Forex Investment and Currency Trading

With plenty of the “event risk” this week – the ECB policy meeting (a plunge in euro zone CPI today will give policy makers ample food for thought about a large rate cut), the G-20 meeting in London and the US payroll report at the end of the week – there is likely to be a lot more volatility in the markets in the hours ahead. More broadly though, it is worth noting that running into month end, the longer term chart does continue to suggest that the EUR has found a firm base around the pivotal 1.2550 area in the past couple of months and – barring a huge fall in EUR/USD today – will complete a bullish outside month signal at the close of trade today. Fundamentally, analysts think the USD faces some challenging times ahead (given the massive government borrowing programme that the Obama administration is undertaking) and the charts appear to support the prognosis for further EUR appreciation in the next few months as well.

If there is scope for the USD to improve, it should be against the fundamentally weak JPY. Weak data released overnight are the curtain-raisers for what is expected to be a plunge in the key BoJ tankan report to its lowest level in 30 or so years. With global demand still in the dumps, Japan’s exporters will continue to struggle and we have noted previously that there is a long and sustained linkage between the performance of Japan’s external sector and the JPY. Analysts look for fundamentally-driven JPY losses in the medium term to be supported by technical strength in USD/JPY above the 98/99 area where recent gains have stalled (200-day MA at 99.29 today).