The US dollar rose from a fifteen month low as investors tried to fathom whether the global economic outlook justifies the rise in higher yielding currencies and assets. On Monday the dollar weakened as US unemployment data and the results of last weekend’s G 20 meeting prompted investors to speculate that US interest rates would remain at historic lows. The British pound fell sharply after Fitch’s Ratings said that the UK government was the most at risk of having its triple AAA rating lowered if the government engaged in new stimulus programs. Andrew Wilkinson of Interactive Brokers Group stated, “With many currencies reaching new highs recently, there is a reasonable amount of resistance toward a headlong lunge into fresh territory for now.”

German Investors Pessimistic

The euro vs. dollar fell 0.2% to $1.4957 just short of the $1.50 mark and against the yen the dollar was down 0.1% to 89.87 yen. The dollar index, DXY, rose 0.2% after hitting a fifteen month low on Monday. The euro was pressured by German ZEW results which showed that investors were more pessimistic than during the past four months. Concerns that investors have become overly optimistic pressured recent winners like the Aussie dollar which declined 0.3% against the US dollar to $0.9274.

Fed has Cautious Outlook For Recovery

US Federal Reserve officials struck a cautious note on Tuesday about US economic outlook. Disappointing economic data from the US points to a slow recovery and rates are expected to remain at near zero for an extended period. The Canadian dollar got a bit of good news as oil prices climbed above $80 a barrel. The Canadian dollar or ‘loonie’ rose to 95.26 US cents. Promises by the G 20 group of nations to keep stimulus measures in place also benefited the loonie. Mixed economic signals from the euro zone pressured the euro. Italy and France reported sharp falls in output while Germany reported a surge in production.

Pundits and some economists have been writing about the possible demise of the US dollar for years. Many of these articles are alarmist in tone and have titles like “The Coming Global Collapse” and most are based on speculation. Despite these dire predictions investors and traders remain unalarmed. Some analysts believe that a sharp drop in the dollar or market volatility could create a crisis of confidence in the US dollar and its role as a global reserve currency.

US Deficits Cause Concern

Some investors are concerned about the United State’s ability to fund massive deficits and some nations, most notably China, have expressed concern about the sustainability of the dollar’s reserve currency role in global economics.  Rising stocks and well received auctions of US Treasuries suggest that most investors have confidence in the dollar. The US dollar has fallen 15% against a basket of six major currencies since March and has fallen over 37% from a 2001 high.

US to Keep Rates Low for ‘Extended Period’

The dollar vs. euro exchange rate has been steady with the euro hovering in the vicinity of $1.50, down 6% against a record euro high of $1.6040 in March 2008. Michael Woolfolk of BNY Mellon said, “If we breach $1.60. I think that’s too far, too fast and could cause concern about a dollar demise.” Low US interest rates have contributed to the dollar’s weakness and recently investors and currency traders have been using the weak dollar to fund carry trades. Most economists expect the US Federal Reserve to keep rates low for an extended period. At this weekend’s G 20 summit the International Monetary Fund warned against withdrawing stimulus policies ‘too soon.’

Weak Dollar Good for US Exports

In the US the weak dollar is looked at positive for boosting US exports even though the current Obama administration gives lip service to a strong dollar policy. Some economists warn that a weak dollar could cause a flight from US assets leading to an unhealthy rise in interest rates.

The US dollar hit a one month high as UK banking woes and falling stocks in Europe and Wall Street dampened risk sentiment. The pound fell on Tuesday as several UK banks underwent shake ups. Bank of Scotland shares fell 5% after the bank agreed to sell some of its businesses. Currency traders remain wary in advance of meetings of the US Federal Reserve and the European Central Bank. The Fed is widely expected to keep rates at near zero for an “extended period.” Andrew Robinson of Saxo Capital Markets stated, “We have a slew of central bank meetings starting today. It’s going to be a bit uncertain and nervous, and under the circumstances a bit of range trading.”

Aussie Falls on Rate Hike

The Aussie which has been a big winner lately fell after the Reserve Bank of Australia raised rated from 3.25% to 3.5% leaving investors guessing when the central bank would hike rates again. The Aussie fell to $0.8957 from a high of $0.9042. Other commodity based currencies rose in Asian markets after the International Monetary Fund announced the sale of 200 tons of gold to the Reserve Bank of India.

