FOREX-Dollar hits 7-week low as safe-haven demand wanes`

MARKETS-FOREX (UPDATE 8):FOREX-Dollar hits 7-week low as safe-haven demand wanes.

* U.S. new-home sales rise sharply in June

* Euro at 7-week high against dollar

* Canadian dollar at 10-month high vs USD (Adds quotes, updates prices, adds detail)

By Wanfeng Zhou

NEW YORK (Reuters) - The dollar fell to its lowest level in more than seven weeks against a basket of currencies Monday as optimism about the global economy dulled the greenback's safe-haven appeal.

A government report showing a jump in U.S. new-home sales last month encouraged investors to take on risk and pushed the yen to multi-week lows versus the dollar and euro. Both the U.S. and Japanese currencies tend to fall when risk appetite improves.

The dollar has come under pressure in recent sessions as upbeat economic data and largely positive results on the U.S. corporate earnings front fueled expectations that the global economy was on the mend.

"Though the housing market remains weak compared to the peaks, the improved data will continue to feed into market optimism on green shoots," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.

"We had very strong gains last week in equity markets on general optimism," he added. "At this stage, the dollar remains vulnerable to good economic news and so the soft dollar tone is likely to continue."

The ICE Futures U.S. dollar index, a measure of the dollar's performance against six major currencies, fell to its lowest level since early June, at 78.396.

The euro was also buoyed by data showing German consumer sentiment at its highest level in over a year . The single currency last traded up 0.1 percent at $1.4217, after hitting $1.4299, a more than seven-week high and not far off its 2009 peak of $1.4337 hit in early June, according to Reuters data.

Against the yen, the euro also hit its highest level in more than three weeks at 136.09 yen, and last traded up 0.7 percent at 135.49 yen.

The dollar was up 0.5 percent at 95.28 yen , after hitting a session peak of 95.38 yen, the highest level in almost three weeks.

INVESTOR WARY REMAINS

Sales of new single-family homes in the United States rose 11 percent in June from the prior month, while the number of new homes for sale fell to the lowest level since February 1998. Analysts said the data is further evidence that the housing sector, which led the economy into the current recession, is starting to rebound.

"It's more good news," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey. "So while the data continues to come in better than expected, you're going to see this risk rally continue."

Analysts, however, said the recent surge of optimism may begin to fizzle out as caution sets in ahead of U.S. gross domestic product data on Friday.

"The rally has become a little bit overstretched, not just in equities, but in risk assets in general," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.

The heavy short dollar positions in the market also suggested that "we could be due for a little bit of a correction given the fact the market is very heavily skewed against the dollar," he said.

Data from the Commodity Futures Trading Commission on Friday showed currency speculators nearly doubled their bets against the dollar in the week ended July 21, with the value of dollar net short positions the highest in a year.

The market was also keeping an eye on talks between top U.S. and Chinese officials in Washington on Monday and Tuesday for any comments regarding the dollar.

Meanwhile, the U.S. Treasury will sell a record $115 billion this week and the bond and currency markets are keen to see how demand holds up given rising stock markets and a potentially improving economic backdrop.

In other trading, the Canadian dollar jumped as high as C$1.0779 per U.S. dollar, its strongest since October 2008, while the Australian dollar climbed around 1 percent to a high of $0.8259, the highest level since early June. (Additional reporting by Steven C. Johnson; Editing by Leslie Adler)

Key Concepts in Forex

How many units can I trade with $5000 in my forex trading account? The topics below are especially important to understand margin trading in order to answer this question. 

TOPICS

1. Margin
2. Spread
3. Pip Value
4. Usable Margin
5. Possible Scenarios

1. Margin

Margin is the deposited funds held as collateral to cover any potential losses from adverse movements in prices. Margin requirement is set for each account and affects the number of units you can open and sustain. 

Minimum margin requirement offered by MG Financial is 1%. Under the percentage based margin, the required margin for all accounts is a percentage of the numerical value of the Base Currency or the first currency in the pair. For example, 1% of 1 unit USD/JPY is $1,000 (1% x 100,000USD=1,000USD); 1% of 1 unit EUR/USD is $1,439(1% x 100,000EUR x1.4390 = $1,439).* 

For details on margin calculation, please click here. 

