Forex Investment and Currency Trading

Markets were screaming for coordinated easing over the last 2 weeks.  And that is what we got this morning… At 7am this morning, Central banks from the US, UK, Euro zone, Canada, Switzerland, Sweden, and China all announced interest rate cuts. Japan did not participate but has made a statement, showing their co-operative spirit.  For the first time when they have really had to act in concert ” out of the box” since post 9/11, the world’s major central banks are delivering.

The reaction was positive to the FED led move, but it was partially priced into money markets and it may put the G8 meeting ahead under the gun to produce new tools for shock and awe.  To fix confidence markets want positive surprises.  This particular action puts the burden on central bankers to come up with more tricks and faster should the stability that they want doesn’t come forward. So as governments intervene fear goes from collapse to wondering what will be the next bubble.  For the day, we all want rest and some sense of normalcy, so a win would be an uptick in equities, a dead FX market and a slightly steeper yield curve.  What we don’t want is a bigger USD/JPY sell-off, more EUR weakness, more Gold buying and of course, another down day in shares.  Calling a bottom here would be a brave call, but a logical one.  For FX – we will likely see the USD start to react more to economic data and rate differentials when money markets regain their footing and arbitrage returns.  The implication is that we may see EUR back up a notch 1.3850-1.40 before trying 1.3320 again, GBP regain a bid with 1.78 before 1.73, AUD, CAD, and mostly the EM world all gain back something against the USD as the fear of a global recession recedes to just a quiet misery and slowdown. But the money that has been invested has been in EM and the dislocations of the market have left investors scrambling to get their money first and think later.  Moods have flipped from fear to numb – greed won’t be seen until the crowd disperses. If it doesn’t we have to start prices in another trick round.  Market already calls for 50 bps again October 29. 

Who cut and how much?

BoJ doesn’t ease – rates already very low, monetary conditions have been easy.
Norway doesn’t ease
FED eases 50 bps to 1.5% Fed Funds, cuts discount rate to 1.75%
ECB cuts 50 bps to 3.75%
BOE cuts 50 bps to 4.5%
SNB cuts 50 bps target to Libor range 2-3%
BOC cuts overnight rate 50 bps to 2.50%
Riksbank cuts 50 bps to 4.25%
China cuts 27 bps 1Y deposit rates to 3.87%; Reserve requirement by 50 bps to 17%