Forex Investment and Currency Trading

USD enhanced yesterday’s gains overnight with DXY pushing up through 77.0 for the first time this year to reach a high of 77.252. Helping the USD bid were falling oil and gold prices with the black stuff dipping 1.7% and gold losing 3.2%, falling through USD800/ozt for the first time in 2008. The price action in gold extended across the precious metals with platinum down 6.5%, palladium losing 6.6%, and silver diving 9.2%. Asian equities followed the US ’ lead overnight as the Nikkei rallied 0.48%. Europe had no intention of bucking this trend with DAX pushing 1.06% higher, CAC rallying 1.40%, and the FTSE gaining 0.58%.

Today, the US data focus will be on the University of Michigan ’s survey of consumer confidence sentiment which is expected to have edged up from 61.2 to 62.0. NY empire manufacturing is also scheduled for release today and is expected to have moderated to -4.2   in August from -4.9 in July. Industrial production and capacity utilisation data are expected by the market at 0.0% and 79.8% respectively, though market sees some downside risk to both these data. Also of interest will be the Fed’s Evans speaking on the outlook for the US economy.

EUR/USD continued to fall overnight reaching a low of 1.4699 during a data free session with much of Europe shut for Assumption day. A bearish development is the slowing growth in FX reserves of Asian central banks. Asia (ex. China ) outright FX reserves have fallen by about US$70bn since April, and the rate of change has slowed from 18.1%y/y to 11.1%y/y. China has yet to release data for July, but data to June also show a slowing in the rate of reserve growth from 41%y/y to 35.7%y/y as of June. Should this trend in Asian FX reserve growth be sustained, it is reasonable to assume Asian central bank supply of USDs will be reduced further. With EUR previously the biggest beneficiary of portfolio rebalancing, sustained slowdown in reserve growth will weigh on EUR.

USD/CAD rallied up to a high of 1.0694 overnight, before pulling back somewhat to around the 1.0660 level. The data for June Canadian manufacturing shipments is expected. Manufacturing shipments have been helped over the last two months by strong increases in oil prices that continued unabated in June. Also expected to provide support to shipments was the ending of a strike at a key auto parts producer in late May. While the shipments data may provide some support to the CAD, there is good support now at 1.0566, and resistance remains in the 1.0720/25 region.

The Antipodeans were weaker overnight with AUD falling in line with commodity price action and NZD drifting 0.8% lower. In New Zealand , headline June retail sales rose by 0.9%m/m (cons. flat) following a 1.2% drop in the previous month. More importantly, Q2 retail sales ex-inflation fell by 1.5%q/q (cons. -1.8%. This was the second largest quarterly decline on record and the first back-to-back quarterly decline since the ‘97/’98 New Zealand recession. Pressure from close to double digit mortgage rates, rising fuel and food prices, falling house prices and a waning labour market are weighing on the Kiwi consumer. These data remain consistent with another negative GDP print with the RBNZ likely to revise down its growth forecasts in the upcoming September MPS.