For example, in european countries the currency used is
called the  Euro(Eur) and in the United States
it is called the US Dollar(USD).A forex trade is to buy the Euro and at the
same time to sell USD. This is called going long on the EUR/USD.

The Mechanics Of Forex Trading is:

Forex trading is usually done with a broker or market
maker.Being  a forex trader you can
choose a currency pair that you think that it will change in value  and strike a deal as you fit.For example, if
you would have purchased  the sum of
1,000 Euros In january 2005 you would have paid for it 1,200 USD.During  2005 the Euro’s value against the U.S  value increased meaning that  at the end of the year with 1,000 Euros you
would have bought 1,300 U.S dollars rezulting in a 100$ gain.

Using a broker or a market maker a forex trader can place
orders very easily and then the broker
sends your order along a partner to Interbank Market to fill your
position.After you finish the trade the broker closes your  position in the Interbank Market and acredits
your account accordantly either gain or loss. These actions can take a few
seconds.

USD/JPY shed 0.3% to hit 90.88 during early European trade, a 3-day low. The pair was likely to find support at 90.14, last Wednesday’s low, and resistance at 92.15, Friday’s high. 

But the yen lost ground against the euro, with EUR/JPY gaining 0.34% to hit 124.34. 

Earlier in the day, the Bank of Japan meeting’s minutes showed that some officials said it was necessary to earn market trust in both fiscal and monetary policy, in light of the focus on the country’s massive debt. 

The summary of discussions of the Jan. 25-26 meeting noted: “Some members expressed the view that for individual countries, including Japan, for which the fiscal situation was serious, to be able to conduct appropriate policies while ensuring market stability, it had become all the more important to maintain market confidence in the conduct of both fiscal policy and monetary policy.” 

Later Tuesday, the Conference Board was set to release its monthly consumer confidence index, a leading indicator of U.S. consumer spending.

Pete Najarian, co-founder of OptionMonster.com, bobbed and weaved throughout the market’s monster run from the March 2009 lows, racking up big wins by finding where the momentum was building and holding hot positions for a week, even just a day. But now he counts stocks like Pepsico [PEP  61.01    0.63  (+1.04%)   ], which reports earnings Thursday, and Johnson & Johnson [JNJ  62.51    -0.22  (-0.35%)   ], which just posted yet another year of annual profit growth, as part of his core holdings.

“For both names you get solid performance,” said Najarian, also a ‘Fast Money’ trader. “They don’t have earth shattering numbers, but growth with a defined strategy and the discipline to execute.”

Investment firm ING ran the numbers, breaking into quintiles the companies in the Russell 1000 Index [RUI  586.2    -0.28  (-0.05%)   ] with the worst balance sheets (highest debt-to-capital ratios) to those with the best (lowest debt-to-capital rations). The outperformance of the first quintile, compiling the most highly leveraged, has steadily started to diminish. Setting up a turn to outperformance for the names with stronger balance sheets.

“There will be companies with stretched balance sheets that can generate growth, but the combination of strength and differentially higher growth could prove relevant for portfolio positioning for a considerable time period,” wrote Martin Jansen, ING Senior Portfolio Manager, in a newsletter to clients this week. “While shorter counter-trends may prevail sporadically, a long walk up ‘Quality Street’ may prove to be more durably rewarding.”

“Why should I as a worker pay for the errors in policies?” he asked, in response to reports that the embattled Greek state will cut his pay and, by extension, retirement benefits. “The worker can’t be the scapegoat. So we have to defend ourselves.”

As Damianidis and others on the state payroll prepare to stop work on Wednesday, fear is building that the country’s new government may lack the nerve to cut public wages and pension payments, which make up 51 percent of its budget.

Over the past decade, Greece took full advantage of a strong euro and rock-bottom interest rates to fuel a debt binge by the country’s consumers and its government. This year, if Greece can’t persuade investors to buy 53 billion euros of its government debt, it may have to seek a bailout from its European Union brethren or the International Monetary Fund – or, worse, default.

The stakes are high, not just for Greece but for the entire euro zone, where efforts to forge a common economic identity are threatened by the financial crisis. Last week, the panic spread to Portugal and Spain, and the cost of insuring their debt against a default soared to record levels as investors bet that, like Greece, governments in those countries won’t be able to rein in bloated budgets.

