Forex Investment and Currency Trading

FX Update
Initial Jobless Claims (Survey: 366, Actual: 407)
Continuing Claims (Survey: 2860, Actual: 2937)
ISM Non-Manf. Composite (Survey: 48.5)

Upcoming Data releases: Nonfarm Payrolls, Unemployment

USD
The broad USD has staged a recovery over the course of the past few trading sessions. The DXY USD index has climbed 1.7% since the beginning of trading on Monday. Today’s jobless claims print came in well above consensus but only had a muted effect on FX markets. The market will remain keenly focused on tomorrow’s nonfarm payroll report as a better indication of the stat of the US labor market.

EUR/USD

The Euro has come off significantly this morning on poor economic data and further write-downs from European banks. Euro area retail sales came in well below expectations at -0.5% versus consensus estimates of +0.2%. This is the fourth decline in retail sales in the past five months. Additionally, Bayerische Landesbank reported 4.3Bn euros in write-downs from the collapse of the subprime-mortgage assets. Watch for EUR to trend lower through the day.  

GBP/USD

Sterling has traded relatively flat since yesterday’s session. PMI services came in softer than expected but was not enough to spur a serious move in GBP/USD. Sterling has been supported by rhetoric from BoE members who have pointed out that even though there is a significant risk to growth it will be difficult for the bank to cut rates. The BoC continues to emphasize the outsized risks for further inflation as its primary concern.

USD/JPY

JPY weakeness has persisted this morning on the back of increased risk appetite. As long as the European stock market weakness is seen as a localized event, then the recent rebound in risk appetite is unlikely to be affected. Market forecasts that this trend will continue to drive JPY weakness in the near to medium term. Watch US equity markets to see if risk appetite holds up in given bernanke’s recent comments on the possibility of a recession.

AUD/USD

AUD/USD rose overnight, but has fallen rather dramatically in early New York trading. European stock market weakness has translated into high-yielding currency depreciation. Broad-dollar strength has been the primary driver of FX early this morning, particularly among the high yielding currencies. The rally in USD has continued in spite of a rather ominous acknowledgement by Fed Chairman Bernanke that the US faces potentially recessionary conditions. Poor US jobless claims numbers should keep pressure on the high yielding currencies today.

NZD/USD

NZD/USD has again tracked AUD/USD rather closely overnight. The surprisingly strong dollar and increase in risk aversion have been the key contributors. ISM non-manufacturing data should help provide some direction for NZD/USD, as the data will provide a better indication of tomorrow’s change in payrolls. Riskier currencies should take a hit as US jobless claims increase economic anxiety.

USD/CAD 
 

CAD is stronger this morning, particularly against European and high yielding currencies. North American currency strength seems to be stemming from the renewed confidence in the US’ ability to skirt a major economic meltdown even in spite of high jobless claims. This will translate into a stronger Canadian export market. Continue to look towards US and Canada payrolls this Friday for a major indication of USD/CAD directionality in the near-term.

Commodities Update
Oil prices have slipped this morning on the belief that the US has increased crude reserves in fear of a recession. Stockpiles are 9.1% above their five-year seasonal average. Gold prices are also lower as the dollar continues to gain strength. Other precious metals have followed suit. While over the longer-term, gold strength is likely, near-term dollar appreciation will likely continue to weigh on gold prices. Oil is currently trading at $103.74/bbl, and Gold is trading at $893.7/oz