Forex Investment and Currency Trading

The dollar was bought aggressively in Europe after the Swiss National Bank’s surprise decision to keep rates on hold rather than hiking 25 bps.  USD/CHF rose 150 bps, taking Euro/dollar down a penny from its 9 day high near 1.5585. But Cable spiked 150 points after a surprise jump in UK retail sales, +3.5% m/m and biggest rise in 22 years.  With inflation at a ten year high, the BoE’s rate decision is even more complicated and December Sterling futures rates rose 18 bp, as rate ease expectations were trimmed.  US rate futures still have 2+ (67 bps) of hikes priced in by year/end, markets assuming the US economy will be past the worst soon, but this compares with 90 bps of hikes priced in last week, and one wonders why Euro isn’t higher.  Market call of only one 25 bp 2008, hike post US election, not the 25 bp hike in August implied by futures, implies Euro/dollar should gain, since ECB is likely to hike July 3.  This morning’s initial jobless claims rose, 4 week moving average highest since mid April, but continuing claims were lowest since end April.  Euro/dollar gained 40 points from 1.5470 as gold exploded past $900, up $10, evidently on higher oil (+$3) after attacks on a Nigeria offshore unit.  Opening Dow is flat after Asian equities fell 1.5-2.5%, inflation worries hitting Asian FX as well (PHP especially).  Next up is Philly Fed, expected to improve, then leading indicators, likely flat, then speeches from Treasury officials, including Paulson - expected to urge new Fed oversight of investment banks.  Euro/dollar seems stubbornly anchored around 1.5500 as most Euro activity is in crosses.  Dollar/yen’s high only just over 108 and 50 points under recent highs, suggests some position unwinding in carry, evident in weaker emerging Asian.  But AUD and CAD are stronger, the latter boosted by a stronger than expected Canadian CPI and wholesale trade; still, 1.0090 55 day moving average is holding. 
 
LATAM is mixed, MXN a tad weaker on waning expectations of a Friday Banxico rate hike, BRL still trying the 1.6000 on continued rate hike/high growth likelihood, and ARS stronger on Argentine bond rallies and adjustment in the export tax, though inflation remains.