http://www.fxarticles.net/ Articles at Forex Articles en-us http://www.fxarticles.net/specific-pairs-discussion/managed-forex-accounts-avoiding-the-common-pitfalls.html http://www.fxarticles.net/specific-pairs-discussion/managed-forex-accounts-avoiding-the-common-pitfalls.html Wed, 18 Aug 2010 13:33:09 -0400 managed forex account may also be ideal for the investor who prefers to have his trading account to be managed by a group of professionals. In keeping with the sound philosophy of diversified investments it is well documented that there is no true correlation between the forex and equities markets. It therefore is sensible to allocate a portion of your investment capital to a forex managed account.

A managed forex account is basically where you allocate the task of trading your brokerage account to a money manager. The money manager or trader is tasked with generating a profit on the account in exchange for a percentage of the profits in the form of a performance fee. The exact performance fee varies but is typically in the range of 20 to 50% of profits, plus there may be a yearly account fee in the realm of 1 to 2% of the account balance.

Ultimately it is up to the individual to decide how much to invest in a forex managed account, just be aware that trading on margin with high leverage is classified as high risk, and whilst these factors make it possible to start with a relatively modest investment and get high returns they can also work in reverse and cause significant and rapid trading losses. Be mindful of this when it comes to investing in forex.

Risk management is perhaps the most critical factor in fx managed trading. A professionally run program will have specific risk management measures in place to ensure that the risk of catastrophic trading losses is minimized, as far as is possible in this volatile market. Capital preservation should be the number one priority above all else.

Some forex investment funds require funds be sent directly to their own bank accounts, while other forex managed account providers allow you to invest directly with their broker. The second scenario where you invest directly with the broker gives you far more control over your own funds and is preferable for this reason. The reason is so you can deposit or withdraw your funds as well as revoke the right of the money manager to trade your account.

Often you will see claims on the net about potential returns that might use terms such as 50% a month or more. Whilst these types of returns are possible it is highly unlikely that they are sustainable. Personally I have not witnessed anyone achieve figures such as thing for a prolonged period of time. Much like the laws of physics where forces are equal and opposite, risk and reward are much the same. You simply can't get large returns without taking large risks. The markets invariably punish those that ignore this rule.

Any reputable managed forex provider will provide you with the brokers LPOA or Limited Power Of Attorney. This is simply an agreement that allows the money manager to trade your forex managed account without giving them access to withdrawal or otherwise handle funds. This gives you significant protection from any abuse and also allows you to revoke the LPOA at any time should you deem it necessary to do so. ]]> http://www.fxarticles.net/specific-pairs-discussion/currency-profile-of-euro-part-iii.html http://www.fxarticles.net/specific-pairs-discussion/currency-profile-of-euro-part-iii.html Mon, 19 Oct 2009 18:39:32 -0400 ECB publishes monthly bulletin detailing analysis of economic conditions. This bulletin can give important signals to changes in the monetary policy. Forex market participants widely watch the comments by the members of the Governing Council of ECB. These comments frequently tend to move the Euro.

Now EUR/USD cross is the most liquid currency. All major euro crosses are highly liquid. The movements of EUR/USD currency pair are used as the primary gauge to judge the health of both European and the United States health. Euro is also known as the anti-dollar since it is the dollar fundamentals that have dictated the movements in the EUR/USD pair from 2003-2008.

EUR/JPY and EUR/CHF are very liquid pairs too and are used to judge the health of the Japanese and Swiss economies. EUR/USD and EUR/GBP are great trading currencies as they have tight spreads, make orderly moves and rarely gap.

However, Euro has unique risks. Euro was launched in 1999. It is still a new currency. There are number of risks unique to the Euro. The most important is the exposure to the economic, political and social development of 15 member countries.

If a member country drops Euro and reverts back to its original national currency because it believes that ECB actions are not in its best interests, it could affect the stability of the entire region although more countries are expected to join EMU.

We can say Euro is a currency without a country. ECB has the power to determine monetary policy for its 15 member countries. With that comes the political pressure of 15 governments. This political pressure frequently tests the actions of ECB.

The present global financial crisis is unlike any in the past. However, the rapid response of ECB to the present global financial crisis in the shape of deep liquidity injections has transformed its reputation. The spread between 10 year US Treasuries and 10 year bunds can indicate Euro sentiment.

Another important interest rate that you must know as a forex trader is the Euro Interbank Offer Rate (Euribor). This is the rate offered from one large bank to another on interbank term deposits. Traders and investors tend to compare the Euribor futures rate with the Eurodollars futures rate.

