Forex Investment and Currency Trading

Our mind is drawn to the USD-Oil link. The past story arguing rising oil prices (spot US$133.30/b) were caused by a weak USD has given way to stories that state rising oil prices are a downside risk to USD. This theme is drawn from nervous glances at US energy prices, specifically gasoline prices, which pose two key risks to the US economy. As both have been well articulated for a long time, it is unclear why they are gaining traction in markets now. First, the US Memorial Day long weekend is all
about driving. It is the weekend of the Indianapolis [...]

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Risk aversion appears to be creeping back into some asset classes but is yet to show itself in FX markets. US equities were down around 4% last week, the closely watched VIX (US equity market volatility index) bottomed out and started trending higher and credit spread measures across a number of countries are pushing higher again. Yet in FX markets crosses like AUD/JPY have remained well supported, although the topside in these crosses has been fairly limited.
It’s also worth noting that there is now significant divergences in commodity markets. Oil has continued to push to fresh record highs but other [...]

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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 [...]

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Inflation fixation
This week saw a firmer-than-expected CPI report that served to cast some doubt on whether Canada can remain an “island” of low inflation. April’s monthly, seasonally-adjusted increase in the CPI of 0.4% (headline and core) heightened concerns that inflation may be percolating. To be sure, the nation’s inflation rate remains very subdued on an annual basis. With readings of 1.7% in the headline measure and 1.5% in the BoC’s core measure, inflation is still comfortably below the 2% target and below the readings in most other major industrialized countries outside of Japan. However, a handful of transitory factors – [...]

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