Forex Investment and Currency Trading

USD continued to strengthen overnight with DXY rallying up to a high of 72.926 as USD outperformed all the G10 currencies. Comments from the Fed’s Fisher were undeniably hawkish, suggesting that the Fed may hike rates even if the economy is weak and that the market should expect rate hikes sooner rather than later. Demand for carry trades was also evident as high yielders outperformed their low yielders counterparts across the board.

In the US today, the focus will be on the 2nd estimate of GDP, jobless claims, and Fed rhetoric. Q1 GDP is expected to be revised upward from the original estimate of 0.6% to 0.9%. Initial jobless claims are expected to have inched higher to 370K, suggesting a continued, soft market, while continuing claims are expected to have risen to 3080K, consistent with the level in place ½-way through the 2001 recession. Fedspeak includes Geithner (voter, money markets), Bernanke (chairman, liquidity), and Kohn (voter, money markets, stability).

The EU has approved the revaluation of the Slovakian Koruna against EUR ahead of its entry into the Eurozone. SKK was revalued 17.647% upwards, leaving EUR/SEK at 30.126 with an allowed fluctuation of up to 15% either way (upper limit 25.6071, lower limit 34.6449).

USD/CAD rallied overnight on the back of general USD strength. Canadian Q1 current account is expected to move back into surplus (cons. C$2.9bn) from a previous deficit of C$0.5bn.

GBP/USD fell to a week low of 1.9674 subsequent to the release of further soft housing data. May Nationwide house prices were much weaker than expected at -2.5%m/m, -4.4%y/y (cons. -0.5%, -2.1%), registering the largest monthly fall in the series history and the worst yearly decline since Dec ’92. These data suggest that the UK housing market correction may in fact be more akin to a meltdown than a slowdown. The CBI Distributive Trades Survey surprised to the upside, improving from -26 in April to -14 in May (cons. -20)

EUR/USD added to the losses suffered over the last few days as the pair slid a further 0.5% overnight. Eurozone M3 money supply registered 10.7%3mth/y, 10.6%y/y (cons. 10.7%, 10.3%) while Consumer Confidence fell by more than expected from to -15 (cons: -12). Resistance is 1.5665/70, the break down level from yesterday, while support is 1.5540/45.

USD/JPY marched through the 105.00 barrier overnight driven by a combination of USD strength, carry trade buying, and weak domestic data. April Retail Trade data disappointed at -0.1%m/m, 0.1%y/y (cons: 0.0%, 0.5%), while JPY was also better offered in line with other low yielders as demand for carry trade buying increased.

AUD/USD fell 50pips overnight as USD outperformed all G10 currencies. In terms of domestic data, Q1 Capex was mixed, with a disappointing fall of 2.5%q/q (cons: 3.0%) hinting at downside risk to next week’s GDP, offset by strong expenditure plans for 2008-09.