In theory, with $5000 account equity in your account to trade EUR/USD, you can trade a maximum of 3.4 units ($5000 / $1439 per unit = 3.4 units).* 

* Calculated at the market rate of 1.4390 at the time of conversion 

In reality, you are not able to trade 3.4 units. There are a few more factors you need to consider... 

2. Spread

The spread of any currency pair is the difference between the Bid and Ask rate of the two currencies in the pair. For example, spread for EUR/USD with current Bid rate of 1.4387 and Ask rate of 1.4390 is 3. When a position enters the market, your position immediately reflects the revaluation of market value. Under flat market conditions, when entering the market your position may see a negative P/L equivalent to the spread of the currency pair you are trading. 

3. Pip Value

The pip value of 1 standard unit (100,000) for either of the currency pairs of EUR/USD, GBP/USD, and AUD/USD is $10. 

Calculation of Pip value of pairs with USD based currency or Crosses, such as USD/JPY, USD/CAD, or GBP/JPY is a bit more complicated. The Profit Loss Calculator is a useful tool to calculate profit or loss of a potential trade. 

Pip value can be used to calculate how many pips of movement your usable margin can sustain. For example, if your usable margin is $200 and you have 1 unit EUR/USD, the account can sustain 20 pips of market movement against you. 

4. Usable Margin

The usable margin is the amount remaining to place additional trades or amount to sustain market movement against your position. This value is calculated by taking your Account Equity less the Used Margin. Usable margin in simpler terms is the balance of your account less used margin and +/- Profit/Loss. Please remember that because Usable Margin takes into consideration Profit/Loss, this amount changes with market movement. 

5. Possible Scenarios

Now let's try to answer the question...
Beginning Account Equity of $5000 and 1% Margin requirement** 

** Calculated at the market rate of 1.4390 at the time of conversion 

Scenario 1- Trade 1 unit EUR/USD
Usable Margin= $5000 (Beginning Account Equity) - $30 (3 pip spread x $10 per pip) - $1439 (Required margin for 1 unit) = $3531
$3531 (Usable Margin) / $10 (pip value for 1 unit EURUSD) = 353 pips
Your account can therefore sustain 353 pips of movement against you for 1 unit position. 

Scenario 2- Trade 1.5 units EUR/USD 
Usable Margin= $5000 (Beginning Account Equity) - $45 (3 pip spread x $10 per pip x 1.5 units) - $2158.5 ($1439 margin per unit x 1.5 units) = $2796.5 
$2796.5 (Usable Margin) / $15 ($10 per pip x 1.5 units) = 186 pips movement 
Your account can therefore sustain 186 pips of movement against you for a 1.5 unit position. 

Scenario 3- Trade 0.1 unit EUR/USD
Usable Margin= $5000 (Beginning Account Equity) - $3 (3 pip spread x $10 per pip x 0.1 unit) - $143.9 ($1439 margin per unit x 0.1 units)= $4853.1
$4853.1 (Usable Margin) / $1 ($10 per pip x 0.1 unit) = $4853 pips 
Your account can therefore sustain 4853 pips of movement against you for a 0.1 unit position. 

Scenario 4- Trade 3 units EUR/USD
Usable Margin= $5000 (Beginning Account Equity) - $90 (3 pip spread x $10 per pip x 3 units) - $4317 ($1439 margin per unit x 3 units)= $593
$593 (Usable Margin) / $30 ($10 per pip x 3 units) = 19 pips 
Your account can therefore sustain 19 pips of movement against you for a 3 unit position. 

Scenario 5- Trade 0.5 units EUR/USD
Usable Margin= $5000 (Beginning Account Equity) - $15 (3 pip spread x $10 per pip x 0.5 units) - $719.5 ($1439 margin per unit x 0.5 units)= $4265.5
$4265.5 (Usable Margin) / $5 ($10 per pip x 0.5 units) = 853 pips 
Your account can therefore sustain 853 pips of movement against you for a 0.5 unit position. 