Lower spreads make the European assets less attractive. Higher spreads between the two rates makes the European fixed income assets more attractive. Merger and Acquisition activities between US and European multinationals have important implications for EUR/USD pair. Large deals if in cash have often significant short term impact on EUR/USD.

Important indicators for Euro are Preliminary GDP that includes France, Germany and Netherlands, German Industrial Production, Harmonized Index of Consumer prices (HICP), M3, German Unemployment, Individual country budget deficit. The largest countries in EMU are Germany, France and Italy. Study of the economic data of these three countries is also important.

]]> http://www.fxarticles.net/specific-pairs-discussion/us-dollar-part-iii.html http://www.fxarticles.net/specific-pairs-discussion/us-dollar-part-iii.html Mon, 19 Oct 2009 14:05:06 -0400
US Dollar reserves were very popular among the foreign countries and foreign investors. US Dollar was considered to be very safe. Almost 76% of the global currency reserves were in US Dollar. This allowed United States to attract investments from all over the world at a discounted rate of return. However, due to the present United States financial crisis, foreign investors and the Central Banks are not so sure about the US Dollar due to the increased US uncertainty. The decreasing interest rates and continuing recession is forcing foreign investors to think of other alternatives.

Many developing and emerging countries peg their local currencies to US Dollar. Important countries that peg their currencies to US Dollar are China and Hong Kong. China is a very active participant of the global currency markets because its maximum float per day is controlled within a narrow band based on the previous days closing US Dollar rates. Any fluctuations beyond this band will invite intervention by the Chinese Central Bank that may include buying and selling US Dollars.

EU represents a market as large as US with its own single currency Euro. Euro has provided an alternative to the US Dollar. The emergence of Euro is also threatening the US Dollar as the worlds premier reserve currency. Recently a group of countries like China, France and others have called for the introduction of a new global reserve currency by the IMF that should replace the US Dollar. If this happens in the next few years, it may have far reaching implications of the US Dollar and the US economy.

Due to the present financial crisis in the United States, many analysts fear a major devaluation of US Dollars. Many central banks have already begun to diversify their foreign exchange reserves by reducing their US Dollar holdings and increasing their holdings in Euro and the gold. Interest rate differentials can be a very strong indicator of potential currency movements because the US markets are the largest markets in the world and the investors all over the world are very sensitive to the yields offered by the US assets. The interest rate differentials between the US Treasuries and foreign bonds are followed by the professional forex traders with keen interest.

Market participants also closely watch the US Dollar Index as an indicator of overall US Dollar strength or weakness. The USDX is a futures contract traded on the New York Board of Trade (NYBOT). It is important to follow this index because when the market analysts are talking of general US Dollar weakness, they are referring to this index.

US Dollar is also impacted by the US Stocks and Bond markets. Cross border merger and acquisitions are also very important for forex traders to watch.

The following economic indicators are important for the US Dollar: Employment, Nonfarm payrolls, Consumer Confidence, Retail Sales, Consumer Price Index, Produced Price Index, GDP, International Trade, Employment Cost Index, Industrial Production, TIC Data etc. ]]> http://www.fxarticles.net/specific-pairs-discussion/currency-profile-of-us-dollar-part-ii.html http://www.fxarticles.net/specific-pairs-discussion/currency-profile-of-us-dollar-part-ii.html Sun, 18 Oct 2009 13:50:31 -0400 Role of monetary and fiscal policy in strengthening or weakening the US Dollar or that matter any other currency is important. The Federal Reserve Board (FED) is responsible for making the monetary policy of United States. Through its Federal Open Market Committee (FOMC), FED sets and implements the monetary policy. The voting members of FOMC are the seven governors of FED plus five presidents of the district reserve banks. Eight meeting of FOMC are held every year. These meetings are widely watched by the analyst for interest rate announcements and changes in growth expectations.

FED has the mandate for long run price stability and sustainable economic growth. FED has a high degree of independence in setting the monetary policy. FED uses the monetary policy to control inflation, unemployment and balanced growth. The most important tool used by FED is its Open Market Operations.

Monetary policy uses control of interest rate to increase or decrease the money supply in the economy to achieve its growth objective. FED controls the short term interest rate through its open market operations. It involves FEDs sale or purchase of government securities that includes treasury bills, notes and bonds. Increase in FEDs purchases lowers the interest rates while selling of these securities raises the interest rate.

