Forex Investment and Currency Trading

On Friday - following a 650k job loss - right in line with expectations - but a sharper than expected jump in the unemployment rate, equities initially rallied. After turning sharply, stocks managed to claw back deep intraday losses on Friday, to finish flat, but it was another week of new lows.

Bond markets proved surprisingly soft given the price action and data, something that has become more common of late. Even at the depth of the intraday losses yields did not really fall and bonds closed meaningfully lower on the day. While the dollar weakened a little, USDJPY has again recovered after a period of downward pressure and market continues to think it will push higher.

With yields not falling much despite the equity slide in recent weeks and the dollar strengthening, financial conditions have tightened further. With the global data still weak, analysts continue to see the failure to ease financial conditions as a major headwind for markets.

Central banks are clearly aware of the problem – and the push towards quantitative easing continues. With the UK announcing that it will purchase Gilts, the Bank of Canada saying it intended to explore plans for quantitative easing and the ECB making similar noises, we are clearly entering a new phase of more action on this front. How successful that effort will be – and how quickly – is still highly uncertain though. The US now falls more squarely into the camp (like Japan) where FCIs are tightening relatively more and FX appreciation has been substantial despite poorer data than in many other places.