Forex Investment and Currency Trading

It should be a fairly quiet start to the week, with much of Europe still closed for the Easter holiday and the markets likely to see relatively lower turnover as a consequence. A raft of US data reports and earnings from US banks this week – GS, JPM and Citi all report Q1 results in the next few days – will also likely dampen interest on the day at least. The USD has taken a bit of a dip in overnight trading so far and the bias appears to remain to the weaker side for USD/CAD. Canadian data reports today constitute the only major North American data releases, with the BoC releasing the Q1 Business Outlook Survey and Senior Loan Officers’ Survey; both reports will help shape the debate about BoC policy options ahead of next week’s FAD. The CAD showing no lasting effects from Thursday’s employment report and continues to pressure key support in the upper 1.22 area versus the USD. The main risk for funds at the moment is to the downside and look for intraday weakness under 1.2235 to point to another run at the mid-March low of 1.2193 (key short term support). The market has done a fair bit of technical damage to the USD already and though the lack of downside follow through selling – so far – is something of a disappointment, thin trading conditions and the bias for USD short covering ahead of the long weekend may have given the USD a false sense of stability. Above 1.23 brings short term stability to funds but traders generally continue to favour selling rallies.

While price action late last week was driven mainly by USD short covering and stop loss hunting, the markets have generally turned USD sellers in the main so far today, with the AUD and GBP feeling the benefit of USD stop loss selling in the overnight session. With data releases few and far between, Chinese news – speculation of more stimulus measures to boost growth on the one hand and data suggesting that the pace of reserve accumulation slowed in Q1 – attracted most attention overnight. The NYT reported that China had sold bonds “heavily” in January and February but had resumed buying in March. Improving risk appetite and hopes of a boost to Chinese-led demand may continue to support for the commodity currencies in the near term. The AUD has popped to new highs for the current leg up overnight, though the market is off its best levels at the moment.

EUR/USD is moving higher as trade picks up in the markets. The EUR managed to find pretty good support around the lows over the past couple of trading days, defusing speculation late last week that the EUR was at risk of a large move lower in thin holiday trading. With the market pushing above 1.33 as we get underway, the near term risk is perhaps towards a little more EUR appreciation in the short term at least. Last week’s price action has left a negative overhang on the longer term charts but the EUR’s undertone (from a technical perspective at least) remains more constructive.