Forex Investment and Currency Trading

Renewed equity market selling during the European session has set the stage for pressure on high beta FX, with the Scandinavian currencies as well as AUD and NZD under-performing against both USD and JPY. USD has once again been the major out-performer on the day with USD/JPY trading higher and continuing to support the observation that the pair has largely decoupled from moves in the equity markets and following yet more negative news on the Japanese equity market outlook. Despite continued weakness in the UK house prices, GBP has remained resilient to the recent downturn in UK data. This in large part reflects the major event risk of the day for GBP with the Bank of England due to announce its rate decision shortly and details on the size of the asset purchase program. Details regarding the QE program may be more important than the actual rate decision; media reports suggest that GBP 100-150bln of asset purchases may be authorized at this stage. A more aggressive announcement should weigh on sterling, and in general the bias is to buy EUR/GBP on any dips.