Client can also require margin greater than 1%, e.g. 2% or 3 %, and here is an example of trading 1 unit of EUR/USD at the market rate of 1.4390, with 2% margin requirement. 

Scenario 6- Trade 1 unit EUR/USD with 2% margin requirement 
Usable Margin= $5000 (Beginning Account Equity) - $30 (3 pip spread x $10 per pip) - $2878(2% x 100,000EUR x1.4390) = $2092
$2092 (Usable Margin) / $10 (pip value for 1 unit EURUSD) = 209 pips
Your account can therefore sustain 209 pips of movement against you for 1 unit position with 2% margin requirement. 


From the various scenarios depicted above, you can see there is no definite answer to this question. This is highly dependent on the investor's appetite for risk. The investor must also take into consideration all relevant factors and make sure to keep enough usable margin in his/her account to sustain market movement. 

How to Get Started

People are introduced to the exciting world of foreign exchange in many ways: friends, current events, newspapers, television, and many others. For those of you who are new to forex, the following guidelines cover the basics of currency trading. 

Step 1: "Practice makes perfect"

The demo account was designed to help traders gain familiarity with the speed and movements of the market. When you are demo trading, you should learn how to: 1) place market orders to enter a trade, 2) place stop-loss orders to protect your positions, and limit orders to take profits, 3) place OCO orders and If Done Orders to execute more advanced strategies. 

Step 2: "Study, Study, Study".

Forex traders use fundamental analysis, technical analysis, quantitative analysis and sometimes a combination of all three to make their trading decisions.Fundamental analysis involves the use of economic, financial and political news to determine trading decisions. Technical analysis involves the study of Charts to predict future price movements based on past price patterns and trends. Quantitative analysis consists of the use of preset statistical models and properties in quantifying price formations such as averages, retracements as well as identifying oversold and undersold situations. 

In order to help novice and experienced traders alike, MG has developed www.forexnews.com, a leading site on foreign exchange analysis, news and education. Comprehensive previews and summaries updated 4 times per day, insightful editorials covering the latest market developments and an open forum for discussing trading tips and ideas, are just some of the many features of Forexnews.com and MG's commitment to educating and informing Forex participants. 

Step 3: Manage your money wisely.

You should always be aware of the amount of money in your account before placing a trade. If you think a long-term trend is developing, then you should consider whether you have enough funds to maintain your margin and withstand any movements against your position(s) that may occur. We encourage everyone who opens an account with us to ask themselves the following questions prior to entering each trade: 

1) How much am I willing to risk?
2) What is my upside and downside potential?
3) What are the market conditions? (Is the market volatile or calm?)
4) What is the logic behind entering this trade?
5) When can I conclude if the assumptions/logic behind the trade are/is correct or wrong? 

Before entering an order, you should consider both your entry and exit points. One of the mistakes most commonly made by traders, especially new traders, is letting emotions get in the way of their strategy. 

Step 4: Stay Connected:

It is impossible to follow the forex market 24 hours day, 7 days a week. For better management of your account, we encourage you to use our Wireless Service and alert!FX™. 

Step 5: Open a Live Account.

If you feel ready to trade this market, fill out our application forms and submit them today. Since the emotional factor may be higher than it was when you were demo-trading (as you are now committing real money), it is essential that you develop an effective strategy while demo-trading and plan to abide by it when trading your live account. 

We hope you enjoy trading with us and wish you the best of luck!

How to Trade Forex

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors. It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply. However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.

The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.

The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.

Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements.

Working with statistics

Trade Balance

The trade balance is a measure of the difference between imports and exports of tangible goods and services. The level of the trade balance and changes in exports and imports are widely followed by foreign exchange markets.

The trade balance is a major indicator of foreign exchange trends. Seen in isolation, measures of imports and exports are important indicators of overall economic activity in the economy.

It is often of interest to examine the trend growth rates for exports and imports separately. Trends in export activities reflect the competitive position of the country in question, but also the strength of economic activity abroad. Trends in import activity reflect the strength of domestic economic activity.


