Forex Investment and Currency Trading

USD bounced against all of the majors in overnight trade and DXY rallied to 76.4 from a low of 76.0.  Nonetheless, baring a further spike in the remainder of today, DXY will record its first weekly loss this week after five successive weekly gains. NZD and GBP are notable underperformers against the generally strong USD today, the latter in particular reflecting poor domestic news flow (see below).  There are no further key data scheduled for release today and attention will focus on Fed Chairman Bernanke’s speech on financial satiability at the Fed’s annual Jackson Hole symposium. In his opening remarks late yesterday, Bernanke avoided any reference to the economy or the outlook for policy.

GBP/USD fell briefly below 1.86 (London low 1.8573) and GBP is weaker on all the major crosses after weaker than expected UK Q2 GDP data. The second estimate of Q2 GDP saw growth revised to zero q/q (previously 0.2%; consensus 0.1%) - likely moderately softer than the BoE had anticipated, the Bank noting the likelihood of a “small downward revision” to these data in the August minutes. The expenditure components presented for the first time here provide no offset to the gloomy headline with these data pointing to a sharp fall in domestic demand - gross fixed capital expenditure down 5.3% q/q (consensus -1.2%) and, more notably, private consumption dipping 0.1% in the qtr (consensus +0.5%). There was evidently no external impetus to counterbalance this drop off in domestic demand with exports falling 0.5% in the qtr (although, a 1.4% fall in imports, itself a product of declining domestic activity, ensured net exports provided a positive growth contribution. Even after today’s data, markets attach only a 60-70% probability to a rate cut before end-year and continue to expect GBP under-performance until a November cut is fully discounted.

CAD is down against a generally better bid USD today (USD/CAD London high 1.0463), but CAD out-performance on the crosses remains a key theme, with EUR/CAD and GBP/CAD both falling to 11 week lows. There are no key Canadian data or events today and the focus going forward will be on BoC Deputy Governor Longworth’s speech next Tuesday and, perhaps more importantly, Q2 earnings announcements from all of Canada’s major banks through the course of next week.

EUR/USD fell to a low of 1.4824 in London, after touching a high of 1.4909 in Asia. The Eurozone recorded its third consecutive monthly current account deficit in June (EUR8.2bn; no consensus), though the data were ignored, leaving EUR/USD to take direction from general USD moves.

USD/JPY traded back above 109 in London, extending a rally that started in Asia. Surprisingly, yesterday’s JPY rally failed to shake out any short JPY retail positions, according to the daily TFX data. Long AUD/JPY positions rose (95K, up from 88K) and are now virtually back to the peak of two weeks ago. Long NZD/JPY positions edged up and have been essentially static since last week’s sharp unwind.  BoJ minutes from the July 14-15 meeting confirmed a cautious outlook on the economy. Members said the BoJ needed to monitor the degree of slowdown in economies worldwide as this was starting to affect Japanese exports, members also said there was a risk of Japanese companies postponing their capital expenditure plans depending on future economic developments. Members did however note that a prolonged easy monetary policy could cause swings in the economy if downside risks eased.