Forex Investment and Currency Trading

There isn’t a lot of logic to FX this morning – but the break of 1.55 comes fast and furious and the technicals open up to a 1.5350 goal. Next hot level is 1.5470 and then 1.5415. This is a football match – (soccer to the Americans) and its being held in a big stadium in the middle of America. Driving force of the USD gains remains a trade/earnings story – and its in a market that is thin with many banks out due to May Day holiday and aggravated by technical selling. Models are flipping to sell EUR zone. The risk may well be that we open Friday morning in New York with the EUR at the lower edge of the acceptable range – making the jobs report even more important in the scheme of trading. Many crosses in EUR terms (GBP, CHF, SEK, NOK) all have flashed for more weakness in EUR. This is a market that may be pre-trading the PMI data and expecting too much weakness out of Europe. The “lag” argument for European weakness dominates this theory.

NEWS

• US March personal spending rose 0.4%, income up 0.3% - better than expected. Spending forecast up 0.2%, income up 0.4%. This follows 0.1% spending, 0.5% income in February. Savings rate drops from 0.4% to 0.2%.
• Core PCE up 0.2% in March – worse than expected. Consensus was 0.1% following the 0.1% in February. Headline was 3.2% y.y, Core 1.8% y/y.
• US jobless claims for the week rose 35,000 to 380,000 – worse than expected. Consensus was 360,000. The four-week moving average fell 6,250 to 363,750. Continuing claims rose to 3,019,000 – much worse than the 2,950,000 expected and up 74,000 from previous week.

The FED’s statement was hawkish and that 2% will mark the lows in FED Funds.

• Two dissents yesterday wanting a pause…2nd meeting in a row for Plosser and 3rd meeting in a row for Fisher
• The significant rate cuts and other liquidity measures should be taking effect
• The Wrigley deal is a huge sign that at least the investment grade credit/debt markets have stabilized
• Earnings from European companies have disappointed

We are not out of the woods yet and the housing market, consumer spending, and high yield issuance will continue to weigh on the US economy but the US will lead the growth rebound (outside specific areas in the EM space - BRL. SGD, MYR - that has not been effected) and will lead to US dollar strength. We will see range bound trading for the next 3-4 months but the 4th Quarter should be the first call for the first leg of notable US dollar strength.