Forex Investment and Currency Trading

USD was firmer overnight fully reversing yesterday’s losses, with DXY rallying sharply from a post-FOMC low of 72.49 up to a high of 72.975 as London began trading. USD outperformed all other G10 currencies during an overnight session characterised by poor liquidity with all of Asia ex. Japan closed for Labour Day. Europe, with the exceptions of the UK and Ireland, will also be absent from markets today. Given this, liquidity will remain at a premium with sharp, volatile moves a likelihood. In terms of US data, today’s April ISM Manufacturing (cons: 48.0, prices paid: 83.5), March PCE deflator (cons: 0.1%m/m, 2.0%y/y), and the weekly initial jobless claims (cons. 365K) are all released today.

USD/CAD rallied to a high of 1.0114 overnight. BoC Governor Carney repeated last week’s statement that “some further monetary stimulus will likely be required”, and highlighted that we (the BoC) care as much about inflation being below the target as we do above the target, and that’s part of the reason why we’re reacting when we see some of the softness”. There are no Canadian data releases today but both Carney and Jenkins speak again, appearing before the Standing Senate on Banking, Trade and Commerce, while BoC’s Chief of Research, Agathe Cote, also speaks on key findings in the latest Semi-Annual Monetary Policy Report.

EUR/USD traded within a relatively tight range for the bulk of the overnight session before tumbling 110pips through the 50dma down to a low of 1.5508. This move left EUR/USD trading around the pre-FOMC level as EUR gave up the gains it made following the Fed’s announcement. There are no key Eurozone data or scheduled ECB rhetoric out today.

GBP/USD was unchanged overnight as the pair traded sideways just below yesterday’s highs, while EUR/GBP dropped 1.0% pulling EUR crosses down with it. The BoE Financial Stability Report released overnight is notable for its comparatively optimistic take on the credit crunch, with the Bank noting that the post credit boom adjustment has proven more protracted than expected but that prices in some credit markets now likely overstate the losses that will ultimately be felt in the system. In contrast, BoE’s resident dove Blanchflower was reported as saying that too much attention is being paid to the short-term upside risks to inflation, ignoring the risk of a sharp economic downturn. Meanwhile, in terms of data, UK Manufacturing PMI fell from 51.3 in March to 51.0 in April, overshooting expectations of a 51.0 print but remaining in comparatively depressed territory.

USD/JPY: After tracking lower down to a bottom of 103.54, JPY gave up its gains as the pair rallied back up to around the 103.90 handle. Labour cash earnings were stronger than expected rising 1.2%y/y (cons. 1.0%y/y).

CHF was the worst performing G10 currency overnight, dipping 0.28% against EUR and 0.95% against USD. EUR/CHF support is at the 10dma of 1.6145

AUD: Very weak March building approvals saw underperformance against NZD as AUD/USD sold off around ½% from its peak of 0.9440/45. Building approvals fell by 5.7%m/m driven by the core private sector house component which fell 5.8%m/m. Perhaps more importantly, the best forward indicator - housing finance approvals - suggests further weakness in building approvals in the months ahead.