Stocks Hit Four Week Low

On Tuesday global stocks hit a four week low and UK banking troubles spurred risk aversion benefiting the US dollar. Poor results posted by UBS UBSN.VS and bank shake ups in the UK prompted investor concerns about the health of banking systems. Banking giant CIT filed for bankruptcy. David Thebault of Global Equities in Paris stated, “UBS just posted ugly results that bode ill for European bank results and CIT just filed for bankruptcy. This raises the question: isn’t it too early to pay back government money?”

G 20 Conference Ahead

Also dampening risk sentiment is the upcoming G 20 conference scheduled for this weekend in Scotland and the US jobs report due Friday. Forex traders and investors will have a slew of information to sort through this week.

Better than expected US GDP figures subjected the US dollar to the usual downward pressure experienced from a rise in risk sentiment. US GDP rose 3.5% during the third quarter exceeding expectations of 3.3%. Stock markets rose sharply sending currency traders in search of higher yielding currencies. Once again the Aussie and Kiwi dollars were big winners and both gained a full 2% against the US dollar. The Aussie traded at US$0.9146 and has a benchmark rate of 3.5% as opposed to the greenback’s near zero rate. The Kiwi traded at US$0.7342 after rising as high as US$0.7352.

Pound Rallies

The pound continued its rally and climbed above $1.66 the highest against the greenback in almost a week. The pound rose nearly 1.5% trading at $1.6605 against the US dollar. The dollar index or DXY which measures the US dollar against a basket of six major currencies fell 0.6% to 75.947. Despite losses the DXY is on track for a weekly increase of 0.6%. US unemployment claims fell to the lowest level in seven months further boosting risk sentiment among investors.

Recovery Skepticism

Despite the figures some analysts are not fully confident of economic recovery. Boris Schlossberg of GFT stated, “The (jobless claims) figure remains above the 500,000 barrier and until it drops below that level the market will not be fully confident that the recovery has taken hold,” Against the yen the US dollar gained 0.9% trading at 91.41 yen after hitting a session peak of 91.62.

Euro Gains vs. Dollar

Both the US dollar and the yen fell against a basket of 16 major currencies and both stocks and commodities rallied. The euro vs. dollar rate fell almost 1% to $1.4859 finally trading at $1.4827 in late New York trading. During the last four trading sessions the dollar had gained on the euro due to perceptions of a stalled US recovery but the third quarter GDP figures spurred a stock rally and demand for riskier assets across the board.

Dismal figures posted by General Electric and Bank of America have triggered a rise in risk aversion causing the US dollar to pull back from a 14 month low. General Electric reported a 42% decline in profits and Bank of America posted a quarterly loss sending investors and traders in search of safe haven assets. Investors were disappointed with the results after earlier in the week JP Morgan posted positive figures. Philip Lawlor of Nomura stated, “JPMorgan set the hurdle rate very high, and at the margin it’s difficult for the banks - you saw it with Goldmans yesterday - to now come in and have the same type of positive reaction.”

US Consumer Sentiment Down

US consumer sentiment fell as consumers remain concerned that recovery will be slow and drawn out. The combination of poor stock performance in Europe and the US and low US consumer sentiment triggered a round of risk aversion benefiting the US dollar. Shaun Osborne of TD Securities in Toronto stated, “It’s not a particularly good report as we saw a big drop in the outlook. It’s a case of poor data hurting equities but supporting the dollar in a risk-off and risk-on mentality.”

Commodity Based Currencies Perform Well

The dollar gained 0.5% on the euro and traded at $1.4872 on Friday and against the Japanese yen the dollar gained 0.6% trading at 91.09 yen. The pound fell to $1.6270 after hitting a three week high of $1.6401. The Canadian dollar fell for the second straight day as risk aversion trimmed demand for risky assets. The two day decline came after a rally that many believed would push the Canadian dollar to parity with the US dollar. Against the greenback the Canadian dollar was the fourth best performer after the Aussie dollar, the Brazilian real and the Mexican peso. All are commodity based currencies which have performed well in forex markets.

