Forex Investment and Currency Trading

USD fell off its highs overnight with DXY dropping from a peak of 76.129 down to 75.489 as EUR/USD recovered moderately from the biggest EUR/USD one day sell-off since Sept. 2000 that was observed on Friday. Sentiment towards EUR remains fragile in what will be an important week data wise. Exacerbating this fragility is the conflict between Russia and the former Soviet republic of Georgia , as EUR is the major reserve currency in that region.
The key events in the US this week will be Retail Sales on Tuesday and CPI on Wednesday. Retail Sales is expected to print at flat, while CPI and core- CPI are forecast to moderate slightly with the median core-CPI expectation at 0.2% down from 0.3% last month. However, since the Fed looks poised to remain on hold, while other central banks are setting the stage for rate cuts, it would take significant downside surprises here to turn USD around.

EUR/USD sank further on the Asian open down to a low of 1.4911 before becoming better bid through most of the session. Potentially bullish M&A news may have helped EUR recover from the lows as news that the US’s UPS is reportedly planning a EUR10bn bid for Dutch rival TNT hit the wires. In terms of data, it is an important week for EUR, though data is loaded towards the back end of the week with EZ Q2 GDP and July CPI scheduled to be released on Thursday. The median expectation is for EZ GDP to fall 0.2q/q, 1.5%y/y, while headline CPI is expected to rise to 4.1% y/y. If inflation retreats and growth disappoints, EUR could sag another few big figures. Key in this regard is the 1.4900 level, technically, a break through this level leaves 1.4360 as the target.

GBP/USD initially fell further following 7 consecutive days of losses, before bouncing off the 1.9110 session low to a high of 1.9256. The week ahead will provide further insight to the current level of upside risks to inflation, with July CPI due on Tuesday and the release of the BoE Quarterly Inflation Report on Wednesday. Today’s July PPI data was softer than expected, providing some relief to the BoE, though in yearly terms output remains at highs not seen since the ‘80s. PPI Input printed at -0.6%m/m, 30.1%y/y (cons. +1.0%, 30.1%), Output 0.4%m/m, 10.2%y/y (cons. 0.5%, 10.3%), core output 0.3%m/m, 6.7%y/y (cons. 0.4%, 6.5%).

USD/CAD trickled lower just off the recent highs, though this move was minor with the pair remaining clearly above the 1.06 handle. Today sees the release of July housing starts data which the market expects to print at 210k. A sub 200k downside surprise in these data would likely result in a sell-off in the pair.

AUD/USD traded sideways during the Asian session before catching a bid that pushed the pair 1% higher as London opened. The RBA’s Statement of Monetary Policy released overnight confirmed the Bank’s easing bias. One of the main developments from a policy perspective, is the downturn of the global growth outlook.” Accordingly, Market now expects the first cut at the upcoming September meeting. While the debate over a 25bp or 50bp cut will wax and wane over the coming weeks with both cases having merit. Market expects a 25bp cut at the 2nd September board meeting followed by another similar move in Oct or November but would not be surprised by a larger 50bp move in September.

NZD/USD traded a similar path to that of its Antipodean counterpart, rallying to 0.7084 on the London open. QVNZ July house prices fell 2.2%y/y, the first decline since the inception of the series in early 2005.