Yet the Euro and Pound are still lower, though the former is faring worse than the latter. The Italian bond auctions were not well received, though yields were lower. So the markets are flat to slightly higher this morning, with US dollar weakness and the Euro bouncing off of lows that saw the Euro trade a 1. You can see that the choice of tradable instruments is rather poor here.
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TeraFX Review Overall rating: Legit brokers never pay for traders' reviews. Join Us on Social Networks! So how does one trade this figure? My advice is usually to wait until after the number is released and then wait for either a pullback from the initial move to get in with the new trend, or wait for a reversal and take the opposite position once the initial frenzy is done. Easier said then done, I know, but getting into positions ahead of the figure is just gambling. The example I used above is just one possible scenario and by no means is a recommendation for action if those should be the number that are released.
So what else has been happening in the markets this morning? Well the news continues to worsen in the Euro zone though thankfully it is not related to the debt crisis directly.
Unfortunately though, the news is that the fundamental data is getting worse pointing to a recession in Europe. Economic sentiment figures are at a two-year low, and German factory orders came in worse than expected, showing a decline of 4. In addition, Euro zone retail sales figures also came in lower than expected, posting a decline of 2.
The unemployment rate came in as expected at Not good at all. So it could get ugly. With all of this negativity, one would expect the markets to be in major risk-aversion mode, but to start the US session this is not the case. Both stocks and commodities are higher, including European stocks, and the Euro has bounced back from earlier month lows, though it is fast approaching that level again. The SNB has maintained its target range fairly well and is still at levels that may be too low to support price stability.
In Canada, the unemployment rate ticked higher to 7. This has caused the Loonie to tank vs. USD despite the fact that higher oil prices have been driving Loonie strength. This could reverse yet again, if a better than expected NFP figure is reported. So the official NFP number is for a gain of K jobs, and the unemployment rate is expected to tick higher to 8.
Keep an eye out for that whisper number though, as sometimes what is seemingly good can be disappointing! It is becoming apparent that the Euro debt crisis is winning the sentiment battle so far this year as concerns over bond auctions in various nations have the markets on edge.
The economic data story was mixed overnight, which steered the markets toward risk aversion. This means that we have early Dollar strength and Euro weakness, with lower stocks and commodities and risk currencies. However, as the Euro is making month lows vs. Case in point, yesterday the markets were lower for the majority of the morning as the US session opened, but once the European market closed stocks ended up finishing the day positive.
This is indicative of the fact that the risk in the market is coming from Europe which is no surprise, but it almost seems as though the market here was just waiting for Europe to close in order to begin the party. So pay attention to the time-zone implications of trading in the markets and how they react as each session closes. Speaking of China, they also lowered the reference rate for the Yuan, marking the biggest decline since November.
The performance of Services index in Australia came in at 49, which was better than last month but still showing contraction rather than expansion. But perhaps the biggest news of the morning so far was the French bond auction that saw yields rise on a bid-to-cover that was lower than average. There is great concern that France will receive a credit downgrade from their AAA status, which is likely a reason for lower demand.
It seems to me that countries that are not Germany are going to have further problems issuing debt. While the bond vigilantes may not be aggressively shorting issues at this time, demand is weak so that may be a benign way of pushing yields higher.
In other words, why would investors buy today if they believe yields will be going higher? Because Euro leaders have not come to a complete solution, this is likely going to drag on for some time. Here in the US, employment data is starting to filter in over today and tomorrow and so far the numbers look great. The big news of the morning is the ADP employment change, which showed a gain of K jobs vs. This is a blowout number and could be the start of real employment gains.
The Challenger Jobs Cuts figures were also positive after being negative last month. The initial jobless clams figures came in as expected showing K newly unemployed so this number is improving, albeit slowly. US stock futures have improved off of their lows of the morning on these employment numbers so it is possible that the market pattern I discussed above could occur again today. I discussed the other day though how these numbers could be distorted due to seasonal hiring and end of the year book-balancing, but this is the type of data that we need to see to continue to improve the economy.
The power struggle between the negative Euro debt crisis and the positive US economic data will continue to be the story going forward until more clarity emerges. The numbers then begin to slowly decline throughout the following year.
If this is the pattern that we follow this year then things may not be improving as we hope. But if we begin to show improvement next month and going forward, then we may be able to catch an economic tailwind that can overshadow the problems in Europe.
If not, then it could be more of the same for In other words, we are pulling back from the highs as the market has taken its foot off of the gas—for now. This is not surprising as there will likely be volatility as the market digests new information and decides which way it wants to go to start the year.
There is seemingly to me a bias to the upside, so that gains can be booked early as the year unfolds. There are two basic economic stories that we are following this year: Global growth can be measured by the scheduled economic releases we receive on a daily basis, but the Euro debt crisis is going to be more prolonged and will be more market-driven so will be much harder to gauge.
That is what we are seeing this morning after a German bond auction came in with slightly lower demand than average, and the EFSF plans to auction off bonds tomorrow to help support the bailouts. In the meantime, consumer spending in France declined as higher unemployment created uncertainty.
And this is going to be the issue all year long. Essentially the ECB and the various bailout funds are in a race against time to get debt refunded before interest rates move too high to make the debt service impossible.
This is why the markets were so disappointed last year with the lack of solutions coming out of the EU as while nearly everyone enjoyed the benefits of the union, no one wants to help out when the chips are down. But the lack of conviction in the EU has allowed the market to control where rates are going and this is potentially disastrous for the debt-laden countries. So the debt crisis will likely be the elephant in the room for some time until something comes to a head, which may not be great for global economic hegemony.
There is an overwhelming feeling that the Euro zone will slide into recession at some point this year and the impact on the overall global economy is unknown. In the short-run, the economic data continues to come in better than expected which is positive but highly uncertain if this is a trend reversal or merely just a blip.
One of the catalysts for this improvement has been easy monetary policy from Central banks around the globe, most notably from the US Fed.
We learned two basic things from the release yesterday, the first being that the Fed is now going to release its forecast for the Fed funds rate which is basically going to take some the impact away from the actual FOMC rate decision by essentially telling us exactly what they are thinking.
It will be interesting to see if that pre-announcement induces the same sort of volatility that the actual announcement does. The second thing we learned is that some members of the committee are still favoring further monetary easing if appropriate, which given recent history could mean throwing additional money at the slightest perceived economic downturn. Later this morning US factory orders are expected to rise 1.
A familiar pattern is starting to emerge, with risk appetite starting out early in the year and then the hope that the markets can hold on to gains as the year unfolds. There will be many turns and bumps along the road this year for certain, so it is important to stay on top of the market moving news that can affect global economic sentiment. Global financial markets are set to open higher, led by stocks and commodities. The short answer is not likely, but I will say that economic conditions appear to be improving albeit slowly and there is still great global risk emanating from the Euro debt crisis.
There is also bound to be further political unrest around the globe, and already it has started with Iran who had new economic sanctions imposed upon them by the US over the weekend. This has caused them to increase their threats of shutting down the Straits of Hormuz, which is a major conduit for global oil supplies. Should this situation continue to escalate, we could see much higher oil prices which could have a major affect on inflation.
However the markets are reacting more favorably to positive economic data that has been released so far this morning and looking forward to data here in the US late this morning.