Forex Investment and Currency Trading

Swimming in deep liquidity
Liquidity in EUR/USD is unmatched by other major currency pairs. This is most evident in the narrower trading spreads regularly available in EUR/USD. Normal market spreads are typically around 2 to 3 pips versus 3 to 5 pips in other major currency pairs.
In terms of concrete numbers, EUR/USD accounted for 28 percent of global daily trading volume, according to the 2004 Bank for International Settlements (BIS) survey of the foreign exchange markets. That’s more than one and a half times the volume of the net most liquid currency pair (USD/JPY).
Liquidity in EUR/USD is based on a variety [...]

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EUR/USD is by far the most actively traded currency pair in the global forex market. Everyone trades EUR/USD. This will come as no surprise to anyone who has traded in the forex market, because if you have, more likely than not you traded EUR/USD at some point.
The same goes for the big banks. Every major trading desk has at least one, and probably several, EUR/USD traders. This is in contrast to less liquid currency pairs such as GBP/USD or AUD/USD, for which trading desks may not have a dedicated trader. All those EUR/USD traders add up to vast amounts of [...]

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Rates markets swung back and forth on prospects for the Treasury’s Troubled Asset Relief Plan (TARP) working its way through Congress. Financial stress remains high. Money market mutual fund withdrawals drove Treasury bills to record low yields earlier this week but yields have begun to normalize as withdrawals stabilize and the Treasury provides more supply through its supplementary financing operations. Bill yields are likely to continue to normalize, especially once we make it through quarter-end next week.
The Fed has vastly expanded its balance sheet over the past two weeks, adding $5.6bn of agency discount notes, $15.8bn of discount window loans, [...]

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The USD index lost ground over the course of last week, as the value of the greenback continues to “recouple” with the weak state of the US economy. Indeed, the Chicago Fed’s National Activity Index fell to -1.59 in August, a new low for the cycle and the weakest
monthly reading since September 2001. Near-term support is provided by the 55-day moving average (75.95).
Similarly, EUR/USD has strengthened. The forecast is for a weakening EUR/USD in 2009 after a rebound to 1.5200 by end-2008. Strong resistance is seen in the area of 1.4950 (55-day moving average) to 1.4960 (50% retracement of the July [...]

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