The US dollar pulled back from a fifteen month low as declining US stocks pared demand for riskier assets. The dollar is often seen as a barometer of risk sentiment among investors and traders. The pound fell sharply on news that Fitch’s Ratings said that the UK was the major economy most at risk among major economies. The Brazilian real fell the most against the dollar on concerns that the Brazilian government would intervene and try to stop the real’s appreciation which is hurting exports. The Dollar Index rose 0.2% to 75.145 but the index has lost 7.7% so far this year.

Pound Hit by Rating Concerns

The pound pulled back from a six day run against the dollar and fell 0.3% to $1.6712. Fitch Ratings had cautioned the UK government against further stimulus measures citing massive UK debt. David Riley of Fitch stated, “Our stable rating outlook reflected our expectation that the U.K. government will articulate a stronger fiscal consolidation program next year.”

Canadian Dollar Gains

The Canadian dollar gained against the green back as a rise in oil prices sent the commodity based currency higher in currency markets. The currency last traded at 95.26 U.S. cents. David Bradley of Scotia Capital stated, “Everything seems to have turned around at once here. And it looks to me like the Canadian dollar can probably continue to do better.” The rise came after oil edged above $80 a barrel and the promise of the G 20 nations to maintain stimulus policies.

Gold Futures at Record Highs

The decline of risk sentiment has sent gold futures to record highs and many traders predict gold will rise to $1,150 or as much as $1,200 an ounce. The European economy sent mixed signals. Italy and France reported sharp falls in while German output surged. Italian output declined 5.2% and French output fell by 1.5% in September. US Federal Reserve officials are expected to speak on Tuesday and investors will be watching for any signs of changes in monetary policies.

The Japanese yen gained on Friday after US figures showed an unemployment rate of 10.2%. The US government reported a loss of 190,000 jobs in October causing concerns about the state of the US economy and spurring demand for the safe haven of the yen. Although recent news reported an increase in US GDP and a rise in consumer sentiment the new figures raised doubts about economic recovery.

US Labor Market to Remain Weak

Unemployment has plagued the US economy and about 20000 jobs a month have been lost in the US. Economic analysts believe that the US labor market will remain weak and consumer sentiment could be pressured. Samarjit Shankar of BNY Mellon stated, “The yen has obviously benefited … from risk aversion, The big psychological impact was from the 10.2 percent unemployment rate. It’s going to cast further doubt on whether the incipient U.S. economic recovery can be sustained without further government support,”

US Rates to Remain Low

The dollar vs. yen rate fell 1% and the yen last traded at 89.85 yen. The euro fell 1.2% against the yen trading at 133.45 yen. Two-year U.S. Treasury yields eased after the jobs figures putting further pressure on the dollar against the yen. The widespread belief that US rates will remain low has many currency experts speculating that the dollar is replacing the yen as a source of funding for carry trades. In carry trades investors and traders borrow low yielding currencies and use them to fund investments in higher yielding assets and currencies. Paresh Upadhyaya of Putnam Investments said, “Dollar/yen has essentially become an interest rate play. With interest rate differentials narrowing further against the dollar, you’re seeing dollar/yen under pressure.”

Commodity Currencies Gain

Despite the spike in risk aversion the dollar was little changed against most other major currencies. Commodity based currencies like the Aussie and Kiwi dollars rose against the greenback. The Aussie rose 0.6% to US$0.9166 while the Kiwi rose 0.4% to US$0.7245.

This week will be a busy one for forex traders and investors. Meetings on monetary policy are scheduled in the US, the Euro Zone, Australia, and the UK. On Friday US employment figures are due. The even investors are waiting for is the G 20 conference scheduled for this weekend in Scotland. The G 20 nations are expected to discuss currency exchange rates and the risks of designating certain bans as ‘too big to fail.’ Canadian Finance Minister Jim Flaherty stated, “We usually have some discussion about the currencies in the world, the downward pressure on the U.S. dollar, the relative inflexibility of some of the Asian currencies, so I expect it’s going to come up.”

