Forex Investment and Currency Trading

The CAD remains a generally firm bias, with overnight trading flows adding a little to the general trend lower in USD/CAD after the market took another run at 1.20. But the failure to break lower has seen price action is turn a little choppier around this psychological support zone, which might mean a short term low for funds is in. There is a generally bearish bias overall though and the corrective USD gains are liable to be limited for the moment. We note that copper prices remain firm (another new cycle high – helped by speculation that China continues to stockpile) and the broader trend remains lower for funds so the USD gains may be limited to the 1.2180/90 area in the near term. Stops are likely to start accumulating below the 1.20 line as some USD bargain hunters step in. The main directional risk is to the downside for USD/CAD at the moment though and trying a pick a low here is risky; rather look to sell rallies as this well entrenched bear trend is likely to extend to the mid/upper 1.17 area (at least).

Majors
Weaker than expected Chinese Q1 GDP overnight and better than expected Q1 results from JPM this morning seem likely to prolong the uncertainty in the markets as to whether risk appetite is back or not. The generally stronger tone of the JPY and the underperformance of the NZD suggest that the risk switch is in the “off” position. On the other hand, the CAD and the GBP – hardly your typical safe havens – are relative outperformers today; it all seems a bit of a dog’s dinner in terms of short term trends at least. The EUR retains a rather heavy tone, with weak industrial production data (-18.4% in the year, against -12.5% in the US) helping keep the currency on the back foot this morning. Euro zone bond redemptions and coupon payments will perhaps remain a factor here through the end of the week at least. Rumours of reserve manager bids on dips were noted overnight so tentative support may continue to emerge in the low/mid 1.31 zone for the moment. The low 1.33s remain resistance.

The AUD’s present difficulties contrast with the robust performance of copper prices still (the 30-day correlation between the two remains a firm +83% currently). AUD/USD is pressuring support at 0.7170/75 intraday and the market has lent a little harder on AUD/JPY support at 70.45/50 in the overnight session. With copper still tracking higher, some suspect that AUD losses may be limited in the short term. Meanwhile, the Kiwi continues to look soft on the crosses; near term risk appears to be geared towards a test of 0.5500/50 rather than key short term resistance at 0.5975.