Forex Investment and Currency Trading

Risk appetite has returned to the markets in the aftermath of the G20 meeting, with European equities rallying and US equity futures indicating a positive open. SEK, GBP and NZD have all performed strongly largely at the expense of USD and JPY. With little in the way of significant market moving data, the trend of high beta currency out-performance is likely to continue in session ahead.

G20 finance ministers made all the requisite noises about fighting the recession and supervising the financial system but without announcing any concrete measures. The least that can be said is that an outright row, particularly over the necessary degree of fiscal stimulus, was avoided ahead of the leader’s summit on April 2. For the FX markets the most important development was further indication that G20 is considering a meaningful increase in the IMF’s firepower, albeit with no concrete proposals yet announced or presumably decided.

The overnight price action was defined by three stories –
1) G20 meeting.  This was a non-event and in that there was nothing said that hurt the market many took the good away from this.  There was clear talk of increasing the disposal of toxic assets. Also there was hope that the IMF would get 3 times the money it wants – up to $750 bn – forthcoming.  So hope triumphed in London while the only official press conference after the event came with France and Germany noting that the purpose of the G20 meeting in April is to rewrite regulations for financials.

2) The FED Bernanke “60 minutes” interview.  Extraordinary is the phrase most used as the FED Chairman reaches out to the public to defend his role in fixing the economy (and perhaps his job).  There is nothing in this interview that seems to be new except that he did it.  The FOMC meeting this week suggests that the FED may be thinking about cheerleading the economy forward when other arrows have already been shot. 

3) The OPEC meeting.  Oil is down $2 bbl and the fact that the ministers didn’t cut production is a good thing – except that many think its about compliance.  Saudi was clear that its 8 mn bbls is not really 9 mn but others claims have less veracity. The price of oil may be one of those drivers of potential growth in 2009 that surprises – so oil at $40-$50 seems to be important.  Bottom line – overnight the markets put on a happy face and rallied again.  The moves in KRW, CE4 and others makes for a clear sign of USD weakness.  The EUR over 1.30, EUR/JPY over 128 and the EUR/CHF over 1.54 all suggest a return to risk.  Many think that today will be a crucial test of the market.  4 up days in a row – can it be 5?   That question may matter more than the fundamental data which undoubtedly will be poor – IP and TIC data are likely to be the fear mongers.  The hope of growth matters overnight, but here in the US the fact of a lingering winter may drive fear over greed.