Canada Wants Discussion of ‘Moral Hazard’

Other sources said that currency exchange rates will be discussed only in the context of global economic recovery. Canada is expected to push for a discussion of the ‘moral hazard’ in global banking systems referring to banks that engage in risky behavior with the expectation that governments will ‘bail them out.’ Flaherty stated, “I know we’re going to have some discussion about this whole issue of financial institutions that are so-called too big to fail. We need to talk more about that. We don’t want to create moral hazard in the financial systems around the world.”

G 20 to Bring New Policies to the Table

At their September summit G 20 leaders agreed to come up with policy guidelines to ensure sustainable global economic recovery and to prevent a repeat of the current recession. On Monday rising stocks and more evidence of global recovery pout downward pressure on the US dollar and the Japanese yen which are widely seen as safe haven currencies. Throughout the current recession the US dollar has been seen as a barometer of risk appetite.

Commodity Based Currencies Benefit

The rise in US stock indexes and the rise in gold and oil prices benefited commodity linked currencies such as the Aussie, Canadian and Kiwi dollars. Currency markets are expected to be somewhat volatile due to the amount to economic data to be released this week.

Dollar Pressured by Economic Growth

The US dollar fell after data showed that the US economy grew during the third quarter for the first time in more than a year. The data spurred a rise in risk appetite putting downward pressure on the greenback. US GDP figures spurred optimism about global economic recovery prompting investors to seek out higher yielding currencies such as the Aussie and Kiwi dollars.

Better Than Expected GDP Figures

During the July to September period the US economy grew 3.5% exceeding expectations of 3.3%. Brian Dolan of Forex.com stated, “It’s definitely all about GDP. The correction that we’ve had over the last few days, some people are looking this as a buying opportunity to get back in risky trades and sell the dollar on a bounce.” In recent days disappointing data on both the US consumer and housing sectors had spurred a sharp fall in stock markets triggering demand for safe haven assets like the US dollar and the Japanese yen.

Rise in Carry Trades

Third quarter GDP figures have triggered a rise in carry trades. Michael Woolfolk of Bank of New York Mellon said, “With Q3 GDP living up to its billing this morning, players are returning to the carry trade again, driving the dollar and yen decidedly lower.” Carry trades are usually defined as selling low yielding currencies in favor of higher yielding ones in this case the sale of US dollars and yen in favor of the Aussie and Kiwi dollars.

Fewer US Unemployment Claims

On Thursday afternoon the euro gained 0.9% and traded at $1.4846. For most of the past year the euro has been a barometer for risk sentiment rising on positive economic data. Also lifting risk appetite were figures from the US showing that unemployment claims fell to the lowest in seven months. 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.”

After a slight rally last week the US dollar vs. the euro fell once again to a 14 month low on concerns that the US will keep rates low in the near future. Investors and forex traders are waiting for the results of the meeting of European finance ministers and European Central Bank officials scheduled for later in the day in Luxembourg. Forex traders will watch for comments regarding the strength of the euro which is trading just below the $1.50 level.

Replacing the Dollar

The US dollar has been pressured by investor concerns that the U.S Federal Reserve will keep interest rates to near zero well into 2010 and calls for the replacement of the greenback as a reserve currency. Marcus Hettinger of Credit Suisse in Zurich stated, “The trend clearly is for a weaker dollar due to a lack of interest rate support for the U.S. currency, the U.S. budget deficit and of reserve bank diversification flows into other currencies, like the euro.”

Finance Ministers and ECB Meet in Luxembourg

This year the euro has gained almost 7% against the dollar. Last Friday Eurogroup Chairman Jean-Claude Juncker said that a continued rise in the euro could slow Euro Zone recovery. ECB President Jean-Claude Trichet supports the US government’s policy of a strong dollar. In a note JP Morgan analysts said, “Euro area finance ministers meet today and may talk down EUR/USD, but as the decision is ultimately the ECB’s (which eschews this tactic), any down move in the currency should be brief and shallow.”

More Third Quarter Results

Equity markets are awaiting third quarter results from many US companies including giants Apple Inc. and Texas instruments. Many Forex experts believe last Friday’s dollar rally was prompted by third quarter losses by General Electric and Bank of America which triggered a rise in risk aversion benefiting the US dollar. Most currency traders did not believe the dollar’s rally was sustainable.

