Forex Investment and Currency Trading

The trade weighted USD was moderately firmer overnight, rallying up to a high of 73.343 before dipping back down to around the 73.2 handle. Although UK markets returned from the May Day bank holiday, Japanese markets remain closed until Wednesday and thus liquidity remained at somewhat of a premium. Crude oil continued to establish new highs, pushing through the USD120/bl barrier to USD120.93/bl as violence in the Niger Delta continues to mount. In remarks prepared for a speech about US mortgage delinquencies and foreclosures, Fed Chairman Bernanke warned of the potential for substantial spillover effects on the housing market, the financial markets, and the broader economy. There are no key US data releases out today.

USD/CAD traded within a 1.0086-1.0134 range overnight. Canadian March building permits data and the April Ivey PMI survey are the main sources of event risk for CAD today. Building permits are expected to improve from -1.0%m/m to 1.2%m/m, while the Ivey PMI is expected to decrease from 59.0 to 54.0. There is considerable technical support looming below market at the 1.0000/10 region.

GBP was softer against both EUR and USD following the release of weaker than expected domestic data. The Services PMI fell from 52.1 in March to 50.4 in April, undershooting the consensus of 51.7 to register the weakest print since March ‘03. With the PMI headline index edging closer to the boom/bust 50 level, the UK service sector is clearly stagnating. Cost pressures, however, remain an issue. Input prices edged up to 67.3 in April from 66.2 in March. A break above 0.7895 in EUR/GBP could open an assault to 0.8000.

EUR/USD initially continued its rally overnight, reaching a high of 1.5535 before dropping down to 1.5453 as London opened. However, EUR soon recovered, returning to the 1.55 level as domestic data printed firmer than market consensus. The final estimate of the April Services PMI was moderately stronger than expected rising from a preliminary 51.8 to 52.0 (cons. 51.8), while the Eurozone PPI was broadly in line with expectations at 0.7%m/m, 5.7%y/y (cons. 0.7%, 5.6%). Tumpel-Gugerell speaks in Brussels at 12:30EDT.

AUD/USD returned to its overnight 0.946-0.948 range after recovering from a 0.5% drop following the RBA’s announcement that rates have been left on hold at 7.25%. This came as no surprise to the market, but of note was the RBA’s decision to include a new sentence in the accompanying Statement, saying that “Should demand not slow as expected or should expectations of high ongoing inflation begin to affect wage and price setting, that outlook would need to be reviewed”, which is to say, the RBA has not yet entirely ruled out further tightening. The risk of a rate hike would seem higher than is currently discounted over the next 12 months. In terms of data, the Australian Trade Balance in March narrowed by more than expected to A$2.7bn (cons. A$2.9bn).

NZD/USD continued to March higher, outperforming its neighbour across the Tasman as AUD/NZD drifted down to a low of 1.2007. There are no data releases emanating from New Zealand today.

EUR/CHF fell 50pips down to a low of 1.6279 overnight. Swiss CPI data were softer than expected at 0.8%m/m, 2.3%y/y in April, undershooting forecasts of a 0.9%m/m, 2.4%y/y print.