TV brings you the lowdown on what type of news would affect forex from a fundamental standpoint. You can use the information on this list to conduct further research, but I’ll bring a few of those topics to you now…
28. Consumer Price Index (CPI): The US Department of Labor offers a ton of information just on this page alone through their links. But, the CPI is often influenced by many other factors. If you’re a fundamentalist, you might want to tag this next link for further research as well…
29. Bureau of Economic Analysis (BEA): Don’t play around with someone else’s opinions. Get the straight stuff from the US Department of Commerce like the pros. Everyone from the White House staff to US Trade Commission employees to trade policy officials who want to negotiate international trade agreements uses the measurements contained on the BEA Web site. Why should you be left out of this information resource?

Use Charts

Charts offer visual validation for technical strategies, but they also reflect fundamental behaviors in the market. Even if you’re a seasoned securities trader, you might want to learn more about the psychology behind forex trading. If you can read all sorts of charts inside and out, you’ll have the forex advantage.

30. The Law of Charts: Joe Ross offers advice for traders across the board, but the information contained in his "Law of Charts" offer speaks to forex as well as any other trading strategy. He identifies chart patterns that result from human behaviors and points to entry and exit targets on those charts. You can take advantage of Ross’s other tools as well, including the forum.
31. Forex
    Charting 101: A brief and basic overview of forex charts from Pip Trader. You’ll discover that the charts are very similar to those that you might use for securities trading. But, some of the charts may seem more complicated if you’re not a seasoned trader.
32. Free Forex Charts: There’s no reason for me to push you into using a specific chart. Instead, I’ll point you to a short list of free forex charts that you can use for practice. When you’re ready to begin trading, take a look at their lists of premium and system trading charts for professional use. The lists contain ratings and reviews, visuals, features, and tips and tricks for individual charts.
33. FXCM: Although I don’t advocate specific brokers in this article, when you visit brokerage sites make sure that you take advantage of any free information offered by those businesses. In this instance, Forex Capital Markets offers tons of information about forex trading, and you can sign up for a risk-free 30-day practice account to get your feet wet. Forex.com and several other brokerage sites also offer this free account service. Be aware that when you sign up for these services that you’ll be added to a mailing list. You can opt out of these lists, but read any other pertinent information to make sure that you’re not obligated to purchase anything from any brokerage that you use for services such as this one.

Other tools

The tools listed below are "sidebars" to all the information listed above. I’ll cut you loose on the last two sites, as they contain just about every site you’d might want to access for more forex information:

34. Live Forex Rates: You might recognize the GFT logo behind the rates, but don’t let that distract you from the constantly changing figures. If you’re addicted to live feeds, you’ll be mesmerized by the constantly changing currency
    rates on this chart.
35. A
    Free Book about Forex: This book is truly free, as you don’t need to register to access the PDF file. A forex trader offers information about all the mistakes he made as he learned how to develop his own forex strategy. Short and easy to read, this little book will bring some insights into how to avoid some pitfalls in the forex markets.
36. Top 100 Forex Sites:
    Although these sites are rated by popularity and, therefore, subject to rating scams, you can learn much from the sites that are listed simply from the variety of information that’s offered here. Many sites are brokerage firms, but as I mentioned previously you can find free information on many of these sites such as news, calculators, techniques, and more.
37. Earn Forex: A link exchange/directory for other forex sites. Unlike the "Top 100" site listed previously, Earn Forex doesn’t rate their links. But, you will also find much different information here than at the previous site. Additionally, the links are sorted by categories, which makes it easier to find what you need. In addition, you’ll find other tools here like calculators, articles, and a forex FAQ and glossary.

There are many other sites that I could list for your forex training, but my next suggestion is to head to your local library and read some books about forex trading. If you find an author or two who are to your liking, begin to study their techniques and strategies both through their books and on the Internet. If you share your information and questions on forums, you might find a mentor who will help you learn how to strategize and to use charts and fundamentals to your advantage as well.

Forex trading isn’t learned overnight; so don’t feel inadequate if you can’t grasp the fine points immediately. You can’t lose by learning more about how world economies work. The information that you gather in your search for forex training will make you a better trader no matter which markets you prefer to use.

Did you enjoy this article?

