Forex Investment and Currency Trading

The BoE announced a 50 bps reduction in its key overnight rate today, taking the repo rate to 0.5%, and announced the start of its QE process with GBP75bn in asset purchases. The GBP sold off on the initial news but the GBP is looking relatively “cheap” against a range of currencies and look for slippage to remain relatively limited. Focus now turns to the ECB press conference following the just announced 50 bps cut in rates. While the GBP has slipped on the initial news of the BoE moving to QE, still of the opinion that the GBP looks quite “cheap” on some of the crosses. With the pound having fallen sharply in trade weighted terms late last year,rates at zero and the BoE having little concern about moving away from conventional monetary policy, it would appear, the UK economic pump might start to look relatively better primed than the euro zone. EUR/GBP may see further short term pressure towards key support at 0.8810.

In the majors today, renewed risk aversion (which is spilling over heavily into EM currencies) has lifted the USD back to near levels that attracted sellers earlier in the week. Data releases – especially weekly claims ahead of the payroll data tomorrow – and further news from the Obama administration on support measures for the economy and the financial sector will be the main focus for the FX markets today – with traders also keeping a close eye on equity market developments amid renewed concerns about GE and GM. USD/JPY is struggling to break the 100 level at the moment, with option related selling and exporter sales slowing gains. Traders remain negative on the JPY overall and expect USD/JPY to continue grinding higher towards technical target of 102. Meanwhile, USD/CHF still looks a little sticky in the 1.18 area and EUR/USD is attracting support in the mid 1.25s still. If the EUR holds this support area, which is also 61.8% retracement of the 1.2460/1.2660 rally, the USD may start to trade a little more defensively.