Forex Investment and Currency Trading

The nascent “bear market” rally driven by valuations, technical factors and public policy measures will likely be invigorated by a further ease in EM inflation, increased policy flexibility and, at some stage, stabilization in the slide in economic activity.

First, the potential for a rapid reduction in inflation will likely provide EM central banks with additional flexibility to further reduce local rates. “Base effects” will likely help promote a consistent reduction in reported inflation through early 2009, although important country and regional differences will likely exist.

Second, a few macro indicators are beginning to suggest that the pace of deterioration in the manufacturing sector in Asia is starting to stabilize. The macro environment will likely remain weak and fragile, yet early signals of stabilization surfacing warrant further attention.

In this environment, a variety of interesting trades present. Opportunities include short USD/KRW, short USD/BRL, and long TRY/ZAR.