EUR USD JPY

First what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.

The Forex, or foreign currency exchange, is all about money. Money from all over the world is bought, sold and traded. On the Forex, anyone can buy and sell currency and with possibly come out ahead in the end. When dealing with the foreign currency exchange, it is possible to buy the currency of one country, sell it and make a profit. For example, a broker might buy a Japanese yen when the yen to dollar ratio increases, then sell the yens and buy back American dollars for a profit.

Prices of currency are influenced by a number of factors such as political and economic conditions in the issuing country. Interest rates, inflation and political stability are all factors in the prices of a currency. Governments try to control their currency prices by lowering the price (flooding the market), or by raising the price and buying on a large-scale. Although the volume of Forex is sizable, it’s still impossible to have any control of a market for any length time and because market forces normally prevail in the long run, Forex has become one of the fairest investment opportunities available.

Each currency in the Forex market is given its own three letter code that is used in the Forex quotes. The most common and widely used currencies used in the Forex market are USD (U.S. dollars), GBP (United Kingdom pounds), JPY (Japanese yen), CAD (Canadian dollars), EUR (European euros), AUD (Australian dollars) and CHF (Swiss francs). These currencies are the top foreign currencies to watch in the Forex trading game. The prices of the foreign currency exchanges are specified in pairs by the forex quotes. By using a currency pair of U.S. dollars and European euros in the example below, the first currency is called the base (which is always at 1) and the second currency is called the quote (which shows how much it costs to buy one unit of the USD, or base currency):
USD/EUR = 0.8419. When reversed, this is the cost of USD to buy one euro: EUR/USD = 1.1882.

The base currency is growing stronger when the price of the quote currency goes up, therefore only one unit of the base currency can buy more of the quote currency. However, if the quote currency begins to fall then the base currency will become weaker. All forex quotes are perceived as a “ask” or a “bid” price. The ask price is what sellers will sell the base currency at, while at the same time be buying the quote currency. The bid price is what the buyers will pay for the base currency, also while selling the quote currency. For example, a symbol bid ask of:USD/CAD 1.2392 1.2397. This shows that you can buy one U.S. dollar for 1.2397 Canadian dollars, or you can also sell one U.S. dollar for 1.2392 Canadian dollars. You can find the exchange rates in cross country charts that list numerous types of currencies with their values against one another. There are also currency conversion calculators, all of which are readily available online.

Along with the U.S. dollar, United Kingdom pound, Japanese yen, Canadian dollars, European euros, Australian dollars and Swiss francs as some of the top currencies to watch in the forex trading game; some new currencies have been emerging. Be sure to keep an eye out on these emerging currencies: CNY (China yuan), CZK (Czech koruna), HKD (Hong Kong dollar), HUF (Hungarian Forint), INR (Indian Rupee), KRW (Korean Won), MXN (Mexican Peso), PLN (Polish Zloty), SGD (Singapore dollar), ZAR (South African Rand), and THB (Thai Baht). These currencies may not be one of the top currencies now, but they can make for some good investments. Taking two examples out of all of the emerging currencies:

The Czech koruna is a convertible, yet free floating currency that has been floating around since May 1997. All foreign investors have unrestricted access to these local markets. London banks continue to be very active in currency trading and accounts for nearly 60% of the daily turnover. This market is liquid for about five years. The Interest Rate Swaps, or the IRS, is mainly driven by offshore banks.

The China yuan is only limited to financial institutions and onshore companies and is not liquid. Currently the USD/CNY rate is about 8.2770 and is being closely managed by the central bank (PBOC). The Chinese government has resisted all calls for them to revalue their currency; but as the Chinese government continues to strengthen their banking systems and make reforms in their economic policies, there is likely to be a possible call for opening spot trading. The interbank money market does not go beyond four months.

Knowing the top currencies to watch in Forex trading will get you in the game.

How to Find BEST Currencies to Trade

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Any Forex Trading System will do BEST if traded on the currency pairs that are most trending or are most likely to go into counter trend mode. Trading choppy, sideways range bound currencies is not only a waste of time but is usually guaranteed to lose you money.

We use the popular Total Strength indicator which measures statistical trend intensity of every currency vs every other one.

Thus if the Euro, EUR is going up against the USD, JPY, GBP, CHF, CAD, AUD, NZD then it has 100% breadth and is extremely strong.

