Forex Investment and Currency Trading

The dollar showed strength against most major currencies as crude oil prices dropped and market focused on rates decisions in Europe. The broad theme of USD and JPY strength vs AUD and NZD weakness continues. US Senate Democrats said that Obama’s proposal to stimulate the economy would likely undergo big changes. Obama said that he will revamp TARP to refocus on ensuring credit flows to households and companies. Fed’s Lacker said that monetary stimulus could need to be withdrawn to prevent resurgence in inflation, even though credit markets are not fully recovered. This week’s trading will be primarily driven by the start of 4Q earnings season and heavy economic data, as well as monetary policy decisions abroad.

EUR/USD 

The euro fell against the dollar and yen earlier as market expectations of an ECB rate cut increased. Managing Director of the IMF, Strauss Kahn stated that Europe is “behind the curve” on fiscal stimulus, and said that IMF will need another $150bn to deal with crisis and significantly revise its forecast of $1.4tn in financial losses and writedowns. This, along with last week’s weak economic data increases the pressure on ECB to cut rates this week. On a brighter note, Germany’s CDU party said government will take stakes in any industrial compnay facing insolvency due to credit crunch. This week’s trading will be dominated by ECB rates decision.

GBP/USD

The pound fell vs most major currencies today as equity markets declined across Europe and a CBI report added to evidence of an economic slump. CBI said that UK banks, insurers and financial services companies may cut close to 15,000 jobs amid a plunge in business confidence. Prime Minister Gordon Brown said he will pledge 500mm pounds to encourage hiring. GBP trading this week will focus on the Europe rate decision and US economic news.

USD/JPY

The yen continued to outperform as risk aversion persisted and stock markets sank. EUR/JPY cross is trading down to 120, which is generally indicative of a downturn in global stock markets. JPY is likely to continue to outperform as the kick-off of earnings season is unlikely to lift the gloom.

AUD/USD and NZD/USD

AUD and NZD underperformed against most major currencies as the US unemployment data showed that the global economic slump continues to worsen. The drop in equity markets as well as the price of crude oil continued to put downward pressure on both currencies. A reversal of this trend is unlikely while both equities and oil continue to decline.

USD/CAD

The Canadian dollar was weak today as the global equity markets as well as the commodity prices posted declines. CAD trading this week will focus on the heavy US economic data, as well as the corporate earnings, which will also give a good indication for the state of the Canadian economy.

Latin America

MXN showed slight weakness today as central bank Governor Guillermo Ortiz made dovish comments about seeing room for rate cuts on growth concerns for 2009. The risk of inflation is also reduced as the government pledged to cut and freeze gasoline prices through 2009. BRL fell today crude oil traded below $40. Trading will likely be under downward pressure as stock futures point to negative territory.

Commodities Update
Oil fell under $40 today as concerns that global recession is reducing global demand continued to grow. The decline is significant as it came despite Saudi Arabia’s planned output cut, disruptions in Europe caused by the Ukraine-Russia dispute and tensions in the Middle East. Gold traded down as the dollar showed strength.