The US dollar pulled back from a 14 month low against the euro as global stocks fell and weak third quarter results from General Electric and Bank of America caused a rise in risk aversion. General Electric posted a 42% drop in profits and Bank of America reported a quarterly loss. Despite the fact that JP Morgan posted strong results on Wednesday expectations were dimmed by Friday’s equity market performance. 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 Falls

Traditionally when stocks decline dollar demand rises as risk appetite fades. Paul Mackel of HSBC in London stated, “Equities are looking a bit shaky and it’s the end of the week. So put the two together and the dollar is biased to the upside.” US consumer sentiment fell in October on concerns that the ‘dismal’ state of personal finances may not recover swiftly from the worst economic crisis in decades. Shaun Osborne of TD Securities in Toronto said, “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.” The Reuters/University of Michigan consumer survey said that consumer sentiment fell to 69.4 down from September’s 73.5. The dollar index which usually rises when risk appetite declines rose to 75.68.

Canadian Dollar Declines vs US Dollar

The euro vs. dollar exchange rate was down 0.5% to $1.4872 and against the Japanese yen the dollar gained 0.6% trading at 91.09 yen. After reaching near parity with the US dollar earlier in the week the Canadian dollar fell to 96.14 U.S. cents. The decline was caused by profit taking on high yielding currencies after Friday’s bad economic news.

1. Reputation

This is probably the most important consideration for any investor. A reputable forex broker will be registered with the National Futures Association and the Commodity Futures Trading Commission. Forex brokers registered with these agencies must provide transparent financial records and can be fined or terminated if the broker fails to provide these records.

2. Trading Platform

The broker should be able to provide a trading platform that is easy to understand and use. The more features available to the investor the better. Most reputable forex brokers offer demo accounts using the same trading platform used for real trades.

3. Leverage

The forex broker should be able to provide the investor with several levels of leverage. Since forex trading is volatile and high risk the broker should not pressure the investor to use excessive leverage.

4. Mini and Demo Accounts

Many forex brokers offer both demo and mini accounts for those unfamiliar with forex trading. Novice traders should use a demo account to familiarize themselves with how forex trading works before investing real money. Mini accounts offer the new forex trader the opportunity to trade without incurring huge losses. Reputable forex brokers will provide both of these services.

5. Customer Service

A good forex broker should be able to provide 24 hour customer service. The customer service should be responsive and be able to answer questions the trader may have. Forex trading hours vary depending on what currencies are traded and the volatility of forex markets make 14 hour customer service a must.

6. Initial Deposits

Most reputable forex brokers do not require huge initial deposits. Investors should be wary of any broker who requires many thousands of dollars to open an account.

7. Currency Pairs Offered

Most reputable forex brokers have an extensive selection of currency pairs to trade. Currency pairs react differently to market conditions and it is important for the new trader to have a good selection of currency pairs to choose from.

8. Transaction Execution

How swiftly does the forex broker execute orders? Does the broker offer automatic execution? Due to rapidly changing and sometimes volatile market conditions the speed with which a transaction is made can mean the difference between profit and loss.

9. Spreads

There are several questions new forex traders should ask the broker. How tight are the spreads and are they fixed or variable? Some forex brokers make their profits by spreads alone.

10. Insured Funds

New investors should ask whether their funds are insured and kept separately from the brokers operating expenses. Most reputable forex brokers have clear policies.

While this list is by no means complete it contains some of the most important characteristics new forex traders should check when selecting a forex broker.

Many have compared investing to gambling and in many ways they may be correct. Playing poker and investing have many similarities. Some kinds of day trading involve considerable risk and the forex market is extremely risky and volatile much like a game of poker. Poker is probably the most popular game of skill and it comes as no surprise to find that many poker players also trade on forex exchanges. Poker tournaments are routinely broadcast on ESPN and many poker players have become household names in the US.

Discipline and Adaptability

Poker playing and forex trading require very similar skill sets. For example poker players must be very disciplined with nerves of steel. This characteristic is also the hallmark of a successful forex trader. Poker players and forex traders are methodical and not given to emotional responses to adverse situations. Poker players and forex traders are amenable to change and the forex market is constantly changing much like the cards in a game of Texas Hold ‘Em. Both must have the ability to adapt to sudden changes and the sudden rate changes of the Fed can have the same effect as a newly dealt card.