Now the fun part! How you can make money when you know the strongest trending currency or currencies.

You want to find the STRONGEST currency and the WEAKEST. You want to buy the STRONGEST currency vs the WEAKEST on pullbacks or 1 to 2 hour sideways narrow range consolidation breakouts. When the weakest currency is the top currency you sell it against the STRONGEST currency or currencies.

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Summary: Half the battle of trading is being in the most trending currencies. Analyzing the cross currency strength and trading the most strong currency vs most weak makes Forex trading easier.

Examples:

If EUR is strongest and JPY weakest you then buy the EUR/JPY

If GBP is strongest and CHF weakest you then buy the GBP/CHF

If the AUD is weakest and USD strongest you sell the AUD/USD

If the USD is weakest and CHF strongest you sell the USD/CHF

Most professional traders also use many other commonly available tools such as moving averages, Fibonacci Levels and Support & Resistance zones to more closely pinpoint likely lows and highs for ideal entries.

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Price Quotes: Base Currency / Quote Currency

All transactions are based in pairs, buying one and selling another. The first currency quoted is called the base currency, while the second one quoted is called the quote currency. As an example, here is a typical currency quote: EUR/USD 1.5280

In this example, the base currency (EUR) is the Euro Dollar and the quote currency (USD) is the US Dollar.

So, using this example (if you were buying), the quote of 1.5280 means that you would have to pay 1.5820 US Dollars to buy 1 Euro Dollar. Conversely, if you were selling, you would receive 1.5280 US Dollars for each Euro Dollar you sold.

Spread

This is also called the bid/ask spread. This is the price difference between what a currency pair is being bought and sold forÖor a difference between the bid and offer price.

The bid is the price at which the Forex market maker is willing to buy the base currency in exchange for the counter currency. On the other hand, the ask price is the price at which the Forex market maker is willing to sell the base currency in exchange for the counter currency.

Remember that all trades involve the simultaneous purchase of one currency and the sale of another.

Spreads will vary from pairings to pairings. This spread is where your broker will make their money. Every time you make a trade, they make the spread. This is why they charge no commission ñ because there is no need for it.

Depending on the broker and the pairings, you will find spreads from as little as 1-3 pips — the smaller the spread, the better off you will be.

For example, a broker may have a 2 pip spread for the EUR/USD pairing, which means that a typical bid/ask quote would look something like this: Bid: 1.5280 Ask: 1.5282

Using that example, if you were to buy, you would be buying at 1.5282 and if you were to sell, you would be selling at 1.5280

When you buy a pair, you have the expectation that the base currency will do better than the quote currency. For example, let’s assume that we have done our homework using our technical and fundamental analysis and feel that the US economy is headed for a recession and that the Euro Dollar is going to gain value over the US Dollar. We see the quote: EUR/USD – Bid: 1.5280 Ask: 1.5282 We are confident about our analysis so we buy (at 1.5282) and watch the trade take place. We get news that the US Fed chairman has made some public statements that he is worried about the US economy and could be headed towards a slight recession. We look again and the quote is now: EUR/USD – Bid: 1.5300 Ask: 1. 5302 and decide we are going to take our profits and sell our Euros, now receiving 1.5300 Euros, making a profit of 18 pips on that trade.

This is a much simplified example, but it should give you an idea about the spreads and quotes.

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Short for Foreign (currency) Exchange, Forex is the world’s biggest market for trading in currencies. As much as 2 trillion US dollars worth of currency are traded on the Forex on a daily basis. Compare this with the approximately 25 million US dollars traded on the NYSE and you’ll get the picture – Forex is huge.

So what is Forex all about? Simply put, Forex entails buying one currency, let’s say Turkish Lira, and selling another, say US Dollars. In Forex, currencies are always traded and quoted in pairs. The exchange is made through a broker.

Just like the stock market where you are investing in a company, with Forex you are in a way investing in a country. If your company is a success, the value of your stock goes up. Much the same principle is at work in Forex. If the economy of the country whose currency you are trading is robust, the value of that currency will also go up – and you can then sell it for a profit.

Unlike stock markets, there is no “trading pit” in the world of Forex. Forex operates through the internet and other electronic communications and runs 24 hours a day, 5 days a week.

