Forex Investment and Currency Trading

USD
The overnight news that Warren Buffet is to acquire a stake in Goldman Sachs has brought some relief to the markets. Equity markets in Europe and Asia have rallied with bank stocks performing well. US equity futures are currently trading well into positive territory which may pave the way for further JPY losses through the session. USD performance has been mixed, with losses versus the high yielding currencies, but gains versus the anti-cyclicals such JPY and CHF. The outlook for USD remains in flux with policymaker comments surrounding the economy and the US Treasury program in focus again today. Bernanke today will testify on the economic outlook. Paulson, along with Bernanke, will also attend a hearing at the House Committee on Financial Services. The market is keenly tracking the progress of the Fed and Treasury’s bail-out plan and risks are that further political push back will be read negatively by markets.

EUR/USD

EUR was under some marginal pressure overnight following the release of softer than expected Ifo. Downside risks had been flagged following soft manufacturing PMI and Belgium business confidence readings. The Ifo reading continues to support evidence of an economy that is extremely weak, and supports the view that German growth will be close to flat in Q3. In other data, the Euro area current account posted its sixth deficit in eight months. Furthermore, the details of the financial account showed strong combined outflows from FDI and portfolio investments.Whilst this is unlikely to be a headline grabber over the near-term, the deterioration in the external trade situation leaves EUR vulnerable over the medium-term.  

GBP/USD

The pound continues to make gains against both the dollar. Trade and sales data shows that retailers in the nation are seeing stronger sales. The market is not trading with a large amount of conviction this morning, however. GBP/USD is likely to trade in a rane barring any significant news out of the US with respect to the Treasury and Fed’s bail-out plan.

USD/JPY
The yen is declining against the dollar this morning as equity markets are poised to open stronger in the US. Global equities have generally climbed overnight as the markets react favorably to the Buffet/GS news. This has allowed for increased risk appetite, and as such, anti-cyclical currencies have suffered. Strong focus remains on equity markets and its intra-day moves should help dictate USD/JPY price action.

Short term technical studies show support levels at 104.50 and a resistance level at 106.85.

AUD/USD

The Australian dollar slipped early last night as gold after equity markets closed down and commodity prices moderated. However, these losses are being reversed this morning after global equities received a boost from the news of Goldman’s backing by Warren Buffet. The RBA is set to release its semiannual Financial Stability Review tomorrow. The report should help put into further detail the current state of the economy and could be a near-term driver of AUD/USD.

USD/CAD

After strengthening yesterday morning on higher-than-expected CPI numbers, the Canadian dollar weakened somewhat in the afternoon as oil fell as low as $104.05 a barrel. CAD is firmer today as oil rallies back above $109. With no economic data scheduled to be released until next week, the Canadian dollar’s direction will likely be driven by US dollar and commodity performance.

Latin America
The Mexican peso and Brazilian real weakened yesterday as concern the US Congress might delay the financial sector bailout plan weighed on riskier assets. Mexico’s national statistics agency reported yesterday that July retail sales growth was higher than expected, climbing to 2.9% from 1.6% the previous month. Mexico’s central bank will release bi-weekly CPI numbers this morning. Brazil’s central bank reported yesterday that the current account deficit narrowed in August by more than expected to $1.1 billion from $2.1 billion in July. Brazil’s national statistics agency is scheduled to release its mid-month inflation report today.

Commodities Update
In commodities markets, energy is a bit firmer overnight. Oil rose after an explosion at an oil storage facility in Texas. A government report on US oil and fuel inventories is expected to show crude stockpiles declined last week. Metals are mixed, with gold falling a touch as equities rally on news of Buffett’s stake in Goldman Sachs and as investors take profits from gold’s huge rally last week.