Forex Investment and Currency Trading

The world got plenty of news – rates on hold in Brazil with a dovish statement, rates cut 100 bps in Korea, 75 bps in Taiwan, 50 bps in Swiss.  The PPI and CPI in China on a y/y at 2% - and momentum suggests they go negative.  Russia sneaks in another 1% devalue as the reserves drop over $17 bn in a week again.  If this defines calm and stability – then the market is set for a long day as US trade and the hand-wringing over the US auto bailout in the Senate will provide plenty of fodder for the doubters.  This is a market bent on punishing anyone with a position.  So the up move in equities, commodities and the EUR (or call it the drop in the USD) are all part of the same fear – namely that inflation will be the logical outcome of the fixes described above by the easings that were all more than expected.  So even as the data continue to point to deflation risks, markets unwind the hedges and many take it as a signal of inflation. 

US equities saw choppy trading yesterday but still managed to close 1.2% higher. While the House of Representatives approved a wide-ranging rescue plan for US auto makers, markets were unnerved by the prospect that rescue plan may not get the support it needs in the Senate to pass in its present form.

Today, the focus will turn again to the macro data, particularly initial jobless claims which surprised on the downside last week. The October trade balance and the third quarter Flow of Funds accounts are also out today. Among the figures to watch in this comprehensive report are the ratio of net worth to household disposable income and the corporate sector’s financing gap.

The Dollar was squeezed weaker in overnight trading. EUR/$ popped up above 1.31 and the Aussie Dollar rallied comfortably above 0.66. More generally, Asian currencies rallied strongly versus the Greenback. There was no particular trigger for the price action, but the larger-than expected 100bp cut from the Bank of Korea is a clear positive given that the Korean authorities are being very proactive in stimulating the economy.