It has only been in the last several years that the Forex has been open to the average person to invest in. The Forex market itself has been around since 1971, but for most of its history only large companies and a few very wealthy individuals possessed the resources to be able to trade in foreign currency. Today however, anyone with a high speed internet connection and a small initial investment (as low as 50 US dollars) can get in on the Forex market.

The seven most commonly traded currencies on the Forex market are U.S. Dollars (USD), Euros (EUR), Japanese Yen (JPY), UK Pounds (GBP), Swiss Francs (CHF), Canadian Dollars (CAD) and Australian Dollars (AUD). Foreign currencies are identified by means of a three letter code. The first two letters stand for the country, while the last letter identifies the nation in question’s currency.

For example:-

USD: U.S. = United States, D = Dollars.

GBP: GB = United Kingdom (Great Britain), P = Pounds.

At any given time, business is going on somewhere in the world. Global business never sleeps, and neither does Forex. This can be beneficial to you – you can trade on the Forex market any time that is convenient to you.

There are seven currencies on the Forex which are called Major Currencies, due to their being the most heavily traded currencies on the market. The biggest four are, in order: U.S. Dollars (USD), Euros (EUR), Japanese Yen (JPY), and UK Pounds (GBP). The remaining three are Swiss Francs (CHF), Canadian Dollars (CAD) and Australian Dollars (AUD).

Advantages Of Forex Trading

There are a few advantages which the Forex trader enjoys which those who trade in the stock market do not.

1.Unlike with stock brokers, the investor does not pay commissions, per se, to the broker. Instead, the dealers in Forex trading receive part of the “spread” (that is to say, the difference) between the buying and selling price of currency. This is generally a very small amount per trade; a fraction of a percent.

2.You can trade on the Forex market any time which is convenient for you, unlike the stock market – it is closed only on weekends, from 5pm Eastern time on Fridays to 12AM on Mondays.

3.As opposed to the stock market, it is nearly impossible for companies or individual investors to manipulate the Forex market. The volume of Forex trading each and every day prevents any one actor from having undue influence. We all know of instances of the stock market being artificially influenced by unscrupulous persons and companies however.

4.Forex trading can be done with borrowed capital, meaning that you need not have hundreds of thousands in liquid assets to trade currency in large numbers. This concept is called Margin Trading. A small amount of your own capital (less than 5 percent) can be used to leverage a large chunk of borrowed assets, which may then be invested. Forex is traded in what is called lots, the normal size of a lot being 100,000 US dollars. Depending on the dealer with whom you deal you may be able to trade is smaller amounts, these are known as mini-lots or micro-lots.

The word forex is derived from the words Foreign Exchange and is the largest financial market in the world. Unlike many markets the forex market is open 24 hours per day and has an estimated $1.2 Trillion in turnover every day. This tremendous turnover is more than the combined turnover of the main worlds’ stock markets on any given day. This tends to lead to a very liquid market and thus a desirable market to trade.

Unlike many other securities (any financial instrument that can be traded) the forex market does not have a fixed exchange. It is primarily traded through banks, brokers, dealers, financial institutions and private individuals.

Trades are executed through phone and increasingly through the Internet. It is only in the last few years that the smaller investor has been able to gain access to this market. Previously the large amounts of deposits required precluded the smaller investors. With the advent of the Internet and growing competition it is now easily within the reach of most investors.

Reading a foreign exchange quote may seem a bit confusing at first. However, it’s really quite simple if you remember two things: 1) The first currency listed first is the base currency and 2) the value of the base currency is always 1.

The US dollar is the centerpiece of the Forex market and is normally considered the ‘base’ currency for quotes. In the “Majors”, this includes USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of $1 USD per the second currency quoted in the pair. For example, a quote of USD/JPY 120.01 means that one U.S. dollar is equal to 120.01 Japanese yen.

When the U.S. dollar is the base unit and a currency quote goes up, it means the dollar has appreciated in value and the other currency has weakened. If the USD/JPY quote we previously mentioned increases to 123.01, the dollar is stronger because it will now buy more yen than before.

The three exceptions to this rule are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR). In these cases, you might see a quote such as GBP/USD 1.4366, meaning that one British pound equals 1.4366 U.S. dollars.

In these three currency pairs, where the U.S. dollar is not the base rate, a rising quote means a weakening dollar, as it now takes more U.S. dollars to equal one pound, euro or Australian dollar.

In other words, if a currency quote goes higher, that increases the value of the base currency. A lower quote means the base currency is weakening.