Federal Fund Rate is the key policy target of the FED. It is the interest rate at which the banks lend overnight to one another in the overnight interbank market. The primary interest rate that is affected by these operations is the Federal Fund Rate. The market then adjusts the other short term and long term interest rates accordingly. FED does not directly sets the Federal Fund Rate. It establishes a target rate through the open market operations.

Fiscal policy means the amount of taxes and government spending for a given year. The US fiscal policy is in the control of US Treasury. In fact it is the US Treasury that actually determines the US Dollar policy.

For example, if the US Treasury feels that the US Dollar is under or overvalued, US Treasury can give instructions to the New York Federal Reserve Board to intervene in the forex markets by actually buying or selling US Dollars. Therefore, you should always try to watch the US Treasury views as changes to that view is very important for the currency markets.

The heavily traded currency pairs in the global currency markets are EUR/USD, USD/JPY, GBP/USD and USD/CHF. These currency pairs represent the most frequently traded currency pairs in the global markets. So the most important economic data for the global currency markets is the US Dollar fundamentals. Over 90% of all currency deals involve the US Dollar. As you can see, all these currency pairs involve US Dollar on either side of the pair.

There is an almost perfect negative correlation between the US Dollar and the gold prices. The US Dollar moves in opposite direction to the gold. This inverse relationship stems from the fact that gold is measure in US Dollars.

Gold is commonly viewed as the ultimate safe haven commodity by the investors all over the globe. When US Dollar depreciates due to global economic uncertainty like the present, gold appreciates. You must know that the gold prices are going up right now.

]]> http://www.fxarticles.net/specific-pairs-discussion/eur-usd-currency-pair.html http://www.fxarticles.net/specific-pairs-discussion/eur-usd-currency-pair.html Sat, 17 Oct 2009 16:27:24 -0400 EUR/USD is the most liquid and the most popular currency pair among the forex traders. Trading currencies can be exciting and lucrative. Its a great market because of the way politics affect the trends. Elections, strikes, and sudden developments, both good and bad, can lead to significant trading profits if you stand ready to trade the euro is a convenient currency because it encompasses the policies and the economic activity and political environment of a volatile but predictable part of the world: Europe. EUR/USD is the most heavily traded currency pair in the global currency markets at the moment.

In the United States, where the free-market approach and a usually vigilant Federal Reserve make more frequent adjustments on interest rates. France, Italy, and Germany, the largest members of the European Union (EU), normally operate under high budget deficits and tend to keep their interest rates more stable.

The general tendency of the Fed is to make the dollar trend for very long periods of time in one general direction. Here are some general tendencies of the euro on which you need to keep tabs aside from the technical analysis:

1) As said before most central banks in the world have a strict agenda to fight inflation. Given Germanys history of hyperinflation in the first half of the 20th century and the repercussions of that period, namely the rise of Hitler, the European Central Bank (ECB) is almost fanatical about inflation. That means that the European Central Bank most of the times raises interest rates more easily than it lowers them. However, right now keeping in view the severe global recession, ECB has lowered the interest rates drastically to stimulate economic activity across the Eurozone.

- The European Central Banks actions become important when all other factors are equal, meaning politics are equally stable or unstable in the United States and Europe, and the two economies are growing. For example, if the U.S. economy is slowing down, money slowly starts to drift away from the dollar. In the past that meant money would move toward the Japanese yen; however, because the market knows that Japans central bank will sell yen, the default currency when the dollar weakens is often now the euro.

3) EUR/USD currency pair is heavily influenced by the political developments in the Eurozone. The flip side is that the market becomes jittery and often sells the euro during political problems in the region, especially when the European economy is slowing. These types of trends are minor in nature and tend to wither out with the calming of the political situations. However, day trader and the swing traders want to benefit from these minor trends. These minor trends can be highly profitable.

As a word of caution, its okay to form an opinion and have some expectations, but the final and only truth that should make you trade is what the charts are showing you. As usual, you want to closely monitor major currencies and the cross rates. The direction that counts is the one in which the market is heading.

It is always best to choose only two or three currency pairs and become a specialist in them. Two currency pairs that I would recommend for you are the EUR/USD and the GBP/USD. Both these currency pairs are highly liquid and very popular among the currency traders. Fundamental analysis can help you determine the strong/weak currency pair. Use fundamental analysis to determine if USD is expected to lose value and EUR is expected to gain more strength that means that the currency pair EUR/USD is perfectly timed for swing trading. Use technical analysis to make the entry and exit decision. Combining fundamental analysis with the technical analysis can give you the edge as a forex trader. Sometimes there is a fundamental shift in the direction of a currency pair. As long as you are not following a currency pair like EUR/USD on the daily basis, you wont be able to understand what is happening.

