Forex Investment and Currency Trading

USD was the worst performing G10 currency overnight with DXY falling to a low of 73.976, relinquishing most of yesterday’s gains. In the US today, data will take the form of initial jobless claims, pending home sales, and consumer credit, though focus will lie firmly on non-US data with the BoE and ECB announcing rates. Both banks are expected to leave rates on hold, while focus for EUR will be on the ECB press conference which follows

USD/CAD drifted lower from the 9-month high of 1.0495 seen yesterday, before catching a bid as London opened to recoup some of those losses. The only Canadian data out today are building permits which are expected to fall 1.0%m/m in June.

EUR/USD was driven up towards the 1.55 handle overnight, peaking at 1.5487 ahead of today’s ECB rate decision. Market expects rates to be left on hold at 4.25%. European activity data have taken a turn for the worse of late, supporting the view that next move in rates will be a cut, though lingering concerns over second round effects may well see the Bank issuing further hawkish sound bites in the coming months. As for the subsequent ECB press conference, market expects the Bank to reiterate its neutral bias but to more likely assert its room for manoeuvre should wages pick up rather than hint at a possible easier policy stance. If the ECB surprises and indicates a more dovish stance than the July statement when ECB President Trichet said “I have no bias” and later repeated “we have no bias”, EUR could test 1.53.

GBP was softer overnight with EUR/GBP rallying up to a high of 0.79380, helped by the release of yet further weak housing data as HBOS July house prices printed below expectations. Market expects the BoE to leave rates on hold at 5.00% later today. The recent clear deterioration of an already poor growth outlook leads market to expect the majority in UK vote will conclude that the best course of action is inaction. Barring a shock interest rate change, GBP will likely  be unfazed by the BoE decision.

AUD/USD edged higher off the 4-month low seen yesterday following stronger than expected July employment numbers. Employment rose by 10.9k in July although the previous month was revised down, while the unemployment rate held steady at 4.3% as expected. These data are lagging however, and there was little to alter the RBA’s newly adopted easing bias as it prepares to lower rates. Market expects a 25bp cut in October followed by a similar move in November although the RBA’s strongly worded statement on Tuesday suggests that a cut in September cannot be ruled out.

NZD/USD rallied 40pips following stronger than expected labour data, but unlike its Antipodean neighbour, NZD was unable to sustain those gains and fell back to pre-release levels: Q2 employment surprised to the upside at 1.2%, though the more important unemployment rate for Q2 accelerated to 3.9% from a revised 3.7% in Q1.