Currency pairs that do not involve the U.S. dollar are called cross currencies, but the premise is the same. For example, a quote of EUR/JPY 127.95 signifies that one Euro is equal to 127.95 Japanese yen.

When trading forex you will often see a two-sided quote, consisting of a ‘bid’ and ‘offer’. The ‘bid’ is the price at which you can sell the base currency (at the same time buying the counter currency). The ‘ask’ is the price at which you can buy the base currency (at the same time selling the counter currency).

The currency market or Forex (Foreign exchange) is the market where you can buy and sell currencies in real time in order to benefit from changes in currency exchange rates. Unlike other financial markets where you buy an asset in the hope that it appreciates on the Forex you are buying one currency against another currency in the hope that the first shall be compared to the second but you can also sell one currency against another currency in the hope that it will depreciate relative to the second.

On the Forex, we have said, you buy or sell one currency against another currency. Indeed, the value of a currency can not be assessed in relation to that of another currency and that is why you invest in a currency pair and not a single currency.

For example:
You want to invest on the dollar because you think it is currently very low against the euro and should be strengthened in the long term. You will then take a position for sale on the EUR / USD (Euro / Dollar). In this case, you sell the euro against the dollar, well you invest in a reduction of the euro against the dollar which is the same that a rising dollar against the euro.

The Forex market is easily accessible although still little known to French investors. Long regarded as a market reserved for the most wealthy traders and professionals, it democratizes past several years especially with the arrival of broadband Internet and free trading platforms latest generation. Individuals now have a secure and efficient access to the currency market. Similar to small rooms market both in quality and performance information, the platform monitors market developments in real time and to place orders directly from home. Many professional tools such as charts, studies, technical indicators, chat, information en continu … are also available.

Along with the quality of investment tools, the interest of the foreign exchange market, also known as Forex, is also mainly in the characteristics of its own: a very low initial investment with the possibility of opening a mini account from 1 000 The absence of committees generally weigh on profits made, the continuous opening 24H/24 brings a lot of flexibility and transparency to the market but also highly leveraged proposed to take positions whose value is much greater than your account, for those willing to take a risk in proportion. Of course, it is not necessarily obvious to a newcomer to invest for the first time on a new financial product. However, the simplicity of this market, which requires a minimum of basic knowledge.

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Forex or Foreign Currency Exchange Trading has become more and more popular among the investors in the recent years. There are few reasons why many investors choose forex trading over other type of investment opportunities.

Unlimited Earning Potential

Everyday nearly $ 2 trillion in different currencies traded in the forex market. This has made the Forex market by far the biggest and the most liquid financial market in the world. Due to the size of the transaction volume it’s very hard to manipulate the market and your earning potential is unlimited. As such investing in Forex is one of the most stable financial businesses.

Forex Market Never Sleeps

Forex Trading can be done any time of the day, day or night as the Forex market is a 24 hour market place. This is because the banking organizations are always open to customers in the varying time zones all over the world. This is desirable for many people who are looking for an opportunity to do during their spare time since most of them have their day jobs and they only can do their forex trading on part time basis from their home during the evening.

Transparency

The Forex markets are highly transparent where anyone can search for forex information such as real-time news and analysis online with a click. With this real-time information a Forex investor/trader can do their own analysis such as risk management strategy to avoid unexpected “suprises”.

Low Initial Investment

A trader can participate in forex trading with a small account size (as low as $300.00). This is very good for newbie investors as some may want to “test market” with a small amount of capital.

No commission and exchange fees

No commission or transaction fee incurs in forex trading. Most brokers offer commission free trading. The only cost a forex trader has to pay in taking on a position is spread. The spread is the difference between the bid price (the price you sell at) and the ask price (the price you buy at). It’s quoted in pips (1/100 of one percent). In some transaction, it could be as low as 1 pips for some pairs.

Leverage

If you invest in stocks market the amount of stock you can traded is limited by how much the capital fund (ie money) you have. This is not the case in forex trading. In forex trading, traders are permitted to trade foreign currencies on a highly leveraged basis – up to 100 times their investment. For example, you only need about $100 to trade $10,000 of a currency for a margin lending ratio of 100:1.  An average forex trader with a small trading account, says under $10,000 will be profit sufficiently from the movement of the currency exchange rate.

