Forex Investment and Currency Trading

USD Despite the EUR/USD surge above 1.60, the USD Index did not fall to a record low. However, the likelihood of a setback in US interest rate expectations suggests new record lows during the weeks ahead.
EUR EUR/USD rose to a record high on continued hawkish ECB rhetoric. Market expects the break above 1.60 to be sustained with further EUR/USD gains during the weeks ahead.
JPY The JPY remains more vulnerable to risk appetite developments than Japan’s fundamentals and politics. Moderating risk aversion suggests limited risks of sharp USD/JPY declines.
GBP The BoE program to provide liquid bills in exchange for less liquid asset-backed securities is likely to be of limited benefit to the financial sector, suggesting temporary GBP gains vs. the EUR are unlikely to last.

CHF Trade weighted CHF remains very sensitive to shifts in VIX. USD/CHF set to drop back below parity on USD weakness and stable risk, but some focus also on Swiss KOF index on April 30.

SEK Boosted by higher risk appetite and inflation. After surprise Feb hike, no change is expected on April 23. Tone of decision is important, as market currently has the Feb hike being unwound by 4Q.

NOK NOK testing multi-year TWI highs on soaring oil prices. Market expects a rate hike to 5.50% on April 23 but not the subsequent tightening that is priced in, and NOK might soften a bit after decision.
CAD While noting downside risk in Wednesday’s retail sales report, USD/CAD is well placed to participate in further USD weakness and market favors drop back below parity. Key Monetary Policy Report on Thursday.

AUD With ANZAC day long weekend ahead, main focus will be this Wednesday’s quarterly CPI report. Upside outlier might revive RBA rate hike risk and support additional AUD gains.

NZD The NZD has softened on some G10 crosses as some traders are betting on an RBNZ capitulation on inflation vigilance. Most likely, though, Bank will affirm high rates for foreseeable future.

MXN USD/MXN has edged back up above resistance around 10.49, but wide Mexico-US rate spreads and a somewhat hawkish Banxico monetary policy statement favor further USD/MXN downside.

BRL Move down in USD/BRL has been tempered by concerns that the government may be considering new measures to counter BRL strength. If new measures are avoided, higher rates should push USD/BRL lower.

COP Concerns of government intervention have yet to materialize. Wide Colombia-US rate should push USD/COP lower on resuming risk appetite.
CLP Daily central bank USD purchases have failed to push USD/CLP above 460. USD/CLP is likely to edge lower in coming days helped by stronger copper prices.

CNY Market expects greater volatility in CNY movements in the near term and potentially greater reluctance to allow fast appreciation in 2H08 to mitigate risks of a possible growth slowdown later this year.

INR RBI will likely raise repo rate by 25bp on Apr29. Intensifying global price pressures may prompt RBI to tolerate further rupee appreciation in the near term; Remain short USD/INR.
PHP BSP is widely expected to keep the overnight borrowing rate unchanged at 5.0% on April 24. Monetary tightening bias will likely intensify but BSP will likely hold off hiking rates.

KRW Market expects BoK to switch to an easing bias in May on growing concerns over growth. Inflation likely to exceed target in 2008. USD/KRW biased higher in coming weeks.

HUF HUF appreciation in response to the March rate hike could contribute to disinflation, but near-term price pressures remain, suggesting two additional 25-bp rate hikes before NBH goes on hold.

TRY CBT hawkish stance is justified by TRY weakness amid rising global energy prices. Political development will continue to be monitored closely as a significant downside risks to local markets.

PLN While NBP remains on a tightening bias, a pause at the Apr-30 meeting is likely after a run of softer data. This suggests delay to a push below 3.40 in EUR/PLN, though downtrend momentum remains.

ZAR Inflation pressures continue to point to the needs for more active tightening in monetary policy, with focus on CPIX release on Wed. Recent ZAR gains vs. the USD should be of a short-term nature.