Forex Investment and Currency Trading

EURUSD: Two days up two days down.  That has been the trading pattern for euro usd. Does anyone care to make it a hat trick to the downside for euro today?  We have seen some backpedaling from Trichet’s hawkishness by his ECB minions overnight which should have helped euro usd lower.  But the market is all struck up from options so we will most likely stay here until expiry.  1.5540 is the triple top from yesterday’s trading session and should be the rate du jour as well.  The chatter on the street that yesterday’s aggressive selling at that level was dollar hedging from equity exposure.  If this trickle turns into a flood we could really have a sustained dollar rally.  Alas, the wheels of change are slow to turn.  And now the proud dollar owners on the back of intervention fears are left to ponder their prize.  Could be a stop loss run day with a push back towards the 1.5620 breakdown level.  But we have been a tape driven market and the newly hawkish Fed members get their turn to whack at the euro piñata.  Not sure who we believe less, the threat of rate hikes from the Fed or the ECB. Both would wreak havoc with the fragile world economy.

USDCAD: Yesterday’s BoC announcement was a total shock. With a 25bp cut almost fully priced into the interest rate market, the bank decided that fighting inflation was more important than preserving growth at this point and left rates unchanged. This is especially surprising considering Canadian core inflation is currently running at just 1.5%. USD/CAD immediately gapped lower but was stymied at 1.02 as gamma-related bids showed up. We retraced up to a high of 1.0248 but have headed lower overnight. Buy on dips mentality will be abandoned as this is a significant shift in policy; instead now short USD/CAD and to stop out over 1.0250.

USD/CAD Daily: The possibility of a topside breakout has once more been foiled; look to sell USD/CAD on rallies.

USDCHF: The selloff in fixed income land continues to be keeping USDCHF supported. More comments from ECB officials suggesting that they might be “one and done” stand in sharp contrast to all the recent comments from Fed officials who are all speaking uniformly more hawkish and starting to verbally defend the currency. In such an environment, it’s hard to be long of the franc versus the dollar even though we believe the SNB will hike sooner than the Fed will and growing risk aversion should benefit the franc. Short term, USDCHF though looks to be a buy on dips. USDJPY seems to be showing the way and with another round of Fed speakers today, expect more hawkish rhetoric to keep the greenback supported. 1.0530 is the first topside target to watch short term.

USDBRL: Very volatile day in Brazil. DI recovered after another selloff at the opening and BRL suffered after being numerous sessions around 1.63. We are close to flat, expecting DI to correct in the short term, if inflation numbers don’t surprise again today.  USD/BRL wasn’t able to trade below 1.63. Players were already short waiting for the IPO inflows, when finally the impact from global riskier environment was felt. Reduce the longs, looking for a correction in the short term and better levels to re-establish long BRL positions.  Rates had another selloff, but some relief was at last found. After touching 14.85, jan10 could retrace back to the 14.70 area. The action was positive and expect some relief for the short term. Anyway, there are plenty of inflation releases today, which added to the minutes tomorrow should lead the market.  While we see some deceleration in demand, investment and exports (albeit too early to see any good cooling down in inflation and capacity utilization), the pace of government spending is even higher than expected, which means the inflation combat will likely need a high dose of rate hikes from the BCB, since the government help to reduce demand is only rhetoric.