Forex Investment and Currency Trading

The macro data in the US continues to surprise to the upside, with Non-Manufacturing ISM rising to 52, which is consistent with modest growth in the service sector, and the employment component rebounded to 50.8 from 46.9, which tallies with the less than expected fall in payrolls. The Fed’s quarterly Senior Loan Officer Opinion Survey, however, was less encouraging, with 71% of respondents reporting that they had increased standards, and many of the components have reached the peaks of the 2001 and 1990/1 recessions - it is hard to find anything positive from this report, aside from the fact that it was taken in early-April and thus could have been heavily influenced by the collapse of Bear Stearns and the associated counterparty-risk worries in mid-late March. Markets do not yet seem to have “gotten” the significance of the Fed’s PDCF and TSLF facilities in that talk that BoA might abandon or renegotiate its purchase of Countrywide (which is a Fed Primary Dealer and thus has access to the PDCF) sparked a mini-bout of risk aversion, with USD/JPY falling through 105 and the S&P500 down 0.45% and Gold rising up to $877. Either way, a BoA spokesman soon quashed those rumors, stating that the sale was going through as planned in the Q3 and news that BlackRock bought $15bn of UBS’s subprime mortgage debt at just a 25% discount to face value should make those that think all RMBS (and all Level 3 assets, for that matter) is worth nothing think twice. The rebound of commodity prices is notable, with Oil hitting new highs around $120, Copper up 2.31% and Base Metals up 2%, and these rises, in combination with CFTC positioning showing the market the shortest of EUR/USD since Dec 2005, threaten to put at least something of a retracement in the recent moves of the Dollar. Given these risks, and the lack of easing priced into Europe, market favors holding longs in either Dec8 Euribor or receiving the Dec8 ECB EONIA instead of playing the Euro slowdown via the currency.

 
The RBA left rates unchanged, but continued to express warnings that if the economy does not slow as expected, or wages rise the “outlook would need to be reviewed”. Yesterday’s TD Inflation gauge rose to a record high of 4.3% y/y, which is not encouraging. The Bill strip is largely unchanged.