Forex Investment and Currency Trading

1. Japan prints a $10 bn trade deficit in January – worst since 1980 – with US exports down a whopping 53%.
2. Ukraine saw its ratings cut by S&P on IMF loan risk.  This wasn’t a surprise but it highlights again the concern about Eastern Europe and sent markets back to the panic zone over risk.
3. ECB Weber comments on EU bailouts.  This confirms that even though the ECB hates the idea of a EU wide bond to fund bailouts that some idea of joint responsibility is alive and well in Europe. 

There were other stories of interest that clearly matter.  Some disappointment that the Obama speech didn’t continue the Bernanke mood of banks being supported as the President delivers more words but less details on the financial bailout.  Some further rate cutting actions by central bankers – Poland did 25 bps less than needed but showing restraint due to currency.  More 4Q GDP reports – all negative and all showing how the 1Q seems unlikely to suggest a bottom.  Bottom line: You take all this and mix it together and what do you get?   A market in a bad mood compared to the bounce of yesterday even as the price action is positive.  That may be some vulnerability as the US market has been the great equalizer of trends recently.  The Bernanke speech – day two of testimony – will be worth watching again as the Q/A could reveal more details.  The oil inventories will be watched as real evidence of demand erosion.

Market Overview
US stocks rebounded yesterday for the first time after more than a week, with the S&P rallying 4% on the day. US bonds traded marginally weaker, with the 10yr note selling off by 4bp.

This morning, the breakdown of the German GDP data revealed that most of the growth damage in 2008:Q4 is largely attributed investment (particularly in machinery) and exports.

Consumption, on the other hand, was less negative than expected. The focus in today’s calendar is on the US existing home sales data for January and the second day of Bernanke’s Humphrey Hawkins testimony. In the first part of the testimony yesterday, Bernanke sounded as bleak as broadly expected on the economy, but what really caught the attention of markets was his revealed preference to avoid full nationalization of major US banks.