Forex Investment and Currency Trading

USD The USD Index appears to be breaking its downtrend as lower gasoline prices lessen downside risks to growth and other economies, especially in Europe, exhibit greater downward momentum.

EUR Signs of weakening growth and falling inflation risks as oil prices retreat set the stage for a steady weakening of the EUR versus developed currencies; EUR/USD set to close below 100-day and 55-day MAs.

JPY With stable BoJ policy expectations, JPY crosses remain vulnerable to risk appetite and relative rate expectations. USD/JPY is likely to remain range-bound with an upside bias in coming weeks.

GBP Sterling has been hit by the sharp deterioration in UK economic data. The 55-day moving average (1.9767) provides the next level of support for GBP/USD; short GBP.

CHF The fall in oil has helped EUR/CHF make a definitive break above its 200-day moving average, given the positive implications for global growth. Resistance is created by the May high of 1.6376.

SEK Strong Swedish retail sales have helped EUR/SEK descend further from its multi-year trend line (currently at 9.5370). A faltering EUR and tightening Riksbank should lead to further downside pressure.

NOK Oil price declines should continue to have a negative psychological impact on NOK, especially versus the USD. The 200-day moving average, at 5.6981, forms the next level of resistance.

CAD Softer rate spreads and energy prices pulling USD/CAD to the top end of the post-Nov. range. Would still be a CAD buyer, including on crosses, if energy prices stabilize. Next big data is Aug 8 jobs report.

AUD While AUD is still viewed as a likely outperformer in 2H 2008 on terms of trade, concerns about Australian banking sector, given their large offshore borrowings, add to near term risk.

NZD Fundamentals and incredibly long NZD/JPY exposure on TIFFE suggest risk of further NZD selling, and more so if business confidence, wages and employment reports in week ahead are soft.

MXN Suspension of quarterly USD sales program represents an important policy shift and signals the authorities’ discomfort with MXN at this level. Establish long USD/MXN exposure at 10.05.

BRL USD/BRL should edge lower toward support at 1.55. Minutes due out July 31 will be key in gauging the pace of future rate hikes, following COPOM’s 75bp surprise hike last week.

COP Somewhat surprising 25-bp BanRep hike last Friday evening resulted in only temporary COP strength. USD/COP will likely trade with an upward bias as commodities prices continue to soften.

CLP USD/CLP continues to trade in a tight range and has found support at the 55-day MA, currently at 492. Price action is likely to be driven by fluctuations in commodity markets at least until the August 5 CPI print.

CNY USD/CNY movement appears to be stalling around 6.80 in the near term but will likely resume its slide once the market rebuilds the expectation that PBOC cannot afford to loosen monetary policy.

KRW Month-end data should provide more signs of slowdown, yet slower growth will unlikely deter the BoK from raising the policy rate in August. USD/KRW topside remains capped by the authorities.

MYR MYR appreciation is expected to slow as its role as a disinflation tool diminishes with the BNM staying behind the inflation curve but ahead of the (slower) growth curve.

INR A strong dose of monetary tightening is rupee supportive, but gains are being capped in the near-term by RBI’s plan to cease FX-for-bond swaps with oil companies. Range trading environment to persist.

HUF EUR/HUF corrected last week from recent HUF strength, although it is expected to dip briefly again below 230. This cross could be vulnerable to profit taking, but HUF is favored over CZK and PLN.

TRY USD/TRY corrected after the lira’s pre-hike strength, as the court case against the governing AKP moves to the forefront. Higher volatility will be seen until and after the verdict that market expects this or next week.

PLN EUR/PLN continues to trend down, and 3.20 should be tested. However, it is believed that PLN is on the strong side now, particularly as a rate hike priced in will is unlikely to materialize.

ZAR Rand benefits from inflation optimism after CPI basket revision. Yet the outlook is bleak, with the SARB caught between high inflation and dropping growth, C/A financing concerns, and latent political risks.