Forex Investment and Currency Trading

USD
The more benign risk environment led to some stabilization in the USD towards the end of the week, but further deterioration in US economic data underscored the recessionary forces that are building in the economy. The broad USD index continues to trade just off recent lows and the argument for further US strength is hardly compelling. ISM Manufacturing, Non-farm Payrolls and Bernanke’s testimony to the Joint economics committee will be important drivers for the dollar in the week ahead and should be watched carefully.

EUR/USD
EUR/USD has continued its move higher this morning after its biggest one week gain since 2006. Trichet and other ECB members continue to reiterate their commitment to price stability and have expressed concerns about persistent inflationary pressures. As expectations for Euro area and US rate expectations diverge expect the pair to trend higher. EUR/USD is currently trading exactly as 2-year swap spreads would predict.

GBP/USD
GBP/USD shed a significant portion of its gains last week with soft economic data and dovish comments from the Bank of England on the rate outlook. The pound fell not only against the USD but also against the EUR. EUR/GBP touched an all time high and the GBP trade weighted index fell to its lowest level since 1997. Watch for GBP to trade lower through the rest of the week.

USD/JPY
USD/JPY is trending lower this morning as the ebb and flow of investor risk perception remains a dominant theme in FX markets. Risky assets regained prominence as Asian equity markets posted their largest weekly gain this year last week. However, with mixed equity performance in Europe and US futures pointing towards a negative US open USD/JPY has slid marginally lower.

AUD/USD
A decline in stocks to end last week began a period of AUD weakness that ran through the weekend. Asian equities are also lower this morning, putting additional pressure on the Australian dollar. Private sector credit growth is softer than expected in the region and new home sales declined. AUD is set for a monthly loss as concerns that the US’ economic downturn has bled into the economy.The RBA meets early tomorrow Australia time and should keep rates on hold.

Upcoming Data: RBA Cash Target

NZD/USD
NZD is set to end three months of gains as economic data out of the region indicates a quickly shifting economy. Business confidence in New Zealand fell to a 17-year low in March. Building permits also fell by 6.5%. With the Australian economy slowing as well, the New Zealand dollar should remain under pressure.

USD/CAD
The Canadian dollar continues to weaken against USD this morning. The move appears to be motivated by position squaring for month end, however a retreat in oil prices may be partly responsible. CAD was the worst performer among G10 currencies over the past two weeks. Canada’s macroeconomic backdrop continues to weigh on its currency and further CAD weakness is expected with headline/data surprises being the major movers in the near-term

Commodities Update
Oil is under pressure this morning as volatile financial markets are forcing traders to close out more liquid positions to meet margin calls. Oil supply has also increased, and the higher price is slowly lowering demand. This should allow oil prices to begin to come off. Gold, conversely, has made gains as global stocks head for the worst quarter since 2002, making precious metals a more attractive investment. A continual slide in equity markets should lend further support for metals.