Profit in both rising and falling markets

In share market, an investor can only profit if the stock price goes up. When the stock price fall, the investor can either keep the stock hoping that the price will bounce back again in a later date or sell it off at loss. However in forex trading, traders can profit from both bull (rising) and bear (falling) markets. As forex trading involves selling one currency and buying another currency when you buy a particular currency, you are actually simultaneously selling the other currency in that particular pair. As the market moves, one of the currencies will increase in value versus the other- there is an equal opportunity for profit whether a market is rising or falling

Conclusion

With the above benefits, I believed that you are convinced that Foreign Currency trading is the best investment and income opportunity around. You do not need to be a rocket scientist, nor need a Degree or Diploma to trade in the forex market. Many of the forex traders have no financial knowledge before they involved in the forex trading business. However you need a proper training to guide you to become a success forex trader.

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What is the Forex market?

Forex is the foreign exchange market, where currencies from all over the world are traded. Trading the Forex market involves buying and selling of different currencies. It is the worldís largest financial market, with approximately $3 trillion traded each trading day.

How does Forex trading work?

The Forex market consists of buying one currency while selling another. In other words, they are traded in pairs. Done electronically, you will be trading between to counterparts, with a Forex broker in the middle (being paid via the spread between the bid and ask.) Trading in the Forex market takes place literally 24 hours a day, beginning at 5:00pm EST Sunday and ending on 4:00pm EST Friday. Traders from around the world, at any time within these 5 days can make trades.

How much risk is involved in trading the Forex market?

As with any financial instrument (stocks, bonds, futures, mutual funds, etc.) there is a risk in trading these markets. The key to trading is proper education, a good trading plan (and system), and strict money management rules. Utilizing a combination of these components, trading the Forex market can be very rewarding.

What are the major currency trading pairs?

There are quite a few currency pairings available to trade on the Forex market. Some, however, are much better suited for traders than others. The most well known currencies traded are: United States Dollar (USD), Australian Dollar, Japanese Yen, British Pound, Swiss Francs, Canadian Dollar, and the Euro Dollar. The most common pairings (often called the Big Six) are: the Euro Dollar vs. the US Dollar (EUR/USD), the British Pound vs. the US Dollar (GBP/USD), the Australian Dollar vs. the US Dollar (AUD/USD), the US Dollar vs. the Japanese Yen (USD/JPY), the US Dollar vs. the Swiss Franc (USD/CHF), and the US Dollar vs. the Canadian Dollar (USD/CAD).

What do I need to start trading the Forex market?

First, education is the most important thing needed before you being to trade the Forex market. You will also need a high speed internet connection and a funded Forex account. You should also create a Demo trading account, where you can learn how the Forex trades and test your skills (and system), while not risking any real money. Most brokers will allow you to trade a demo account for at least a month before you get started with live trading. Another key ingredient you will need is a trading plan. Your trading plan contains your goals (short term and long term), your trading system (what you will trade and what your rules are for entering and exiting a trade), and your money management rules. Successful traders will have their trading plan in place well ahead of making any live trades.

There are lots of questions you may have before you being to trade the Forex market. Spend some time with your favorite search engine learning about this market. You can also join a few free online trading forums and learn quite a bit by reading and making posts about the Forex market.

Asking questions and becoming as educated as you can about this market is vital in creating a solid base for your success in your trading career.

Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework.

If you think of the financial markets as a big clock, the fundamentals are the gears and springs that move the hands around the face. Anyone walking down the street can look at this clock and tell you what time it is now, but the fundamentalist can tell you how it came to be this time and more importantly, what time (or more precisely, what price) it will be in the future.

Interest Rates: Fed Funds Rate: Clearly the most important interest rate. It is the rate that depositary institutions charge each other for overnight loans. The Fed announces changes in the Fed Funds rate when it wishes to send clear monetary policy signals. These announcements normally have large impact on all stock, bond and currency markets.

Discount Rate: The interest rate at which the Fed charges commercial banks for emergency liquidity purposes. Although this is more of a symbolic rate, changes in it imply clear policy signals. The Discount Rate is almost always less than the Fed Funds Rate.