The Australian dollar has been a recent big winner in forex markets globally. The Aussie dollar has experienced an astounding 32% rally so far this year and some forex traders and currency experts are predicting the Aussie dollar will reach parity with the US dollar for the first time since 1982. Demand for the Aussie has climbed as investors remain concerned about the status of the US dollar as a reserve currency and predictions that US interest rates will remain at record lows. Jonathan Xiong of Mellon Capital in San Francisco stated, “We like the Australian dollar and that’s one of the recovery plays we have on. He further stated that parity is “a possibility, but we don’t make forecasts on whether it will go to parity or a particular rate.”

US Dollar Pulls Back From 14 Month Low

The US dollar pulled back from a 14 month low against the euro as disappointing third quarter results from General Electric and Bank of America triggered a slight rise in risk aversion. Amelia Bourdeau of UBS AG stated, “The rally in the dollar we see today is profit taking going into the weekend. We think risk seeking will continue, although it’s getting choppy.” The dollar vs. euro rate rose 0.4% to $1.4891 after hitting a 14 month low of $1.4968 and against the yen the dollar advanced 0.3% to 90.86 yen. Bourdeau also said she believes that the US dollar’s decline will resume as currency traders and investors seek higher yielding assets.

Aussie Second Best Performing Currency

The Aussie dollar is the second best performing currency after the S African Rand. The Australian economy expanded after one single quarter of economic contraction. Currency experts believe the growing Australian economy will make the Aussie dollar even more attractive against the US dollar which is troubled by massive deficits and is also pressured by the amount of debt the U.S. Treasury will issue. Australian growth has been fueled by a A$20 billion ($18 billion) in government handouts to consumers and China’s demand for the country’s iron ore.

One of the most attractive features of forex trading is the use of leverage. Forex trading is done in standard lots of 100,000 or mini lots of 10,000. To overcome initial capital needs forex brokers began to offer leveraged accounts. A leveraged account is a sort of credit offered by the forex broker and is backed up by the investor’s capital. Leverage allows the investor to control large amounts of money. Forex traders monitor exchange rates in ‘Pips’ which is the smallest variation in currency prices and can be in the second or fourth decimal place in a currency pair’s price.

As an example suppose a currency pair’s price EUR/USD moves from $1.47 to $1.48. The move equals 100 pips or $0.01 change in the exchange rate. These small movements are the reason that transactions must be carried in large amounts and the use of leverage allows these small movements to accumulate into decent profits by the use of leverage. When dealing in lots of 100,000 minute changes can mean significant profits.

Most forex brokers’ offer leveraged accounts ranging from 50:1 to 400:1. Of course higher leverage means higher risk. Most experts recommend that novice forex traders start with low leverage and increase the leverage as they become more familiar with forex trading. Using leverage should be done with caution and used intelligently. Using leverage wisely is one of the keys to success in currency markets.

1.    Dealing with unlicensed forex traders.

Licensed forex traders are subject to regulations and will do everything in their power to make sure your trades are based on the best current market information. Unlicensed traders may take excessive risks especially when they are using the funds of others.

2.    Dealing With Offshore Forex Traders

Investing offshore is a real risk. While some offshore traders may be reputable there have been many scams reported and some would be traders have been swindled. If things go badly you will have no legal remedies available if you account goes south.

3.    Lack of Education

Forex trading is complex and without the proper education bad and costly decisions are bound to be made. Traders need to be able to analyze market news and act accordingly. Novice traders should have extensive knowledge of forex trading before the first trade is made.

4.    Failure to Understand leverage

Using the leverage available to forex traders can be a double edged sword. Traders who do not understand leverage are setting themselves up for huge losses. The greater the amount of leverage assumed by the investor the greater the risk.

5.    Not Checking References

Not checking the references of a forex trader can be a fatal mistake that could cost the investor dearly. Any successful forex trader should be able to provide multiple references.

6.    Investing Too Much Money

Forex trading is very high risk and traders should never invest more than they are willing to lose. Although the forex market can be very lucrative market conditions can change several times during the course of a day.

7.    Pursuing High Yields

As has been stated several times forex markets are volatile and long term stability should be the goal. New traders should use low or moderate risk strategies.