Markets were pretty steady last week until concern of Greece deficit contagion across Europe intensified on Thursday and rocked financial markets around the world. Credit-default swaps on the debt of Greece, Spain and Portugal rose to record highs today amid concern that European governments will struggle to fund their deficits. There were even talks in the market that Greece’s problem is a ‘dressed rehearsal’ for US and UK, which also have huge budget deficits. MSCI World index dropped 2.2% to 1095.4 while DOW breached 10,000 level twice before closing at 10,012.23. Dollar managed to ride on risk aversion with dollar index closed above 80 level and the Japanese was also broadly higher across the board. Nevertheless, DOW’s refusal to give away 10,000 level and late Friday’s pullback in risk aversion argues that flight-to-safety fund flow has possibly peaked in near term and we might see the markets stabilize a bit in near term.

One point to note is that data released from CFTC on Friday showed that speculative accounts built a record net euro short position and flipped their net yen short position to a net yen long as per February 2. Speculators increased their euro short position to -43,741 contracts from last week’s short of -39,539, which was in sharp contrast to record net euro long of +119,538 contracts seen May 15, 2007. Speculative accounts had a net yen long of +7,135 contracts, comparing to to the net yen short of -4,347 contracts seen last week and the December 1 position of +56,907 contracts, which was the largest net yen long of 2009.

Employment data released last week reminded the markets that global recovery is still fragile. US job market contracted -20k in January versus expectation of 20k expansion. December’s figure was also revised down from -85k to -150k. Unemployment rate dropped from 10.0% to 9.7%, which was the best number in five months. However, that was largely due to a sharp increase in the number of people giving up looking for work as number of ‘discouraged job seekers’ rose to 1.1 million in January from 734,000 a year ago. New Zealand unemployment rate surged sharply from 6.5% to 7.3% in Q4. Nevertheless, Canadian employment data showed much better than expected expansion of 43k in January, the fourth gain in six months. Unemployment rate also dropped to 8.3%.

ECB kept its main refinancing rate unchanged at 1%. The introductory statement was very similar to the one released 3 weeks ago. The central bank believed current rates remain appropriate and risks to economic outlook are broadly balanced. Concerning gradual phase-out of extraordinary stimulus measures, the ECB said more details will be given in March. Concerning Greece’s 3-year plan to reduce budget deficit, the President said it ‘steps in the right direction’ but ‘they must fix the goals that they have set for themselves’.

BoE left rates unchanged at 0.50% and paused its GBP 200b asset purchase program as widely expected. The bank said in the accompanying statement that the current interest rate “would continue to impart a substantial monetary stimulus to the economy for some time to come.” Meanwhile, the committee will “continue to monitor the appropriate scale of the asset purchase program and further purchases would be made should the outlook warrant them.”

As a surprise to the market, the RBA announced to keep the overnight cash rate unchanged at 3.75%, following 3 consecutive hikes last year, as policymakers would like to gauge the impact of previous hikes and stimulus withdrawal. RBA noted that lenders in Australia has “generally raised rates a little more than the cash rate over recent months” and “loan rates have risen by close to a percentage point.” The bank would seek to hold the cash rate steady for the moment to see the impact of these changes to the economy. Nevertheless, the bank maintained a tightening bias that “if economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.”

Looking at the charts, DOW’s recover was limited by 55 days’ EMA and fall from 10729.89 resumed. 10,000 psychological level is so far still stubbornly held but we’ll expect it to be taken out decisively eventually. Whole medium term rebound from 6469.9 has completed at 10792.8 and we expect a correction to 38.2% retracement at 9102 at least.

The third quarter review of monetary policy was about ensuring price stability. And, it was articulated clearly, as the Reserve Bank of India (RBI) said it was worried over rise in food prices affecting other commodities and services.

While RBI’s policy action, an increase of 75 basis points in the cash reserve ratio (CRR), was aimed at containing inflation and managing inflationary expectations, Governor D Subbarao was candid enough to mention at a post-policy press conference that the central bank struggled with price-based and quantity-based variables but settled for a CRR hike, as it would anchor inflationary expectations without upsetting growth.

He said inflation largely stemmed from supply-side factors, though there were some demand pressures too. But the latter were largely incipient, he added.

The decision to suck out liquidity came in the backdrop of expectations of higher capital inflows, which could add to inflationary pressures. “Depending on how these (inflows) are handled, there will be implications in terms of a combination of exchange rate appreciation, larger systemic liquidity and the fiscal cost of sterilisation,” said the review.