30-year Treasury Bond: The 30-year US Treasury Bond, also known as the long bond, or bellwether treasury. It is the most important indicator of markets’ expectations on inflation. Markets most commonly use the yield (rather than price) when referring to the level of the bond. As in all bonds, the yield on the 30-year treasury is inversely related to the price. There is no clear-cut relation between the long bond and the US dollar. But the following relation usually holds: A fall in the value of the bond (rise in the yield) due to inflationary concerns may pressure the dollar. These concerns could arise from strong economic data.

Depending on the stage of the economic cycle, strong economic data could have varying impacts on the dollar. In an environment where inflation is not a threat, strong economic data may boost the dollar. But at times when the threat of inflation (higher interest rates) is most urgent, strong data normally hurt the dollar, by means of the resulting sell-off in bonds.

Nonetheless, as the supply of 30-year bonds began to shrink following the US Treasury’s refunding operations (buy back its debt), the 30-year bond’s role as a benchmark had gradually given way to its 10-year counterpart.

Being a benchmark asset-class, the long bond is normally impacted by shifting capital flows triggered by global considerations. Financial/political turmoil in emerging markets could be a possible booster for US treasuries due to their safe nature, thereby, helping the dollar.

3-month Eurodollar Deposits: The interest rate on 3-month dollar-denominated deposits held in banks outside the US. It serves as a valuable benchmark for determining interest rate differentials to help estimate exchange rates. To illustrate USD/JPY as a theoretical example, the greater the interest rate differential in favor of the eurodollar against the euroyen deposit, the more likely USD/JPY will receive a boost. Sometimes, this relation does not hold due to the confluence of other factors.

10-year Treasury Note: Forex markets usually refer to the 10-year note when comparing its yield with that on similar bonds overseas, namely the Euro (German 10-year bund), Japan (10-year JGB) and the UK (10-year gilt). The spread differential (difference in yields) between the yield on 10-year US Treasury note and that on non US bonds, impacts the exchange rate. A higher US yield usually benefits the US dollar against foreign currencies.

Federal Reserve Bank (Fed): The U.S Central Bank has full independence in setting monetary policy to achieve maximum non-inflationary growth. The Fed’s chief policy signals are: open market operations, the Discount Rate and the Fed Funds rate.

Federal Open Market Committee (FOMC): The FOMC is responsible for making decisions on monetary policy, including the crucial interest rate announcements it makes 8 times a year. The 12-member committee is made up of 7 members of the Board of Governors; the president of the Federal Reserve Bank of New York; while the remaining four seats carry one-year term each, in a rotating selection of the presidents of the 11 other Reserve Banks.

Treasury: The US Treasury is responsible for issuing government debt and for making decisions on the fiscal budget. The Treasury has no say in monetary policy, but its statements on the dollar have an major influence on the currency.

Economic Data: The most important economic data items released in the US are: labor report (payrolls, unemployment rate and average hourly earnings), CPI, PPI, GDP, international trade, ECI, NAPM, productivity, industrial production, housing starts, housing permits and consumer confidence.

Stock Market: The three major stock indices are the Dow Jones Industrials Index (Dow), S&P 500, and NASDAQ. The Dow is the most influential index on the dollar. Since the mid-1990s, the index has shown a strong positive correlation with the greenback as foreign investors purchased US equities. Three major forces affect the Dow: 1) Corporate earnings, forecast and actual; 2) Interest rate expectations and; 3) Global considerations. Consequently, these factors channel their way through the dollar

Cross Rate Effect: The dollar’s value against one currency is sometimes impacted by another currency pair (exchange rate) that may not involve the dollar. To illustrate, a sharp rise in the yen against the euro (falling EUR/JPY) could cause a general decline in the euro, including a fall in EUR/USD.

Fed Funds Rate Futures Contract: Interest rate expectations can be made through the Fed Funds rate in the futures market. The contract’s value shows what the Fed Funds interest rate (overnight rate) is expected to be in the future, depending on the maturity of the contract.

Hence, the contract is a valuable barometer of market expectation vis-a-vis Federal Reserve policy. The rate is obtained by substracting the contract’s value from 100, and comparing the result to the prevailing Fed Funds rate in the cash/spot market.

3-month Eurodollar Futures Contract: While the Fed Funds futures contract reflects Fed Funds rate expectations into the future, the 3-month Eurodollar contract does the same for the interest rate on 3-month eurodollar deposits.

To illustrate, the difference between futures contracts on the 3-month eurodollar and euroyen deposits is an essential variable in determining USD/JPY expectations.