Forex Investment and Currency Trading

USD outperformed all the G10 currencies overnight during a relatively quiet session which saw DXY rallying up to just shy of yesterday’s 73.724 high. FX markets were generally range bound with the weakest performer, GBP, losing just 0.45% against USD. The US calendar is light on data today, with only MBA mortgage applications scheduled for release. Fed speak is due from Yellen who will make the welcoming remarks at an Asian financial crisis conference, while the Treasury’s Paulson is due to make the closing comments concluding the two-day U.S.-China Strategic Economic Dialogue.

EUR/USD fell 0.30% to 1.5464 overnight on the back of broad based USD strength rather than any independent momentum. In terms of data, Eurozone construction output fell 0.8%m/m, 2.4%y/y in April, while the only other event of note today will be a speech by ECB’s Tumpel Gugerell at a conference in Stockholm.

USD/CAD was moderately better bid overnight, trading up to 1.0212. The only domestic data today are Canadian leading indicators which are expected to improve from 0.1%m/m in April to 0.2% in May. BCE Inc is currently in Canada’s Supreme Court seeking approval for the proposed C$52bn leveraged buyout led by the Ontario Teachers’ Pension Plan. No set date has been announced for a decision but, if approved, this would be the world’s largest LBO.

GBP was the worst performing G10 currency overnight as GBP/USD slipped down to 1.9479 and EUR/GBP rallied up to a high of 0.79525. The MPC voted 8-1 in favour of leaving rates on hold at 5.00% at the last meeting, as per market consensus. The only dissenter was Blanchflower who called for a 25bp cut, however, this fails to capture the wide range of views held by committee members with some in fact considering whether an immediate hike was warranted. The CBI Industrial Trends Survey was firmer in June at +1, up from -10 in May. BoE Governor King is scheduled to speak at Mansion House this afternoon.

CHF fell against both EUR and USD overnight. The Swiss ZEW Survey of expectations for June fell below the -60.8 market forecast to register -63.8.

NZD/USD fell to a low of 0.7538 overnight. Speaking to Parliament’s Finance and Expenditure Select Committee, NZ Finance Minister Cullen noted that “The economic headwinds (in NZ) are no less strong than they were and in some respects are looking somewhat stronger”. He went on to say “It’s now quite clear that the GDP figure for the first quarter almost seems inevitably to be negative”. Market remains fundamentally bearish NZD and favour selling rallies, but with the risk of further paring back in US rate hike expectations, short NZD positions on crosses may be a safer way to express the bearish medium term outlook.

JPY fell 0.37% against USD overnight and faired little better on the crosses. The minutes from the last BoJ monetary policy meeting, where rates were left on hold at 0.5%, showed the Bank acknowledging that the Japanese economy is facing “considerable downside risks including uncertainty regarding future developments in overseas economies and global financial markets”, and while “Inflation risks had been heightening worldwide given the high international commodity prices”, the message from the BoJ is that the former should keep the latter in check.