Forex Investment and Currency Trading

Equity markets are flat to down slightly overnight (Asia and Europe are mainly in the red, as are US equity futures at early morning) but the market seems hot to trot for risk in the currency space this morning, with the AUD leading the pack after news earlier today (and late yesterday) of more monetary and fiscal stimulus; the RBA duly delivered the 100bps of easing in the cash rate – taking it to 3.25%; meanwhile the government announced a supplemental fiscal package that will inject a chunky AUD 42bn in government spending (handouts and infrastructure spending etc.) into the economy – a little more than 3.5% of GDP. All told, quite a lift for the local economy though whether the market’s rediscovered risk appetite prove more than a one-day wonder remains to be seen. FX market participants remain pretty thin on the ground and it is less to do with the ongoing weather-related transport problems around London than a lack of conviction on where we go from here overall. The USD has given back a little ground this morning in terms of the DXY performance but the level of participation (the only major “punters” appear to be the typically active central banks).

EUR/USD is facing firm short term resistance in the 1.2945/20 range but should not rule out the push extending to 1.2950/60. Support for the EUR comes in at 1.2800/20 today. From a longer term point of view, market remains much less impressed by the fiscal outlook for the US than many others, in the main due to the deteriorating fiscal position of the US. The Treasury announced yesterday that it will need to borrow USD493bn in the three months through March (about a third more than it said it would
need to borrow in the period late last year) but that less than pleasant piece of news barely caused a ripple in the markets. Ultimately, this will have to catch up with the USD.