8.    Over Trading

New forex traders should limit their trading to one or two markets at first.

9.    Lack of a Trading Plan

Forex traders should establish both long and short term goals. Do not base the trading plan on hypothetical profits and use a clear logical approach. Set daily, weekly and monthly trading goals along with a long term plan.

10. Failure to Use   Use Logic and Reason

There are many websites hawking ‘foolproof’ forex trading methods and many other sites offering ‘hot’ forex tips. While many forex software trading platforms are based on scientific formulas and algorithms many other software platforms are scams. There is no substitute for a thorough education. Forex traders should always use logic and reason when making trading decisions.

While this list is by no means complete these are some of the most common mistakes novice forex traders make. Avoiding these mistakes can easily make the difference between profit and loss.

The US dollar experienced a slight dip after three straight days of gains as investors and currency traders sought out higher yielding assets putting downward pressure on the dollar. The dollar fell against 15 of the 16 major currencies as Asian stock markets rose due to a report from the Asian Development Bank said that regional economies will grow at a better than expected pace and demand for emerging market assets will increase. U.K. Prime Minister Gordon Brown expressed concerns about removing government stimulus programs too soon. Brown, who will be attending the G 20 summit, stated, “The stimulus that we have still got to give the world economy is greater than the stimulus we have already had. What we want to do is safeguard a recovery from a recession we feared would develop into a depression.”

Rising Risk Appetite Pressures Dollar

The US dollar vs. euro traded bear a one year low due to rising risk sentiment and a widespread belief that the worst of the recession is over. Many economists believe that the Fed will continue to keep rates at record lows sending currency traders in search of higher yielding assets. Lee Hardman of the Bank of Tokyo stated, “The dollar is likely to remain weak in the near term, what’s driving the dollar lower is the exceptionally loose liquidity conditions, and this encourages its use as a funding currency.”

Concern Over Euro’s Strength

Once again New Zealand’s dollar was a big winner on forex exchanges. The Kiwi rose 0.8% to $0.7250. The euro took a hit after a French official expressed concern about the Euro’s strength. In midday trading the DXY was up slightly at 76.211 after hitting a low of 75.892, the lowest since last September. Forex traders remain cautious in advance of the expected Fed statement and the G 20 summit scheduled to take place in Pittsburgh.

The US dollar rose on Monday hitting a near two week high against the Japanese yen. The dollar rose slightly more than 1.0% against the yen and trade was muted in Asia as many major cities closed for holidays. In midday trading in New York the dollar vs. yen rate rose 1.1% to 92.26.  A dearth of economic data caused traders to take profits on other currencies that have recently rallied against the dollar. Many force traders are awaiting the results of the Federal Open Market Committee meeting Wednesday. The FOMC is expected to keep rates at between 0% and 0.25% and many forex traders will be watching for any signs of the Feds exit strategy from quantitative easing. Vassili Serebriakov of Wells Fargo stated, “The markets are consolidating and correcting ahead of the Fed decision this week.”

Dollar Correction Due

Some forex traders and currency analysts noted that investors are concerned about short dollar positions and said a correction may happen in the near future. Vassili Serebriakov commented, “We have also seen from the speculative positioning an increase in dollar shorts, in particular euro longs. So it’s surprising to see that outstanding short exposure is being scaled back.” Forex traders increased short dollar positions, betting that the greenback will depreciate, last week to the highest since March 2008 according to the Commodity Futures Trading Commission.

Dollar Gains on Euro

The euro vs. dollar fell 0.3% to $1.4659 down from a high of $1.4766 last week, the highest since September 2008. Against a basket of currencies the DXY, ICE dollar future index rose to its highest since September 10th at 76.50 up 0.6 % for the day. Stocks were down dampening risk sentiment benefiting the greenback. Investors are watching the Fed closely watching for changes in the Fed’s economic assessment.

Bernanke Says Recession “Very Likely” Over

In a statement last week Fed Chairman Ben Bernanke said that the recession was “very likely” over. Marc Chandler of Brown Brothers Harriman believes that the Fed is likely to be cautious about the US economy and will keep interest rates at record lows for an extended period of time.