Forex Investment and Currency Trading

FX Update
Advance Retail Sales (Survey: 0.0%, Actual: 0.2%)
Retail Sales less auto (Survey: 0.1%, Actual: 0.1%)
Business Inventories (Survey: 0.6%)

Upcoming Data: PPI, Empire Manufacturing, Net long-term TIC flows

USD
The USD is broadly weaker against a number of the majors this morning despite an upside surprise in both Advanced Retail Sales and core Retail sales. The USD weakened significantly after news from Wachovia that the bank had experienced an unexpected loss as a result of sub-prime mortgage holdings. This morning’s news has caused concern that the worst of the credit crisis has yet to pass.

EUR/USD

EUR/USD is higher again this morning on the back of broad USD weakness. News of Wachovia’s loss has acted to boost EUR strength as fears about the relative strength of the US financial system increase. Continued EUR strength has continued in spite of G-7 rhetoric expressing concern about USD weakens. Despite continued rhetoric regarding USD weakness and excessive FX volatility market believes the risk of intervention remains low.

GBP/USD

GBP is sharply higher this morning reversing steep losses last week. GBP had remained under pressure following weak housing data and Bank of England decision to cut rates. While the Bank of England decision to cut rates was all but priced, another soft reading on the UK housing market set the stage for sustained GBP losses throughout last week. However, given the level of U.K. financial stocks and rate differentials GBP looks  week and continues to exhibit an asymmetric response to economic data. Watch for GBP to continue its bounce higher through the day.
       
USD/JPY

USD/JPY trading has been performing strongly against USD this morning, and looks prepared to test the 100 level yet again. With Dow futures lower led by Wachovia’s poor earnings, look for a return to yen supportive risk aversion. The dollar supportive G7 communique is unlikely to drive the market as no specific action was recommended. While the potential for intervention has increased, further USD weakness in the near-term continues to be likely.

AUD/USD

While AUD has risen this morning, it still remains one of the weakest currencies against the dollar over the weekend. There is no clear driver of this movement, other than a return to risk aversion this morning. Several factors could have played a role to AUD’s decline over the weekend, including weaker commodity prices and slumping equities. However, if today’s Wachovia’s losses are indicative of more bad news out of financials over this week’s earning, the dip in equities will likely translate into a higherAUD/USD - falling financial stocks have been a major driver of USD weakness in recent months.

NZD/USD

NZD is slightly higher this morning, but is well below where trading opened last Friday as risk aversion has kept investors from piling into higher yielding currencies. New Zealand has a substantial slate of data this week with CPI, housing data, and retail sales all likely to give direction to the currency. The lower than expected retail sales print should continue to place downward pressure on NZD. The New Zealand economy continues to remain at risk to the global economic slowdown, and NZD/USD could end up lower in the near-term in spite of USD weakness.

USD/CAD

CAD has been the major underperformer among the major currencies over the past 48 hours. On a broad cross-currency basis, the Canadian dollar has taken its cue from USD, falling substantially. Against the US dollar, CAD is also significantly lower. USD/CAD should consolidate slightly through the day, however on a broader-basis, the Canadian dollar should continue to suffer along with USD.

Commodities Update
Gold is staging a rebound this morning after stumbling into the weekend. Dollar weakness appears to be a major driver of the move, as the two continue to move with high correlation. Slumping equities, and the need for liquid funds has not seemed to have a major effect on commodities this morning. Oil, too, is trading higher as investors move to protect against inflation and falling equity markets. Gold is trading at $927.9/oz, oil is trading at $110.73/bbl.