Forex Investment and Currency Trading

USD
All eyes were on US nonfarm payrolls today. Following the much weaker than expected ADP report, the market was prepared for the worst in terms of NFP, which was in line with expectations at -524K. The payrolls number have managed not to surprise on the downside (which is positive for USD at this point), however the unemployment rate jumped to 7.2% vs expectations of 7%. Although the correlation between US stocks and USD has not been consistent, it has become positive at this time. Thus, USD will likely trade on market’s interpretation of the payrolls data.

EUR/USD
The euro continued to trade under weak sentiment as data continued to depict a deteriorating outlook. German industrial production growth came in at -3.1% vs expectations of -2.0%, and November retail sales dropped 3.0% vs expectations of 0.0%. ECB council member Weber says Germany will likely contract by more than forecast in 2009. The euro will likely continue to be under broad pressure today as the market absorbs the US payrolls data.

GBP/USD
The pound is set for a record weekly gain against the euro and its biggest advance versus the dollar since 1985 as the Bank of England slowed the pace of interest rate cuts. Although industrial production came showed a far worse decline than already bad expectations (-6.9% vs -5.3%), the central bank action, along with the renewed fears on the US and Euro-zone economies have lifted the pound. This trend will likely continue to play out into next week.

USD/JPY
The yen continues to show strength as risk aversion continues its comeback in the global markets. November leading index was in line with expectations at 81.5 and FX reserves hit a record high. The yen might come under pressure today as the US payrolls probably dropped less than some had forecast. Trading today will be driven mostly by the US sentiment.

USD/CAD
After showing strength against the dollar yesterday, CAD dropped today as the employment report showed that the economy shed more jobs in December than forecasted. Housing data also showed further deterioration in the Canadian economy. CAD will likely continue to stay volatile focusing on commodities and changes in US economic outlook.

Latin America
After showing continued weakness yesterday, MXN and BRL gained for the first time in three days as the US employment report showed job losses for the 12th straight month. BRL is likely to trade up today as the international reserves rose and the stock market points up as well.

Commodities Update
Crude oil showed support yesterday following signs that Saudi Arabia will deepen supply cuts in months ahead. Gold was little changed and is heading for the first weekly loss in a month after mixed USD trading.