Forex Investment and Currency Trading

Both USD and JPY have performed strongly with the European currencies feeling the brunt of the pain. European equities have traded broadly lower but losses have not been so large as to suggest such significant FX price action. With the topic of inflation gaining increased coverage against the backdrop of QE, today’s core PCE data in the US may also attract some focus. The US 5-year inflation breakeven has continues to rise in recent days in the aftermath of the Fed’s decision to buy US Treasuries. With the downward pressure on real yields likely to intensify, traders continue to believe that the policy backdrop is negative for USD.

EUR/USD
The euro slid sharply on Friday after Germany’s finance minister said fiscal irresponsibility in Europe could put the currency at risk, and the dollar drew extra support ahead of next weeks Group of 20 leaders meeting. Japanese and Russian officials said the dollars roll as the global  reserve currency is unlikely to be discussed at the next meeting.  This gave the dollar broad support while German finance minister Peer Steinbrueck’s comments, weaker than forecasted euro zone industrial orders and German state inflation data triggered a huge batch of pre-placed euro sell orders.

GBP/USD
Sterling fell to a session low against the dollar on Friday after data showed an unexpected downward revision to fourth quarter UK gross domestic product.  Figures showed the economy shrank by 1.6 percent quarter on quarter in the quarter, revised down from -1.5 percent previously to mark the sharpest decline since 1980. The annual rate of decline was also revised to 2.0 percent from 1.9 percent,

USD/CHF
The Swiss franc was little changed on Friday ahead of Switzerland’s key KOF economic indicator as the Swiss National Bank’s threat to intervene if needed kept the franc in a close range.  The franc was 0.1 percent weaker and 0.1 percent stronger against the euro and dollar respectfully, at the New York close.

AUD/USD
The Australian dollar held firm near three month highs against the US dollar on Friday, posting its fourth straight weekly gains, as firm stock markets supported investor appetite for riskier currencies. Persistent improvement in risk appetite has seen a rally in equity markets.  These developments have been broadly US dollar negative and have helped support higher risk currencies such as the Aussie.  Investors are now betting on a 73 percent chance rates will fall to 3 percent in April.

USD/MXN
Mexican stocks jumped on Thursday and the peso firmed for the second session after a US economic report was slightly stronger that Wall Street expected, suggesting the downturn in the United States may be moderating.  The benchmark IPC stock index closed up 1.33 percent while the peso gained 0.73 percent, also helped by rising oil prices.  A government report on Thursday showed the US economy contracted by an annual rate of 6.3 percent  in the fourth quarter, slightly less than forecasted

USD/JPY
The dollar slipped against the yen as traders picked up the Japanese currency at cheap levels following this week’s slide and on last-minute repatriation ahead of the fiscal year-end. Meanwhile, the Japanese version of HIA has just been passed. The bill will become active at April 1st, the first day of Japanese fiscal year. The bill includes the provision for a “Japanese HIA,” which encourages Japanese corporates to repatriate their overseas retained earnings.

USD/BRL
Brazil’s currency strengthened and stocks rose to their highest level in seven weeks on Thursday as a rally in commodity prices and optimism over the US economy lifted steelmakers as well as Vale. The Bovespa index of the Sao Paulo exchange rose 1.89 percent its highest level since Feb 9th. Brazil’s currency the real gained 0.44 percent closing strong against the dollar.

USD/CAD
The Canadian dollar continues to be the laggard among the commodity currencies which has put in stellar performances against the US dollar. However, another round of gains by the commodities with the CRB Index up 0.6% and crude oil up above the $54 level buoyed the loonie. The recent run up in commodities was on the back of the strong rally in global equities which has sparked market optimism that the global recession has or is close to a bottom and Canada being a major exporter to the US will benefit the most if that is the case. With no economic data out of Canada today, the pair will look to the equity and commodity markets for direction.

USD/KRW
The South Korean won fell 1.3 percent against the dollar on Friday, ending a 4-day winning streak as importers dollar demand for settlements caused investors to cover dollar short positions.  The won, however, rose 4.8 percent versus the dollar for the week as investors chased riskier assets amid eased worries about a global recession and the banking sector. The local currency is expected to gain further as data fueled hopes Asia’s fourth largest economy was hitting a bottom and on expected surpluses in trade and current accounts.

USD/CNY
The yuan was steady against the dollar in the spot and offshore forwards markets on Friday as China announced tax and debt quota measures to support exports, suggesting its currency may not be enlisted as a trade policy tool. China also acted on Friday to boost trade financing by raising the amount of short term foreign debt that banks may incur. The State Administration of Foreign Exchange set a quota for the year beginning on April 1 of $32.9 billion, up 12 percent from a year earlier, while the newly added amount could be used to help Chinese exporters and importers.