Forex Investment and Currency Trading

The USD has largely held its gains from yesterday, with AUD, NOK, and ZAR performing particularly poorly on the commodity sell-off ; gold closed yesterday below its 55-day moving average for the first time since Aug. 23, when the financial stress began to build, and the CRB is down about 12% from February highs.  Short-term US yields have plunged on flight to quality, the 3 month T-bill near a 50 year low; but reduced inflation expectations from the Fed’s rate cut of only 75 bps, not 100 bps as expected, caused curve flattening in 2’s-10s and lifted 12 month Fed Funds futures expectations from 1.6% to 1.85% in the past 2 days, helping the USD vs. G10 currencies.  Still, most commodity currency weakness from the Fed’s impact on commodity prices is expected to fade.  And more Euro/dollar upside may be in the cards given divergent priorities of the Fed, growth over inflation, compared with the ECB, inflation over growth.