Forex Investment and Currency Trading

USD drifted steadily lower though the Asian session, before spiking higher as London
opened. The net effect has been to leave most majors little changed from yesterday’s North American close. Stocks are essentially flat on European cash markets and likewise on the US index futures. Commodity currencies are generally stronger, most notably NZD which is also benefiting from strong domestic data and ongoing short covering. North America data is light today, with just new home sales due in the US (consensus 523K – a new cycle low) and nothing in Canada.

EUR/USD pushed higher through Asia to test resistance around 1.5820, but rapidly revered in London amid much talk of central bank demand for USD. Secondary German data were also soft, acting as a partial catalyst for the EUR/USD sell-off. June GfK consumer confidence fell to 4.9 from 5.9 (consensus 5.7).

USD/CAD sold off sharply in London, touching a low of 0.9875, CAD out-performing USD as latter itself rallied sharply. There are no key data or events in Canada ahead of the March/Q1 GDP release on Friday.

NZD: The short squeeze continues with NZD trading to a three week high at 0.7924, and above the 10 week bear channel top at 0.7885. AUD/NZD also fell to a 3 week low at 1.2150 after a better set of NZ data. The May NBNZ Business survey was mixed, but the step up in price-related indicators (capacity utilisation, pricing intentions, and inflation expectations) and the step up in 2 year ahead inflation expectations from 2.7% to 2.9% in the RBNZ’s quarterly Survey of Expectations have added to the risk that the RBNZ’s rate cut cycle will be deferred until late 2008/early 2009. Short NZD positions ahead of the 5 June MPS is not recommended. Further position squaring could see NZD/USD back to 0.80 and AUD/NZD to 1.2080.

GBP remains soft on the crosses, with EUR/GBP pushing to a three session high. Minor releases in the UK continue to point to softening activity. The CBI service sector survey pointed to a sharp slowdown in consumer-related services such as hotels and catering. Business and professional services, meanwhile, recovered some modest degree of composure, rising from +6 to +10 but with the sector remaining depressed relative to its recent performance (average of 27 in ‘07) and the series’ historical average of 18.6.

USD/JPY spiked higher with the general USD move and JPY is underperforming on the crosses in markets that are generally still risk-seeking. There is little in the way of domestic news flow in Japan until the labour markets data and CPI on Friday.

USD/KRW fell sharply after a South Korean Finance Ministry official said he is worried about the KRW’s recent fall. Unconfirmed reports also suggest heavy BoK intervention to support the currency.