Forex Investment and Currency Trading

USD The USD began to weaken in mid month as expectations for Fed tightening began to subside. Renewed economic weakness in the months ahead should weigh on the USD, reversing recent gains.

EUR Recent Euro zone data have turned decidedly mixed, even in Germany. A July ECB rate hike will likely mark the final stage of the overshoot of the trade-weighted EUR, which is likely to fade in 2H2008.

JPY USD/JPY has kept failing to close above the 200-day moving average, suggesting near-term downside potential. Nonetheless, seasonal Japanese capital outflows should limit JPY appreciation.

GBP A strong retail sales report has boosted market expectations for monetary tightening from the BoE. However, TWI GBP is well below the level implied by interest rate expectations; appreciation likely.

CHF SNB recently left interest rates on hold, and views inflationary pressures as transitory. The wider EZ – Swiss rate gap suggests EUR/CHF should be significantly higher, well above 1.65.

SEK The sharp decline seen in the Swedish equity market over the last month suggests potential for further EUR/SEK gains. The Riksbank will meet next Thursday (July 3). Market looks for no change.

NOK Market looks for the Norges Bank to remain on hold tomorrow, but a strong risk exists for a hike. EUR/NOK closed below trend line from May low on Monday and seems poised for further declines.

CAD Driven recently by adverse yields spreads as opposed to supportive terms of trade. Market thinks ToT importance will revive and yield spreads will shift in CAD favor, so USD/CAD downside likely in weeks ahead.

AUD Another quiet data week ahead, meaning that modestly recovering commodity prices and risk aversion will be AUD drivers. Continue to be long AUD versus USD and NZD.

NZD Faltering NZD TWI almost back to post June 5 RBNZ meeting low. BoP data on Thursday and, especially, GDP figures on Friday will help drive near term performance; NZD TWI potential remains.

MXN USD/MXN dropped towards 10.27 following Banxico hike. Deteriorating inflation is likely to fuel expectations of further hikes, but an actual hike would be needed for USD/MXN to break lower.

BRL USD/BRL will likely ultimately push through the 1.60 level, but gains should be limited over time. By year-end, a current account deficit of $21bn should contribute to BRL weakness.

COP Central bank announcement of daily USD purchases pushed up USD/COP. Once the pair breaks through the 55day MA at 1755, the next target would be the psychologically important 1800 level.

CLP Stagnant copper prices and continued market concern with high inflation levels suggest a higher USD/CLP, although the pair could move lower near term; support of 490 will likely remain firm.

CNY The central bank may enter a new phase of monetary management with further decline in USD/CNY likely providing an increasingly palatable and productive solution…to 6.65 by year end.

MYR Political uncertainties should continue to weigh on investment sentiment. However, higher inflation risks increases the impetus for the authorities to guard against excessive MYR weakness.

INR The second inter-meeting repo rate hike in June reinforces hawkish rhetoric with action. USD/INR should drift lower - encountering support at 41.75.

PHP The IMF downgraded the Philippines’ growth forecast to 5.2% from 5.8% and warned about elevated inflation risks. USD/PHP likely to maintain upward bias toward 45.0.

HUF Forint rallied last week and held up even after the disappointing on-hold decision of the NBH this Monday. Market thinks that EUR/HUF could soon reach 235, although remains vulnerable to global sentiment.

TRY Lira benefits from expected further hikes and a weaker USD, but as the trial against the governing AKP party unfolds, expect increased volatility and at least one USD/TRY spike to 1.50 in August-October.

PLN Zloty may strengthen this week in the context of a likely hike on Wednesday and positive CE4 sentiment. Yet momentum in EUR/PLN is weak below 3.4. Wait for a new story to push lower - accession.

ZAR A record-high current account gap added to bearish sentiment lately, and it would not be surprised by USD/ZAR at 8.50 if the external balances weaken further, and more political risks come to fore.