Forex Investment and Currency Trading

Trading Strategy – Slower growth doesn’t slow inflation?The key headlines overnight can be thrown aside – CPI and GDP from China were both lower than expected, but domestic demand was healthy, supporting the view of soft-landing there.  The Swiss ZEW was weaker and the ECB Wellink comment instilled fear in some that inflation won’t come off even if growth slows. This shows that most in ECB remain biased towards a hike, similar to the FED minutes yesterday.  There is a tender path with little room for policy makers as they act on inflation and watch for the growth bubble to pop.  Equities are the middle of that balloon and given the sharp rally yesterday, many think that the range moves in FX are an opportunity to reload hedges against the next road of panic in assets. 

The JPY and CHF are the right currencies to watch and many will be watching 105.80 (near 55-moving average) and if that breaks 106.50.  CHF never was able to break 1.00 yesterday (1.0030 the low) so the upside today to watch is 1.0250 – a quick 2.5% correction to match the S&P500 yesterday.  Earnings will dominate the day – overwhelm the risk of more bad economic stories from housing and jobless claims which are likely today.  The markets like bulls much more than bears – and given that few really believe we can hold the bounce for long it may extend more than anyone can imagine – helping the USD in the process.  In the backdrop the peace hopes that drove with US policy shift with Iran are continuing to help oil and energy risk premiums – also helpful to shares and the USD.  Maybe slower growth does help inflation when it causes everyone pain enough to rethink the benefits of globalization over nationalism.