Forex Investment and Currency Trading

The market optimism that followed the FOMC decision earlier this week seems to have faded, as the MSCI World index fell yesterday for the first time in nine days. However, some attention has turned toward commodity prices, as crude oil closed above $50 yesterday for the first time since the end of November. Gold rebounded as well as global inflation concerns have re-emerged, with fears that more and more developed countries are going to turn towards quantitative easing and “printing money.” While some think that inflation concerns are overblown, as economic slack continues to build around the globe, the markets don’t seem to be convinced. With the rebound in commodity prices, we’ve seen AUD, NZD, and CAD outperform overnight. AUD and NZD are also benefitting from the idea that their central banks are less likely to move towards QE, since despite the several percentage points of rate cuts that we’ve seen from these countries, with policy rates at 3.25% and 3.00%, respectively, they still have a lot of room left for traditional monetary policy. At the same time, SEK has been the worst
performer overnight after the Swedish finance minister said in an interview on CNBC that he does not rule out QE. EUR/SEK rallied to 11.05, in line with pre-FOMC levels.

Comments from SNB’s Thomas Jordan echoed what Chairman Roth said last week, making it very
clear that the purpose of intervention in CHF was not to give Switzerland a competitive edge through a weaker currency, but that it should be looked at as just another tool in the monetary policy toolbox that gets pulled out when policy rates are at zero, much like QE. However, Jordan went further in saying that if the Swiss economy requires additional stimulus, then the SNB can move to negative interest rates on its deposits or its liquidity operations, like in the 1970s, or even start fixing the EUR/CHF exchange rate. EUR/CHF traded lower after Jordan’s remarks, as markets seem to be testing the SNB’s resolve. However, since Jordan said that “We monitor the development on the foreign exchange market permanently and intervene on an ad hoc basis,” analysts don’t think that the SNB will be satisfied until it pushes EUR/CHF back up to 1.55.

Yesterday’s US data failed to bring any big surprises. Initial jobless claim were a little better than expected, falling to 646K, while continuing claims continue to soar, rising to 5.47 million. Over the last few weeks, it seems that initial claims have stabilized to some extent, or at least slowed their pace of increase. But continuing claims have been climbing very steadily, and show no sign of stopping. The other data release yesterday was the Philly Fed index for March. While the headline number improved by about 6 points to -35, the details of the survey were pretty grim. Employment fell from - 45.8 to -52.0, new orders tumbled from -30.3 to -40.7, and prices paid and received both moved further into the red.