Forex Investment and Currency Trading

Risk appetite increased overnight with carry back in vogue as high yielders outperformed low yielders and global equity markets rallied. USD was moderately firmer overnight though DXY still remains less than 1% from its March lows. There is no Fed rhetoric nor US data releases of note today and USD will likely take direction from equity moves.

GBP was better offered against both EUR and USD overnight until the release of the BoE minutes surprised the market causing GBP to rally and recoup its losses. The minutes to the BoE’s Apr meeting unexpectedly revealed a three-way split in the vote (cons. unanimous), six members having endorsed the 25bp cut delivered at that meeting, one (Blanchflower) calling for a 50bp ease and two (Besley and Sentance) opting for a steady rate decision. This split points to a more limited degree of momentum behind the unfolding easing cycle than had been anticipated which, in turn, reduces the odds of a follow on rate cut.

EUR/USD failed to remain above the 1.6000 barrier overnight after trading through it for the first time yesterday. ECB’s Noyer came out overnight stating that the market had misinterpreted his comments yesterday and that they weren’t a green light for rate hikes, indeed, “interest rates can go both ways”. Data was moderately EUR supportive as April flash estimate PMIs highlighted clear price pressures facing the Eurozone, while readings on the activity front were somewhat mixed. PMI Manufacturing fell from 52.0 to 50.8 (cons. 51.6) while PMI Services unexpectedly rose from 51.6 to 51.8 (cons. 51.4).

USD/CAD: After rallying up to a high of 1.0099, CAD strengthened leaving the pair virtually unchanged overnight. Today sees the release of Canadian retail sales in Feb which are expected to rise 0.1%m/m and 0.4%m/m less autos.

NOK: Norges Bank is expected to hike rates 25bps to 5.50%. This is not quite fully discounted and the realisation of the expected hike today should underpin NOK. We maintain a bearish 6 month outlook on EUR/NOK, looking for 7.60. Other fundamentals also remain supportive of the Krone, namely high oil prices and Norway’s large current account surplus.

SEK: Riksbank left rates on hold at 4.25%. After the announcement, a brief spike in EUR/SEK was blocked by the 9.3388 resistance level, following which the pair sold off 350pips down to a two month low of 9.3011.

USD/JPY was stuck in a 102.83-103.16 range overnight and JPY also failed to trade with any clear direction on the crosses: Overnight saw the release of Japan trade data which showed exports rising 6.1%y/y while imports swelled 11.3%y/y, causing the trade balance to fall 12.6%y/y in March.

AUD/USD rallied 1% to a 25yr high of 0.9541 overnight as the march towards parity continues. Q1 headline CPI jumped by 1.3%q/q (cons. 1.1%), taking the y/y rate to 4.2%. Importantly, the RBA’s core measures, the trimmed mean and weighted median, rose by 1.2% and 1.3%, respectively, (consensus 0.9%, 0.9%).