]]> http://www.fxarticles.net/specific-pairs-discussion/currency-profile-of-british-pound-part-ii.html http://www.fxarticles.net/specific-pairs-discussion/currency-profile-of-british-pound-part-ii.html Thu, 15 Oct 2009 17:10:42 -0400
The Monetary Policy Committee (MPC) meetings are closely followed by the professional forex traders all over the world as GBP is a highly popular currency among the traders. MPC meetings are held on a monthly basis and are closely followed by changes in the monetary policy including changes in the interest rates.

Now closely following what happens before and after these meeting is the job of many professional forex traders who trade GBP heavily. They cant risk the chance of being taken by sudden surprises. Before each meeting, the market guesses the likely outcome. After each MPC meeting, MPC issues statements. These statements are compared with the expectations the market had. Any deviation is the cause of major volatility in the pairs involving GBP. These statements are very important for GBP traders. A Quarterly Inflation Report detailing the MPCs forecasts for the next two years of growth and inflation and its justification for its policy movements is also published.

The Quarterly Bulletin is another publication. It provides information for the past monetary policy movements and analysis of international economic scene and its impact on the British economy. All of these reports are highly informative for professional forex traders who trade GBP heavily.

Bank repo rate is the overnight lending rate that the banks charge each other. Bank repo rate is the key rate used in the monetary policy to achieve the Treasurys target inflation rate. The main policy tools used by MPC and BOE are the Bank Repo Rate and the Open Market Operations.

Changes to the bank repo rate affect the commercial banks interest rates for its savers and borrowers. Bank repo rate is set by the BOE for its own operations in the market such as the short term lending activities.

An increase in the Bank Repo Rate means BOE wants to curb the inflation. A decrease would be to stimulate growth and expansion. Changes in the bank repo rate changes the commercial interest rates. In turn these commercial interest rates will affect spending and output in the economy and eventually the costs and prices.

While assuring adequate liquidity in the market and continued stability in the banking system, the goal of the open market operations is to implement the changes in the bank repo rate.

The three main objective of the BOE are to maintain the integrity and value of GBP, maintain the stability of the financial system and seeking to ensure the effectiveness of the UK financial services.

The United Kingdom is a pivotal nation because it bridges the economical, geographical, and ideological divide between the United States and Europe. The monetary policy objectives are met primarily through the open market operations. In order to ensure liquidity in the economy, BOE daily conducts open market operations to buy or sell short term fixed income government instruments. BOE can conduct additional overnight operations as well if this is not sufficient to meet the liquidity needs.

Because the United Kingdom is an oil producer, the GBP can be affected more directly by oil prices than other currencies. The relationship between oil and the pound is fading, however, because production in the United Kingdoms North Sea oil fields is steadily decreasing. ]]> http://www.fxarticles.net/specific-pairs-discussion/british-pound-currency-profile-part-i.html http://www.fxarticles.net/specific-pairs-discussion/british-pound-currency-profile-part-i.html Wed, 14 Oct 2009 13:43:11 -0400
London is still the forex center of the world. New York comes after London in the daily market turnover in forex. The main reasons that London has a higher percentage of trade is that it has always been a financial center and also because of time zones. The London market starts between 7am and 8am, which is the end of the trading day for Asia. Just as the Banks in London are beginning to open at 8am they can deal with other traders in Tokyo, Hong Kong or Singapore whose trading day is just coming to a close. During the later part of the trading day in London, the US market opens up and so catches a healthy portion of that market as well. London Stock Exchange is still the second most important stock exchange in the world after the New York Stock Exchange. The British capital market systems are one of the most developed in the world and as a result finance and banking has become a strong contributor to the GDP.

UK has large reserves of oil and gas in its North Sea. Offshore drilling has made the energy production industry account for 10% of GDP which is one of the highest shares of any industrialized nation. UK is the largest producer and exporter of natural gas to EU although majority of UK GDP is from services.

Trade deficit is an important economic indicator for determining the strength or weakness of a currency. Overall, UK is a net importer of goods with a consistent trade deficit. Increases in energy prices such as oil will significantly benefit the large number of UK oil exporters. This is important for forex traders as energy prices are positively correlated with GBP.