The Thai Baht has been on a tear recently, up 10% since the start of this year and up close to 20% since last summer. Up until a few weeks ago, the currency had largely been flying under the radar of forex traders. Since then, however, the Baht has appreciated at a breakneck pace, surging to a 9-year high against the USD. JP Morgan, an investment bank, has raised its rating on Thailand, calling it one of the most promising emerging markets on its radar screen. Many analysts feared the worst several months ago, when a military junta seized power in Thailand, an event which was quickly followed by draconian capital controls and political stability. Thailand’s economy seems to have largely shrugged off these concerns, propelling the Baht upward. Nation Multimedia reports:

JP Morgan compared Thailand to Korea in 2004. In October 2004, the Korean won started a sharp appreciation. [That year] Korea outperform emerging markets by 20 per cent in 2005, and Asia Pacific excluding Japan by 30 per cent.

Read More: JP Morgan upgrades Thai market

While the USD appears to be trending downward these days, commentators note that the currency is actually traveling sideways, as market participants look for cues indirectly from economic data and directly from the Fed. Many pundits feel the economy is resting precariously on the back of the housing market, and are anxiously waiting for the data to provide guidance either way. Already, a spate of bad news surrounding one sector of the mortgage market coupled with disappointing data on new home sales are worrying investors. Ultimately, however, the USD will live or die by the Federal Reserve Bank’s reaction to this news. In fact, the Fed’s Open Market Committee is scheduled to meet today and tomorrow, during which point it is expected that interest rates will be held constant. The Wall Street Journal reports:

Analysts will also be watching for any changes to the Fed’s inflation outlook, particularly after Friday’s stronger-than-expected consumer-price report.

Read More: Dollar Treads Water, Waiting for the Fed

The Yen has already dropped to a 3-week low against the world’s major currencies as forex traders move to put the crash in global capital markets behind them. Volatility, the factor that many analysts consider the bane of the carry trade, is also declining. Tomorrow, the Bank of Japan is expected to announce that interest rates will be left unchanged, and probably will remain at current levels until the end of the year. This announcement should further put the minds of traders at ease. All in all, it looks like the Yen will resume its gradual downward path that it was pursuing prior to the bounce it received from the crash. Forbes reports:

Recently, sharp falls on equity markets…had sparked some unwinding of carry trades. Investors have begun the week by resuming them following firm US inflation data last week and solid gains in equity markets.

Read More: Yen continues to edge lower as carry trades resume

China’s Central Bank, in an effort to rein in the nation’s runaway economy, recently raised the country’s benchmark lending rate by 27 basis points. With most countries, an increase in interest rates would propel the country’s respective currency upward in value, as risk-averse investors would bring capital to that country’s bond markets. In the case of China, however, monetary policy tends to have a pretty negligible effect on the currency, primarily because the Yuan remains pegged to a basket, and its appreciation is being carefully managed by the government.

Read More: China announces 0.27 percentage point increase in key interest rates

While the figures are still being calculated and confirmed, it looks like 2006 was the worst year ever for the US trade deficit, which is estimated to exceed $800 Billion. Economists have long argued that such an aberration is not sustainable in the long run and that the USD must fall in order to make goods and services relatively less expensive from the standpoint of foreigners. Now, however, economists are beginning to question this logic, by arguing that due to underdeveloped capital markets abroad, foreigners will continue to favor the US as a place to invest their assets. In hindsight, it looks like forex markets were ahead of the curve, since the failure of the USD to fall against other currencies despite its burgeoning deficits signals an utter lack of concern among forex traders that this is an important issue. The Economist reports:

If global imbalances are the result of such frictions, they are unlikely to unwind quickly. Financial systems, after all, do not mature overnight.

Read More: Sustaining the unsustainable

Last summer, Russia’s Central Bank relaxed capital controls on its currency, making the rouble almost fully convertible with other currencies. As a result, the rouble is quickly gaining respectability and becoming popular both among traders, who are speculating the rouble will appreciate, and investors, who are driving the currency higher with their purchase of Russian securities. Soaring commodity prices and a red-hot Russian economy have driven increases in capital inflows. While the rouble is no longer pegged directly to the Dollar, however, it remains linked to a basket of currencies, and its appreciation is being carefully controlled by Russia, so a rapid run-up is still unlikely. The Gulf Times reports:

“There is no doubt that it’s being closely managed. But that said I think it’s still a great, very low volatility currency versus the basket and that’s important in the current environment of emergency market currency weakness and volatility.”

Read More: Russian rouble carving out a place in forex industry

Several months ago, China announced that it would sponsor the creation of several state-owned investment firms that would be charged with managing China’s ever-growing stock of foreign exchange reserves. This week, China unveiled further details, indicating that the first one of these investment firms will be capitalized with $200-250 Billion in assets. This firm will use the proceeds of a bond offering for such an amount to buy forex reserves directly from China’s Treasury, with the explicit goal of earning a return in excess of the interest it must pay on the bonds. In order to achieve this, the firm will almost be forced to invest in non-USD denominated assets, which would surely exert downward pressure on the USD. The Shanghai Daily reports:

The State Administration of Foreign Exchange will run the daily operation of the country’s forex reserves, while the new forex investment company, under the State Council, will run the investment side.

