The US Department of Commerce released its figures for retail sales Wednesday morning, and the negligible change from the previous month hit investor confidence in the dollar.
Wednesday, August 13, 2014
The 0.5% change in retail trade from June to July was the weakest in half a year, leading many to believe the Federal Reserve will continue to stick with its current policies supporting the economy and keeping interest rates low.
Lower interest rates, of course, reduce investor demand for dollar-denominated bonds, so the forex market turned away from the dollar this morning. The primary reason for July's flat sales number was a reduction in car purchases, which fell 0.2%.
According to a report from Bloomberg, many of the globe's major currencies declined, led by the British pound, the Japanese yen and the US dollar. The central banks in all three of these major economies have pointed to weak economic conditions and the need for continuing supportive policy.
"The number was weaker than expected," Sireen Harajli, a Mizuho Bank strategist, told the newswire service. "This data doesn't paint a picture of robust consumer spending at this point, so this why we're seeing this kind of reaction in the market."
On the rising side of the scale, the Australian dollar performed well, buoyed by consumer confidence in China, its largest trading partner. Emerging-market currencies like the Brazilian real also gained, which typically indicates investors seeking higher returns from riskier but more rewarding economies.
Forex markets and binary options
The complexity of forex markets can't be understated - for instance, even as the dollar fell today, it still held strength against the British pound and the Japanese yen, which fell even further. The euro did better still, and the Australian dollar outperformed all four currencies.
Traditional forex trading can be a risky affair, particularly when margined positions and high leverage come into play. Nadex's exchange-traded binary options allow a different approach, giving traders the ability to take a position on the relative value of a currency pair at a fixed future date.
If the currency pair stands above that exchange rate on the given date and time, it will pay out in full at $100; if it finishes at the exchange rate it does not pay out because it is not “greater than”. Thus, a forex binary option holder always knows their fixed downside risk should a trade go against them.
Given how important central bank policy is in today's markets, and how tightly currency trends are tied to the announcements of those policies, investors may benefit from using Nadex binary options to hedge their portfolios against particular currency risks.
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