Forex Investment and Currency Trading

FX markets spent much of the night/day speculating over the likely extent of USD demand from equity managers at the month-end London fixing and watching signs of risk appetite in Asian equities and S&P futures. This is the most uncertain, and anticipated event of the day. Many fund managers are choosing to manage this risk themselves, and are giving up their fix trades at the last minute this morning. The potential exists for this fix to be significantly large given the falls in equity markets during the past month. Many will potentially try to get short ahead of this and it will pressure the Aussie and other currency pairs. AUD is seen as one of the biggest losers at the London fix but a certain amount of selling is obviously already in the price. Overnight NZD/USD traded 0.5830-0.5908, a good deal quieter than Thursday. EUR/USD opened Asia-Pacific trade heavily but was muted overall, lacking inspiration. USD/JPY flickered briefly above 99.00 in early Tokyo, retreated to 98.00 and below, sitting about halfway between as markets wait for the BOJ press conference to explain their hotly disputed 20bp easing. The Nikkei was not very impressed by the news, perhaps worried by the split vote. In USD/CAD, the possibility exists for USDCAD to trade back to 1.3000 by the end of next week, both equities and commodities have the potential to fall more during the week as the rebalancing between bonds and equities that markets have been talking about all week should be over. Therefore the risk exists that equities, and risk sentiment will deteriorate into early next week. This is evident already in some key commodites like Copper that after rallying well in the past week, has given back a lrge portion of these gains in the past two days. Today copper is down 9.70%, and Nickel is down 12.72%. This will pressure the Aussie and the Canadian dollar.

On a more positive note we are seeing decent falls in Libor this morning as the FED’s CP program, and rate cut, are having a positive influence on this rate curve. 1m Libor -27bp, 3m Libor -17bp.