Forex Investment and Currency Trading

USD
European equities followed the global lead lower. This has caused risk aversion to increase over the past couple trading sessions. USD sentiment remains firm driven by strong gains versus Asia FX. Commodity markets have turned generally stable, though the risk aversion has pushed gold higher. US Jobless Claims had a small downside surprise which should instill some more USD confidence in the market.  Employment out of Australia and New Zealand, Canadian housing data, and the ECB and BoE meetings have also been some of today’s major market movers.

EUR/USD
The euro continued its slide yesterday, falling back below 1.5300. However, the euro gained strength ahead of today’s ECB announcement in which the ECB remained on hold. Since the last meeting, the data has been somewhat noisy with volatile activity, inflation, and market data. The market is looking at a 10-15% probability of an ease by September with nearly 50% probability of a cut by March 2009. It is unlikely that the current pricing will shift dramatically due to the on-hold outcome of the ECB meeting.

GBP/USD
The pound recovered ahead of the MPC rate decision in which rates were held constant at 5.00%. GBP has slid lower however as future cuts loom. Market still forecasts two additional upcoming rate cuts which will likely bring further weakness to the pound. US employment data has helped encourage USD strength and push GBP/USD lower.

USD/JPY
After appreciating through yesterday’s trading session and overnight, the yen has slowly depreciated through the morning. The move is indicative of a pullback in risk appetite. The yen should largely track equities today which appear set for a rebound. However, if the dollar continues to gain strength, the yen will be a likely loser.

AUD/USD
Employment from Australia and New Zealand underscore the recent divergence between AUD and NZD. April employment growth in Australia was much stronger than expected at 25.4k. Conversely employment in NZ slipped. AUD has climbed higher overnight in spite of the general decline in risk aversion, as confidence in the area grew.

NZD/USD
New Zealand employment fell 1.3%q/q, the largest decline in 19-years. As a result of the weak NZ employment figures, some economists have now changed their call on the RBNZ. Market now expects rate cuts starting in October as opposed to Q1 2009. Remain short NZD/USD. As negative NZD data continues, the pressure on NZD is likely to intensify in line with a declining yield advantage

USD/CAD
The Canadian dollar depreciated through yesterday’s trading and has remained largely steady at these weaker levels this morning. This comes in spite of oil prices remaining steady near record highs. The pair should continue to trade rangebound ahead of Canadian jobs data tomorrow. Today’s housing starts have provided some price action this morning. Canadian housing starts slipped, printing below expectations. This has caused a push higher in USD/CAD which could cause the currency pair to stabilize at a higher level.

Commodities Update
Crude oil has traded little changed - if only slightly lower – as the market waits for direction from supply or consumption data. Gold has appreciated as renewed risk aversion has led to gold purchasing as an inflationary and economic hedge. Other precious metals have gained as well.