RBI appeared less worried about economic growth, though it said the recovery was still uneven and public expenditure continued to play a dominant role. Despite this, the strong industrial growth in recent months and recovery in exports gave enough comfort to the central bank to revise the growth estimate for the current financial year from 6 per cent to 7.5 per cent.

Subbarao said by merely increasing CRR, RBI was trying to encourage investments to support the recovery process and contain inflationary pressures from the demand side.

RBI’s assessment was that despite Rs 36,000 crore being sucked out of the system on account of a higher CRR, there would be sufficient amount in the system to meet credit demand. It acknowledged lower demand by revising the credit growth estimate to 16 per cent, which is still higher than the 13.88 per cent reported for the financial year till January 15.

In contrast, the revised projections on deposit and money supply growth are in line with the levels seen this year.

With limited options as far as using imports to check food prices are concerned, signs of firming up of global commodity prices and the looming threat of increasing crude oil prices, the central bank raised the estimate for inflation based on the wholesale price index to 8 per cent at the end of March from 6.5 per cent projected three months ago.

In December, inflation was 7.3 per cent and, according to RBI’s assessment, it will start moderating only from July. But even that comes with a caveat: “This moderation in inflation will depend upon several factors, including the measures taken and to be taken by the Reserve Bank as part of the normalisation process.”

Subbarao said the monetary policy would continue to condition and contain the perception of inflation in the range of 4-4.5 per cent, with the medium-term target being 3 per cent.

Of the total reserves, all components — foreign currency assets, gold, and SDR (special drawing rights) — fell $1.7 billion, $236 million, $23 million and $6 million, respectively, during the week. SDR is the reserve currency with IMF.

According to Ananth Narayan G, head of rates, foreign exchange and Credit, South Asia Financial Markets, Standard Chartered, a lot of it could be due to the revaluation effect. The dollar had strengthened substantially during the week against major global currencies, he said.

Almost 40 per cent of the reserves is believed to be in non-dollar assets, including the sterling pound, yen, euro and the yuan. Central banks do not disclose the currency composition in reserves.

A slice of the fall may be attributed to dollar outflows as well, thanks to selling by foreign portfolio managers in the last week of January, said a senior economist with a brokerage house.

Among other developments, the Centre has kept its WMA account with RBI vacant during the week ended January 29. While borrowings within the WMA ceiling is at the prevailing repo rate, there is a two per cent extra interest charged for borrowings above this limit. States, on the other hand, have hiked their outstanding WMA by Rs 630 crore to Rs 778 crore as on January 29.

“We have agreed that there is no reason to change what we said recently. We stick to what we said in Istanbul,” Jean-Claude Juncker said after a two-day G7 meeting concluded in Canada’s remote north.

The G7 was not expected to issue a communique on Saturday.

When the group met in Istanbul in October, it said in a communique that too much volatility in foreign exchange markets could hurt the global economy and the financial system, and it welcomed China’s pledge to move toward greater currency flexibility.

The United States, Canada, France and other countries have recently called on China to allow its currency to strengthen.

True to form, as equity markets got hammered, commodity markets followed suit resulting in usual flock to the perceived safety of the low yielding heavy weights, the Greenback and Yen. The US dollar index which measures the dollar’s value relative to six major foreign currencies is currently trading .76 per cent higher at 79.97.

As expected, the Bank of England kept its benchmark interest rate at a record low of 0.5 per cent overnight and halted the quantitative easing program in which majority of the GBP 200 billion has been exhausted.

The European Central Bank also left benchmark interest rates unchanged at 1 per cent. In a speech the ECB Governor Jean Claude Trichet indicated economic activity in the Euro-zone remains moderate and will continue on a similar line in 2010, given unemployment woes likely to dampen economic growth. Trichet also affirmed that Europe has taken a “step in right direction” when asked about Greece’s economic struggle. To add to the equation concerns have mounted Spain and Portugal will be the next casualties as they struggle to curb their budget deficit.

Locally, the latest bout of risk aversion meant only one direction for the higher yielding Aussie. The local unit dropped over 2 big figures to lows of 86 US Cents coinciding with a retreat of Gold which fells to lows of US1060 a troy ounce. At the time of writing the Aussie dollar is buying 86.6 US Cents and has made some consistent positive ground over the last hour – however movements in domestic trade with be contingent to the RBA Monetary Policy Statement due for release at 11:30 AEDT