China FX Firm to Manage $200 Billion+

The State Administration of Foreign Exchange will run the daily operation of the country’s forex reserves, while the new forex investment company, under the State Council, will run the investment side.

Read More: China’s 1st forex firm to issue US$200b bonds

Last week, the Japanese Yen reached levels of volatility not seen in years, as a sell-off in Asian capital markets spread to forex markets, and nervous investors began to unwind carry trade positions in the Japanese Yen. The Yen spiked almost 3% in an instant, and many analysts feared a Yen appreciation on a scale comparable to 1998, when the Yen appreciated by almost 15% in two days. This time around, the Yen failed to maintain its upward momentum, and soothed investors began to rebuild their short positions in the Yen, driving it back towards its earlier value. The Financial Times reports:

Currency flow data showed that institutional investors had amassed massive short yen positions in the last six months at an average rate of about Y119.70 against the dollar. At the current rate, they would take until April 30 to be squared.

Read More: Calm returns to currencies after a volatile week

Forecasting the value of currencies has always been more art than science. Nevertheless, JP Morgan, an American investment bank, has undertaken the most ambitious project of developing a set of 3-month and 12-month forecasts for many of the world’s currencies. Overall, JP Morgan is predicting a modest decline in the Dollar over the next 3 months against most of the world’s majors, perhaps due to declining economic prospects. Over the following 9 months, however, the USD is forecasted to gain ground, finishing the year above where it started. The forecasts are relatively conservative, with the exception of the Chinese Yuan, which is predicted to rise almost 20% against the USD in the next 12 months. Considering the Yuan rose by less than 4% in 2006, this is a lofty prediction indeed!

Click here for the complete list

The majority of this blog’s content is focused around events which potentially impact forex markets, paying scant attention to the trading, itself. I would like to offer a quick primer to those of you who are new to forex trading and simultaneously a refresher to those who consider themselves veteran traders. First, when trading currencies, it is important to develop a consistent, cohesive strategy, and stick to it. Success and profits are most likely to be earned by honing a single strategy, such as interest-rate arbitrage, changes in geopolitics, or technical analysis, to name a few. It is most worthwhile to approach trading from one particular framework, and practice discipline in adhering to a corresponding strategy by working towards understanding if/how the markets move within that framework.

Next, think twice about short-term trading. Those most likely to profit from day-trading currencies probably have more capital, more leverage, and access to better information. It is difficult to compete with these investors, and it makes more sense to stake out a position over the course of weeks or months, than minutes or hours. Finally, establish a risk/reward profile that you wish to target, and work to understand how volatility, which is a readily obtainable statistic, bears on this schema. If, for example, the markets suddenly become volatile (as is currently the case), it probably doesn’t make sense to set up stops (which automatically execute trades to minimize losses) since prices may move rapidly back and forth through the price points that you set, locking in losses.

Global capital markets picked up today right where they left off last week, sliding downward with no end in sight. A general aversion to risk is driving the markets, as investors pile out of equities and into bonds. Also benefiting from the global sell-off is the Japanese Yen, as nervous investors move to cover their carry positions built up over the last year by buying Yen. It remains to be seen whether the Yen will continue its upward move after the current frenzy subsides, since it may just as well be a temporary increase in volatility that is driving the Yen rather than a long-term correction. Once the markets cool, it is possible that complacent investors will move once again to build up their Yen short positions. Forbes reports:

Now, locked in a reverse vicious cycle, the rapid unwinding of carry trades has applied upward pressure on the yen, compelling other investors to reduce positions on carry trades and enticing speculative currency traders to buy yen.

Read More: Investors Adjust to the Yen’s Surge

Yesterday, the collapse which roiled global financial markets spread to forex markets, causing the Yen to loosen from its moorings and sending the currency upward against most of the world’s major currencies, including a 2% rise against the USD. While the Yen has already given back some of these gains, many analysts are already speculating that this jolt some life into the Yen and put an end to the carry trade which has sent the Yen to record lows. Ultimately, it is volatility that will lift the Yen, and Yen bulls are surely hoping for another week like this one. CBS Marketwatch reports:

“One of the things that carry trade relies on is relative low levels of volatility. Clearly the most recent catalyst has been the Chinese market meltdown triggering a meltdown in other emerging markets and basically a shift out of riskier assets into less risky assets.”

Read More: Carry trade unwinding roils currency markets