Logic and Reason

Poker players and successful forex traders have the ability to make quick decisions based on logic and reason. Typically emotion does not play a part in the decision making process. Both must be able to withstand losses without emotional reaction. Just as poker players do not win every hand forex traders may experience sudden losses due to rapidly changing market conditions. Forex traders and poker players are resilient and have the ability to bounce back after sudden losses.

Long Term Results

Forex traders and poker players focus on long term results. Just as chips accumulate so do pips. Poker players and forex traders are usually confident people. Forex trading can easily be as volatile and ever changing as a game of poker and both require a high degree of confidence. Given these similar characteristics it would not be surprising to learn that many top poker players also trade forex!

The US dollar fell to a seven month low against the Japanese yen on Friday. Forex markets were influenced by a statement from the G 20 summit in Pittsburgh which said that the G 20 nations pledged to continue stimulus spending until a sustainable recovery from the current recession is possible. The US indicated that it would continue to keep rates at record lows for the foreseeable future. The yen was also bolstered after a statement by a former Japanese financial official said that the Japanese government was unlikely to intervene unless the dollar vs. yen rate fell below 85 yen. The dollar fell 1% and traded at 90.35 yen after falling as low as 89.97.

Pound vs Dollar at Four Month Low

The dollar performed better against other currencies most notable the pound which fell to a four month low after Bank of England Governor Mervyn King said that a weak pound would help British exports. The pound fell 0.6% against the dollar and traded at $1.5966 after falling as low as $1.5917. At the G 20 conference British Prime Minister Gordon Brown said that currency exchange rate imbalances were just one of many key issues facing the global economy.

G 20 Nations to Keep Stimulus Programs in Place

Most economic data was overshadowed by the G 20 nations promising to maintain emergency economic supports and programs in place to deal with the global recession. Currency strategists believe that the G 20 pledge means that interest rates will remain low for some time. Omer Esiner of Travelex Global Business Payments stated, “In the near term, it favors continued momentum selling of the U.S. dollar.” Eisner also suggested that in the future that attention would shift back to improvements in major economies and that could possible be dollar positive if the US economy outperforms its rivals.

Last week forex markets were dominated by the Fed meeting and the ongoing G 20 summit. Monday’s trading should be very interesting.

The euro which recently has been a barometer of risk appetite fell after a decline in stocks after the US Federal Reserve said it would keep rates low for the foreseeable future. The euro vs. dollar rate fell 0.3% to $1.4744, after hitting an intraday low of $1.4731. The US dollar remains weaker against a basket of major currencies as risk sentiment rises. Sal Guatieri of BMO Capital Markets stated, “The U.S. dollar is generally weaker against everything. Bond markets are up, equity markets are up. The Fed will keep the monetary pumps at full throttle for another few months. Markets are rejoicing — all markets except the U.S. dollar.”

Fed to Slow Mortgage Backed Securities Program

The Fed said the US economy was in recovery and that it will slow the purchases of mortgage backed securities but will continue the purchase program until the end of March 2010. Many experts expect the dollar selling trend to continue after the Fed meeting. Michael Woolfolk of BNY Mellon stated, “And now that the risk of the Fed meeting has passed, people are comfortable returning to the trend of selling the dollar. That’s the bottom line.”

New Zealand Dollar at 13 Month High

The Kiwi dollar hit a 13 month high vs. the greenback after better than expected data that showed the New Zealand economy pulling out of the recession during the second quarter. The Kiwi rose over a penny to $0.7315. The Canadian dollar which has been weaker vs. the US dollar rose to 93.78 cents. Japanese trading was light as Japanese financial markets closed for a holiday and will reopen Thursday. The dollar index, or DXY, fell 0.27 percent to 75.913 the lowest since last September. The dollar index has declined 2.5% this month due to rising investor confidence in a global recovery.

G 20 Ahead

The G 20 summit looms ahead and will surely affect currency exchange rates. The G 20 is expected to call for a continuation of stimulus programs boosting demand for higher yielding and riskier assets. Clifford Bennett of Kinetic Securities stated, “The G20 is the fly in the ointment. We need to clear that, which has some risk of strong dollar rhetoric emerging. (The) overall down-trend in the U.S. dollar is likely to persist however.”