Euro ticks higher vs dollar as Ireland hopes rise

11/19/10 15:42 EST NEW YORK -The dollar dipped against the euro Friday as officials from Ireland, the European Union and the International Monetary Fund negotiated a financial aid deal for the country.

Ireland appears likely to receive a loan to bolster its troubled banks, which would ease fears that Ireland's troubles would lead to a broader loss of confidence in European nations and raise borrowing costs for other weak economies like Portugal and Spain.

Uncertainty over whether creditors would suffer heavy losses on their Irish investments have weighed on the euro for two weeks, dragging it down from a nine-month high of $1.4281 reached on Nov. 4. The prospect of a rescue for Ireland has helped the European currency regain some ground in the past several days.

In late trading in New York, the euro edged up to $1.3672 from $1.3635.

The euro remains significantly higher than a 4-year low below $1.19 it touched in early June, when Greece's debt problems had driven down the euro. A euro110 billion rescue for Greece helped ease its short-term funding problems.

Worries about slower growth in the U.S. and the Federal Reserve's plan to support the economy through lower interest rates helped tug the euro higher throughout summer and early fall despite lingering concerns about debt in Portugal, Spain and Ireland.

Elsewhere, the dollar traded mixed. The British pound fell to $1.5973 from $1.6044, while the dollar was almost unchanged at 83.49 Japanese yen from 83.45 yen late Thursday

The U.S. currency fell to 1.0183 Canadian dollars from 1.0214 Canadian dollars, and dipped to 0.9952 Swiss francs from 0.9965 Swiss francs.

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Understanding the Basics of Fundamental Analysis in the Forex Market

Traders typically approach financial markets in one of two ways: either through technical analysis or fundamental analysis. The reality is that history is full of traders who have had very successful careers as traders that employed both of these types of analyses.

In fact, in Jack Schwager's best-selling classic, Market Wizards, two of the traders interviewed are Ed Seykota and Jim Rogers. Rogers is quite adamant in his statement that he believes it is impossible to make a living as a technical trader. He goes so far as to say he has never met a rich technician. Seykota actually shares the exact opposite story. According to Seykota's own interview, he was a struggling trader when he traded according to fundamental analysis. It was not until he became a technician that he started to make a living trading financial markets.

As stated, successful traders throughout history have employed both technical and fundamental analysis. In this article we are going to break down the basic principles of fundamental analysis in the forex market.

Fundamental Analysis is commonly defined as a method of evaluating a specific security in order to determine its intrinsic value by analyzing a host of economic and financial data. In the foreign-exchange market, a security would be a currency. Market participants are continually analyzing the emerging fundamental from a country in order to determine the intrinsic value of the country's currency. There are several key economic indicators that every trader should understand on a basic level. Fluctuations in the data of these key indicators will generally cause the value of a currency to rise and fall.

Interest Rates

These are the single greatest driver of currency value over the long-term. Most Central Banks announce interest rates each month, and these decisions are watched very scrupulously by market participants. Interest rates are manipulated by Central Banks in order to control the money supply in an economy. If a Central Bank wants to increase the money supply, it lowers interest rates, and if it wants to decrease money supply it raises interest rates.

Gross Domestic Product (GDP)

GDP is the most important indicator of economic health in a country. A country's Central Bank has expected growth outlooks each year that determine how fast a country should grow as measured by GDP. When GDP falls below market expectations, currency values tend to fall and when GDP beats market expectations, currency values tend to rise.

Inflation

Inflation destroys the real purchasing power of a currency, and, therefore, inflation is very bad for the economy in most circumstances. Each year a normal rate of inflation between 2-3% is expected, but if inflation begins moving beyond the upward targets set by the Central Bank, a currency value will actually rise due to expectation of an imminent rate hike. Higher interest rates tend to fight off inflation.

Unemployment

We will discuss consumer demand in a moment, but people are basically what drive economic growth; therefore, unemployment is the backbone of economic growth. When unemployment levels increase, it has a devastating effect on economic growth; consequently, when the labor market contracts and unemployment increases, interest rates are often cut in an attempt to increase the money supply in the economy and stimulate economic growth.

Consumer Demand

As stated in the previous point, people are what drive economic growth; as a result, healthy consumer demand is essential to the normal, healthy functioning of an economy. When consumers are demanding goods and services, the economy tends to move forward, but when consumers are not demanding goods and services, the economy falters.

Even if you are a technical trader, it can still be very helpful to understand these basic elements of fundamental analysis. The best forex course will oftentimes offer further insight into how the emerging fundamentals drive price behavior.

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New Zealand Dollar: Risk of Sharp Declines on Financial Market Stress

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Rescue of the euro

In this blog, our correspondents respond to breaking news stories and commentary and analysis. The blog takes its name from newsbooks, the 16th-century predecessors of newspapers, for which a single big story, such as a struggle, a disaster or a sensational process

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