The United States on an individual basis still remains UKs largest trading partner. However, the largest trading partner of UK is the EU with the trade between the two accounting for almost 50% of UK imports and exports activities.

Trade surplus or the trade deficit is determined by the difference between the exports and the imports of a particular country. The leading import sources for UK are France, United States, Germany, Belgium and the Netherlands. The leading exports markets for UK exporters are the France, Germany, Ireland, United States and the Netherlands.

UK had refused to accept Euro when it was introduced keeping the option open to adopt it in the distant future. UK had rejected adopting Euro as its currency in June 2003.The possibility of Euro adoption will still be in the backs of minds of GBP traders for many years to come. Now, it will have significant ramifications for its economy if UK decides to join European Monetary Union (EMU).

The most important of which is the adjustment of UK interest rate with the Eurozone interest rate. One of the primary arguments used against adopting the Euro is that UK has sound macroeconomic policies that have worked very well for the country.

There are many arguments in favor of Euro entry and many against.UK is a highly political country with government officials highly concerned about the voter approval ratings. Right now Brits are not in favor of a Euro entry. The voter opinion can change overtime. However, if the voters do not support Euro entry, the likelihood of EMU entry will decline.

Bank of England: The Bank of England (BOE) is the UKs central bank. The Monetary Policy Committee is the nine member committee that sets the monetary policy for UK. It consists of a governor, two deputy governor, two executive directors of the central bank and four outside experts. The committee was granted operational independence in 1997. ]]> http://www.fxarticles.net/specific-pairs-discussion/euro-currency-part-i.html http://www.fxarticles.net/specific-pairs-discussion/euro-currency-part-i.html Mon, 12 Oct 2009 09:04:53 -0400
Out of these 15 countries, 12 common currency countries constitute the European Monetary Union (EMU). Except Denmark, Sweden and United Kingdom, all these above countries share the common currency Euro. These 12 countries share a single monetary policy dictated by the European Central Bank (ECB).

The EMU is the worlds second largest economic powerhouse after the United States. EMU has a highly developed and efficient fixed income, equity and the futures market. This makes EMU the second most attractive investment market for domestic and international investors.

In the past, the EMU had difficulty in attracting foreign direct investment or large capital inflows. The primary reason was the United States. Historically US assets have had solid returns. As a result, United States absorbs something like 70% of the total foreign savings.

However, the Euros importance is expected to increase with the introduction of the Euro and the EMU beginning to incorporate even more members in Eastern Europe. The capital flows to Europe is expected to increase.

Demand for Euro is expected to continue rising with foreign central banks expected to diversify their Euro reserve holdings even further. EMU is in fact a trade driven and a capital flow driven economy. Trade is very important to the national economies within EMU.

EU exports comprise almost 20% of the world trade. While EU accounts for only 17% of the world imports! Because of the size of the EMUs trade with the rest of the world, it has significant power in the international trade arena. Unlike United States, EMU does not have large trade deficit or surplus.

Both EU and the United States are two very important members of the World Trade organization (WTO). United States is the largest trading partner of EU. The formation of EU allows individual member countries to group as one entity and negotiates on an equal playing field with the United States. International clout is one of the primary reasons in the formation of EU.

Leading export markets for EU are the United States, Switzerland, Japan, Poland and China. Leading import sources for EU are United States, Japan, China, Switzerland and Russia.

Large numbers of EU based companies concentrate their research, design, innovation and marketing part of the activity in EU while outsourcing most of their manufacturing to Asia. EU is primarily a service oriented economy. Services account for more than 70% of the EU economy while manufacturing, mining and utilities account for around 20% of the EU economy.

It is important for most of the countries to hold large amounts of reserve currencies to reduce exchange rate risk and transaction costs. Most international trade transactions involve the British Pound, the Japanese Yen and the US Dollar. ]]> http://www.fxarticles.net/specific-pairs-discussion/us-dollar-currency-profile-part-ii.html http://www.fxarticles.net/specific-pairs-discussion/us-dollar-currency-profile-part-ii.html Sun, 11 Oct 2009 14:28:53 -0400
FED uses the monetary policy to control inflation, unemployment and balanced growth. FED has a high degree of independence in setting the monetary policy. FED has the mandate for long run price stability and sustainable economic growth. In other words, fighting inflation and unemployment are the two most important jobs of FED Chairman. The most important tool used by FED is its Open Market Operations.