Typically, a nation that runs a substantial trade balance deficit has a weak currency due to the continued commercial selling of the currency. This can, however, be offset by financial investment flows for extended periods of time.

Gross Domestic Product

The Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity.

GDP represents the total value of a country's production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and the government.

As GDP reports are often subject to substantial quarter-to-quarter volatility and revisions, it is preferable to follow the indicator on a year-to-year basis. It can be valuable to follow the trend rate of growth in each of the major categories of GDP to determine the strengths and weaknesses in the economy.

A high GDP figure is often associated with the expectations of higher interest rates, which is frequently positive, at least in the short term, for the currency involved, unless expectations of increased inflation pressure is concurrently undermining confidence in the currency.

Consumer Price Index

The Consumer Price Index (CPI) is a measure of the average level of prices of a fixed basket of goods and services purchased by consumers. The monthly reported changes in CPI are widely followed as an inflation indicator.

The CPI is a primary inflation indicator because consumer spending accounts for nearly two-thirds of economic activity. Often, the CPI is followed but excludes the price of food and energy as these items are generally much more volatile than the rest of the CPI and can obscure the more important underlying trend.

Rising consumer price inflation is normally associated with the expectation of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.

Producer Price Index

The Producer Price Index (PPI) is a measure of the average level of prices of a fixed basket of goods received in primary markets by producers. The monthly PPI reports are widely followed as an indication of commodity inflation.

The PPI is considered important because it accounts for price changes throughout the manufacturing sector.

The PPI is often followed but excludes the food and energy components as these items are normally much more volatile than the rest of the PPI and can therefore obscure the more important underlying trend.

Studying the PPI allows consideration of inflationary pressures that may be accumulating or receding, but have not yet filtered through to the finished goods prices.

A rising PPI is normally expected to lead to higher consumer price inflation and thereby to potentially higher short-term interest rates. Higher rates will often have a short term positive impact on a currency, although significant inflationary pressure will often lead to an undermining of the confidence in the currency involved.

Payroll Employment

Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the net number of new jobs created or lost during the month and changes are widely followed as an important indicator of economic activity.


Payroll employment is one of the primary monthly indicators of aggregate economic activity because it encompasses every major sector of the economy. It is also useful to examine trends in job creation in several industry categories because the aggregate data can mask significant deviations in underlying industry trends.

Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term. If, however, inflationary pressures are seen as building, this may undermine the longer term confidence in the currency.

Durable Goods Orders

Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Monthly percent changes reflect the rate of change of such orders.

Levels of, and changes in, durable goods order are widely followed as an indicator of factory sector momentum.


Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order. Often, the indicator is followed but excludes Defence and Transportation orders because these are generally much more volatile than the rest of the orders and can obscure the more important underlying trend.

Durable Goods Orders are measured in nominal terms and therefore include the effects of inflation. Therefore the Durable Goods Orders should be compared to the trend growth rate in PPI to arrive at the real, inflation-adjusted Durable Goods Orders.

Rising Durable Goods Orders are normally associated with stronger economic activity and can therefore lead to higher short-term interest rates that are often supportive to a currency at least in the short term.

Retail Sales

Retail Sales are a measure of the total receipts of retail stores. Monthly percentage changes reflect the rate of change of such sales and are widely followed as an indicator of consumer spending.

Retails Sales are a major indicator of consumer spending because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity.

Often, Retail Sales are followed less auto sales because these are generally much more volatile than the rest of the Retail Sales and can therefore obscure the more important underlying trend.

Retail Sales are measured in nominal terms and therefore include the effects of inflation. Rising Retail Sales are often associated with a strong economy and therefore an expectation of higher short-term interest rates that are often supportive to a currency at least in the short term.

Housing Starts

Housing Starts are a measure of the number of residential units on which construction is begun each month and the level of housing starts is widely followed as an indicator of residential construction activity.

The indicator is followed to assess the commitment of builders to new construction activity. High construction activity is usually associated with increased economic activity and confidence, and is therefore considered a harbinger of higher short-term interest rates that can be supportive of the involved currency at least in the short term.