India's forex reserves dip by $1.39 bn

The country's foreign exchange reserves declined by $1.39 billion (about Rs 6,900 crore) in the week ended May 1 to $251.70 billion, mainly on account of a revaluation of currencies and a decrease in value of gold assets held by the Reserve Bank of India (RBI).

According to data released by RBI, foreign currency assets dropped by $1.04 billion to $ 241.49 billion at the end of May 1. Bank dealers said the drop in currency assets was primarily due to the depreciation in Japanese yen.

Forex Trading in USA market

The list of America’s ten banks which have been judged to be at risk should the Global downturn worsen have been released. The US Treasury Secretary Timothy Geithner has said “Our hope with today’s actions is that banks are going to be able to get back to the business of banking”. The markets and Forex will be the judge as it is released that Bank of America is one of the most at risk should the economic situation in the US worsen. The “stress test” does go some way to alleviate the doubts which still hung over the banking sector in the US. The results outlined the capital needs which the named banks at risk would need with some of the banks already indicating the sum of capital and how they would go about raising the required funds. Those banks which require extra capital will need to return to the regulators by the 8th of June with finalised plans on how they will raise the required sum and these plans will require approval by the regulators.

The Explosion of the Euromarket

A major catalyst to the acceleration of Forex trading was the rapid development of the eurodollar market; where US dollars are deposited in banks outside the US. Similarly, Euromarkets are those where assets are deposited outside the currency of origin. The Eurodollar market first came into being in the 1950s when Russia’s oil revenue-- all in dollars -- was deposited outside the US in fear of being frozen by US regulators. That gave rise to a vast offshore pool of dollars outside the control of US authorities. The US government imposed laws to restrict dollar lending to foreigners. Euromarkets were particularly attractive because they had far less regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euromarkets a beneficial center for holding excess liquidity, providing short-term loans and financing imports and exports

Evolution of Forex Markets

In 1967, a Chicago bank refused a college professor by the name of Milton Friedman a loan in pound sterling because he had intended to use the funds to short the British currency. Friedman, who had perceived sterling to be priced too high against the dollar, wanted to sell the currency, then later buy it back to repay the bank after the currency declined, thus pocketing a quick profit. The bank’s refusal to grant the loan was due to the Bretton Woods Agreement, established twenty years earlier, which fixed national currencies against the dollar, and set the dollar at a rate of $35 per ounce of gold. The Bretton Woods Agreement, set up in 1944, aimed at installing international monetary stability by preventing money from fleeing across nations, and restricting speculation in the world currencies. Prior to the Agreement, the gold exchange standard--prevailing between 1876 and World War I--dominated the international economic system. Under the gold exchange, currencies gained a new phase of stability as they were backed by the price of gold. It abolished the age-old practice used by kings and rulers of arbitrarily debasing money and triggering inflation.

In the 1980s, cross-border capital movements accelerated with the advent of computers and technology, extending market continuum through Asian, European and American time zones. Transactions in foreign exchange rocketed from about $70 billion a day in the 1980s, to more than $1.5 trillion a day two decades later

Evolution of Forex Markets

In 1967, a Chicago bank refused a college professor by the name of Milton Friedman a loan in pound sterling because he had intended to use the funds to short the British currency. Friedman, who had perceived sterling to be priced too high against the dollar, wanted to sell the currency, then later buy it back to repay the bank after the currency declined, thus pocketing a quick profit. The bank’s refusal to grant the loan was due to the Bretton Woods Agreement, established twenty years earlier, which fixed national currencies against the dollar, and set the dollar at a rate of $35 per ounce of gold. The Bretton Woods Agreement, set up in 1944, aimed at installing international monetary stability by preventing money from fleeing across nations, and restricting speculation in the world currencies. Prior to the Agreement, the gold exchange standard--prevailing between 1876 and World War I--dominated the international economic system. Under the gold exchange, currencies gained a new phase of stability as they were backed by the price of gold. It abolished the age-old practice used by kings and rulers of arbitrarily debasing money and triggering inflation.

In the 1980s, cross-border capital movements accelerated with the advent of computers and technology, extending market continuum through Asian, European and American time zones. Transactions in foreign exchange rocketed from about $70 billion a day in the 1980s, to more than $1.5 trillion a day two decades later

Various Forex Techniques and Terms

Many different techniques and indicators can be used to follow and predict trends in markets. The objective is to predict the major components of the trend: its direction, its level and the timing. Some of the most widely known include:
Bollinger Bands

Bollinger Bands - a range of price volatility named after John Bollinger, who invented them in the 1980s. They evolved from the concept of trading bands, and can be used to measure the relative height or depth of price. A band is plotted two standard deviations away from a simple moving average. As standard deviation is a measure of volatility, Bollinger Bands adjust themselves to market conditions. When the markets become more volatile, the bands widen (move further away from the average), and during less volatile periods, the bands contract (move closer to the average).

Bollinger Bands are one of the most popular technical analysis techniques. The closer prices move to the upper band, the more overbought is the market, and the closer prices move to the lower band, the more oversold is the market.

Support / Resistance
The Support level is the lowest price an instrument trades at over a period of time. The longer the price stays at a particular level, the stronger the support at that level. On the chart this is price level under the market where buying interest is sufficiently strong to overcome selling pressure. Some traders believe that the stronger the support at a given level, the less likely it will break below that level in the future. The Resistance level is a price at which an instrument or market can trade, but which it cannot exceed, for a certain period of time. On the chart this is a price level over the market where selling pressure overcomes buying pressure, and a price advance is turned back.

MACD - Moving Average Convergence/Divergence
A technical indicator, developed by Gerald Appel, used to detect swings in the price of financial instruments. The MACD is computed using two exponentially smoothed moving averages (see further down) of the security's historical price, and is usually shown over a period of time on a chart. By then comparing the MACD to its own moving average (usually called the "signal line"), traders believe they can detect when the security is likely to rise or fall. MACD is frequently used in conjunction with other technical indicators such as the RSI (Relative Strength Index, see further down) and the stochastic oscillator (see further down).

Forex Trends

Ascending Trend
Descending Trend
Reversal Trend

Market trends seem to follow geometric patterns as they go through both low and high trends. An uptrend creates a series of trends that have higher lows and highs. A trend line drawn between the rising lows can often be fairly accurate in determining where the market can find greater support during the next low trend and indicate fairly good buying levels.
Many Forex traders will choose an area below the trend line at which stop orders are are placed resulting in a sharp sell off. New sellers are generally attracted by breaks below the uptrend line. It's quite normal to see a series of lower lows and lower highs during a downward trend in the market. In this case, the trend line is drawn in alignment with the descending highs and will mirror the analysis as described above.
Every possible piece of information that is known is included in the price of a security, for this reason technical analysis will hold up. This information removes the necessity to analyze the political, economic and fundamental factors that have a big influence on price. Since all of the information that is available is already factored into the current price, the price movement is all that needs to be analyzed. The tendency for prices to trend isn't guaranteed; therefore any analysis should rely on common sense and empirical evidence. The fact that prices do trend is supported by the time proven Dow Theory.