Forex Investment and Currency Trading

The USD remains on the back foot this morning – and perhaps a little more decisively so, with the market finally cracking through USD support points in a number of markets. For USD/CAD, the dip under the 1.1100/50 support zone that has held up the market this week supports view that the USD sell off is perhaps accelerating, rather than abating. This suggests near term risks of a drop to the high 108s/low 109s. Higher oil prices are modestly CAD supportive and while there is a sense that the CAD may be getting ahead of itself in some respects, disenchantment [...]

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EUR/USD
The European Central Bank expects to spend around 60 billion euro’s on its program to buy covered bonds according to President Trichet.  Expectations for long term inflation in the euro zone remained on target and it is not yet clear when the downturn in emerging markets will bottom out.
GBP/USD
The Bank of England looks set to keep interest rates at a record low of 0.5 percent at its monthly meeting on June 4. The pound made significant gains versus the dollar as the dollar weakened broadly against a basket of currencies due to increased risk appetite.
USD/CHF
Switzerland’s leading growth indicator, the KOF [...]

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This week’s melt-down in the US bond market and a new surge in dollar commodity prices flags dangers for the value of the US currency in the medium-term and has major implications for FX dynamics in the short-term. The abrupt jump in US Treasury yields was remarkable not just for its speed (the 10-year yield climbed 19bps in just one session). It also brought the 10-year yield to 3.73%, some 60bps above mid-May levels and 120 basis points above the level of yields seen in the immediate aftermath of the Fed’s quantitative easing (QE) announcement. The yield surge clearly represents [...]

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The pop in US yields yesterday may be supporting USD/JPY, which tends to be sensitive to US asset market returns, but the broader impact of the steep yield curve on the USD is perhaps a little more equivocal. It remains unclear whether the rise in yields represents expectations of a quick rebound in US growth or concerns about massive US Treasury supply – the “Amen or Mayhem” option, as one observer put it yesterday – but the 2- 10s curve of 274bps yesterday puts it in record territory and we note that the recent experience of extremely steep or steepening [...]

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