Forex Investment and Currency Trading

Risk appetite is back and equities are higher, as money market and CP interest rates have dropped further. One month LIBOR fell another 18 bps to a 4 year low as central bank cash injections help ease interbank lending and CP rates are sharply lower. The RBA cut Australia’s key rate 75 bps, more than the 50 bps expected, also adding to enthusiasm and to rate cut expectations from ECB and BoE Thursday, market forecasts at 50 bps and 100 bps respectively. Euro/yen popped up almost 5 Euros but the give vs the USD was in Euro, which gained toward 1.2900 (from 1.2530 overnight) as dollar/yen held under 100, though barely. The VIX volatility index under 50 at its lowest in 4 weeks is consistent with improving EM currencies, albeit moderate. AUD response to the RBA cut was AUD positive, over .6900, seen a positive for the economy, and crude oil is +$2, joining a commodity recovery. Still, vastly lower commodity prices from the 2008 peak are a positive for consumption outlook, especially average gasoline now $2.41/gal. USD/CAD has dipped below the 50% retracement level, down toward 1.1500, and traders cite M&A talk. This morning’s US data is negative: US Redbook same-store sales falling from .7% y/y growth to .3%, weakest since March; and US factory orders -2.5% as nondurable goods crashed, suggesting another .2% subtraction from 3Q GDP, now likely -.6% from initial -.3%. Our economists forecast 4Q GDP at -4.2% q/q annualized, per our attached US economic forecasts through 2010, summarized below.