Forex Investment and Currency Trading

Market Update
MBA Mortgage Applications (Actual: -9.3%)
Durable Goods Orders (Survey: 0.0%, Actual: 0.0% )
New Home Sales MoM (Survey: -2.7%)
FOMC Rate Decision
USD
The FOMC will announce its policy decision today and market expects the Fed to leave rates unchanged at 2.00%.  The market is also predicting a decision to hold rates, with Fed funds futures contracts pricing in a very slim probability of a rate hike.  Given Chairman Bernanke’s recent expressions concerning inflation, it seems likely that the FOMC will upgrade its concern about prices while downgrading the chances of a future severe contraction in the economy.  Considering that the market has priced [...]

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The FX reserve accumulation program announced on April 10th has helped curb CLP strength, but may be counteracting the impact of a more restrictive monetary policy (the Central Bank of Chile (BCC) has tightened 175bp in the last year). Since the program was announced, USD/CLP has climbed 16% to 501, assuaging exporters’ fears that a stronger CLP could hurt growth. However, CLP weakness is likely to contribute to an increase in tradable inflation which tends to lag changes in the FX rate.
At the beginning of the year tradable inflation (which accounts for 47.5% of CPI) was 8.1% yoy, but edged [...]

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On July 8, Eurozone finance ministers meet to set the final EUR/SKK conversion rate. The baseline assumption is that the central parity, now set at 30.1260, will be the final conversion rate. However, we do see a non-negligible possibility that the final rate will be set lower, possibly at 30.0. You can position for this with an option trade. On May 29, the EUR/SKK central parity was revalued by 15% to 30.126, as the Slovak and EU authorities opted for a strong conversion rate to combat inflation. The decision was prompted by a speculative rally that drove EUR/SKK down by 11.1% [...]

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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 [...]

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