Monetary policy uses control of interest rate to increase or decrease the money supply in the economy to achieve its growth objective. FED controls the short term interest rate through its open market operations. It involves FEDs sale or purchase of government securities that includes treasury bills, notes and bonds. Increase in FEDs purchases lowers the interest rates while selling of these securities raises the interest rate.

Federal Fund Rate is the key policy target of the FED. It is the interest rate at which the banks lend overnight to one another. The primary interest rate that is affected by these operations is the Federal Fund Rate.

Fiscal policy means the amount of taxes and government spending for a given year. The US fiscal policy is in the control of US Treasury. In fact it is the US Treasury that actually determines the US Dollar policy.

For example, if the US Treasury feels that the US Dollar is under or overvalued, US Treasury can give instructions to the New York Federal Reserve Board to intervene in the forex markets by actually buying or selling US Dollars. Therefore, you should always try to watch the US Treasury views as changes to that view is very important for the currency markets.

EUR/USD, USD/JPY, GBP/USD and USD/CHF are the most heavily traded currency pairs in the global currency markets. These currency pairs represent the most frequently traded currency pairs in the global markets. Over 90% of all currency deals involve the US Dollar. As you can see, all these currency pairs involve US Dollar on either side of the pair. So the most important economic data for the global currency markets is the US Dollar fundamentals.

The US Dollar moves in opposite direction to the gold. There is an almost perfect negative correlation between the US Dollar and the gold prices. This inverse relationship stems from the fact that gold is measure in US Dollars.

Gold is commonly viewed as the ultimate safe haven commodity by the investors all over the globe. When US Dollar depreciates due to global economic uncertainty like the present, gold appreciates. You must know that the gold prices are going up right now. ]]> http://www.fxarticles.net/specific-pairs-discussion/currency-profile-of-british-pound-part-iii.html http://www.fxarticles.net/specific-pairs-discussion/currency-profile-of-british-pound-part-iii.html Sun, 11 Oct 2009 07:00:14 -0400 UK tends to share a more common set of views with the United States. Economically, the United Kingdom is more free-market oriented than Europe. The United Kingdom cant totally disassociate itself from Europe at the same time, given its history and its geography. The upshot is a currency that is affected by politics at home and on the two continents to which its destiny is so closely related.

6% of the all the global currency trading involves GBP as either the base or counter currency. The GBP/USD is one of the most liquid currency pairs in the world. The British Pound GBP is active against the dollar and the euro, offering good opportunities to trade both pairs (GBP/USD and USD/GBP).

The recent Financial Service Act has made the London capital markets one of the most efficient in the world. US capital markets still have oversight and regulatory confusions. This makes London an important destination for many foreign investors. One of the reasons for GBP liquidity is the countrys highly developed capital markets. GBP is also in the four most traded major currency pairs EUR/USD, GBP/USD, USD/JPY and USD/CHF in the world.

Many hedge funds are located in London. UK is an important foreign investment destination. Many foreign investors seeking to diversify their investment other than the United States send their funds to the UK. Foreigner investors need to convert their local currency into GBP in order to create these investments.

GBP was full of speculators one to two years back. GBP had one of the highest interest rates in the developed countries. Although Australia and New Zealand had still higher interest rates but their financial markets are not as well developed as UK.

As a result, carry traders would use GBP as the lending currency and would go long against USD, JPY and CHF. Carry trading was popular with many hedge fund managers. It is a long term fundamental trading strategy.

However, the present global financial crisis has taken a heavy toll on the British Banks as well. There have been a number of high profile bankruptcies. UK Treasury had to intervene heavily in the market by pumping money into a number of failing banks in order to stabilize the financial markets.

Interest rates have been lowered. An exodus of carry traders took place that increased volatility in GBP with the lowering of the interest rates. Interest rate differentials between UK gilts/US Treasuries is a barometer for GBP/USD flows and UK gilts/German Bunds is a barometer for EUR/GBP flow. These interest rate differentials are widely watched by the professional forex traders to judge where the money will flow between US, UK and EU.

Indications on adopting the Euro usually put negative pressure on GBP while further opposition to Euro boosts GBP. The three month eurosterling futures reflect market expectations on UK interest rates three months into the future and can help predict fluctuations of GBP/USD.

GBP has positive correlation with the energy prices. GBP/USD is more liquid than EUR/USD. However, EUR/GBP is the leading gauge for GBP strength. GBP/USD tends to be more sensitive to the developments in the US economy. EUR/GBP is a more pure fundamental pound trade as EU is the UK primary trading and investment partner.

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