Forex Investment and Currency Trading

EUR

• EUR-USD is range-bound, but has put in higher lows
• EUR-USD s/term fair value overvalued vs. Baltic Dry, S&P 500
• EUR-USD s/term fair value undervalued vs. IRS spreads
• EUR benefiting from broad USD weakness from H2

JPY

• JPY NEER has stabilised for now after correcting lower
• Japan’s external surplus continues to collapse
• Japanese investors continue to invest in foreign assets
• Weak oil, domestic demand should eventually boost C/A surplus

AUD

• Australia is heading into recession
• Markets are focused on limited further room for RBA easing
• AUD-USD looks well-positioned to benefit from USD weakness
• AUD-USD is 3.74% overvalued on OECD PPP basis

NZD

• New Zealand’s economy remains in a deep recession
• Market expects the RBNZ to cut rates to 2.50% by end-Q2-09
• Fiscal and monetary easing support growth prospects in 2010
• The C/A deficit should narrow sharply in 2009

CHF

• CHF NEER has retraced partly since start of SNB QE policy
• SNB policy will remain focused on supporting growth
• CHF is competing with the GBP for worst performer in Europe
• CHF is 35.84% overvalued vs. USD on OECD PPP basis

GBP

• GBP may still face downside risks near-term given growth, debt
• But GBP is now much better valued after the huge devaluation
• Most negatives already priced in; C/A deficit is narrowing sharply
• BoE quantitative easing should support growth prospects

CAD

• Cyclical negatives for the CAD are gradually lessening
• CAD is now better valued, which should reduce outflows
• Canada’s trade surplus has collapsed, but this should stabilise