Forex Investment and Currency Trading

USD
The dollar reversed some of its previous gains yesterday, reacting first to surging oil prices, after the EIA’s report on decreasing US crude stocks.  Don Kohn’s comments also slowed recent USD strength, as he did not emphasize inflation as much as Bernanke and other officials did the previous week.  However, the dollar is much stronger this morning with USD sentiment supported by strong retail sales data.  It seems that most of the market, approximately 80%, is now pricing in at least a 50bp hike by October adding further strength to the dollar.

EUR/USD

The euro strengthened marginally yesterday after its biggest two-day decrease against the dollar in over two years.  ECB council member Athanasios Orphanides suggested that further tightening may be necessary, hinting towards additional rate hikes after the forecasted July rate increase.  EUR/USD, however, has declined through the morning falling below yesterday’s lows as USD strength permeates the market.  Investors will also look at the ECB’s monthly bulletin publication for any fresh insight into future interest rate movement.  

GBP/USD

The dollar rose against GBP overnight as the dollar makes global gains. Look to the June rate decision minutes next week to provide any indication of the BoE raising (or cutting) rates in the near future. Next week’s release schedule will likely be a big market mover for GBP with releases in MPC minutes, May CPI data, and retail sales. GBP should remain rangebound, if not slightly weaker, into next week as the market grapples with the inflation/growth conundrum.

USD/JPY

The yen made gains against the dollar yesterday on increased risk aversion and oil prices. High volatility in the Asian equity markets was a major driver.  However, a rebound in US retail sales has caused JPY depreciation.  With US equity markets set to open higher JPY weakness should be maintained through the day.

AUD/USD

AUD fell to a one month low overnight after employment slid 19.7k, its first drop since October 2006, although unemployment remained steady at 4.3%. AUD was the worst performer among the 16 most traded currencies as this decrease in employment, which was well above survey, signaled slowing growth. Look to tonight’s speech by Governor Stevens as a market mover, as he will discuss the upside risks of inflation, while also highlighting slowed growth. Emphasizing inflation could prove to be the catalyst for a rebound in AUD.
NZD/USD

NZD fell toward its lowest level in almost 5 months after central banks worldwide turn hawkish, effectively shrinking the interest rate differentials that have supported NZD for some time. Continued economic pressures increase the likelihood of a rate cut sometime this year by Alan Bollard and the Reserve Bank of New Zealand placing further pressure on NZD.

USD/CAD

The Canadian dollar strengthened against the dollar yesterday, rising the most in two weeks.  This appreciation was mostly due to surging oil prices as well as continued fall out of the Bank of Canada’s decision Tuesday to hold interest rates.  USD/CAD, however, has moved back higher, as positive economic data out of the US further indicates the diverging economic conditions of the two countries.

Commodities Update
The Energy Information Administration reported yesterday that US crude stocks fell, sending oil prices higher by $5 to above $136/bbl.  However, prices are a little softer this morning after the potential over-heating yesterday. Gold rose as well yesterday on surging oil prices and a weaker dollar but has come down since then.