Forex Investment and Currency Trading

The USD starts another week on the back foot overall; despite reassurances from US Treasury Secretary Geithner, who is in Beijing for talks with Chinese officials, that China’s investments in USD-denominated assets are safe and that the US believes in a strong USD, the currency continues to slide. Investors do not share Mr. Geithner’s confidence in the USD, however, given the US’ massive fiscal imbalance and, as equity markets continue to stabilize and economic reports appear a little more encouraging from a global growth perspective, investors are embracing risk and diversifying exposure away from the USD into riskier assets – currencies, commodities and equities. Manufacturing data from China – the PMI reported indicated the sector expanded for the third month in May and export orders improved – is encouraging the “green shoots” sentiment in the markets. European PMI data pointed to continued contraction in manufacturing output but overall results for many countries continue to suggest that the decline in output is slowing. GM’s bankruptcy has been dangling over the market for so long that today’s anticipated announcement is unlikely to have that much of an impact on the USD. Overall, traders look for the USD weakening trend to extend through to the turn of the year at least and analysts expect only shallow counter trend corrections in many of the USD pairs at the moment.

Central bank meetings and high profile US data this week may induce a little short term chop in the markets but the USD remains generally friendless at the moment. USD/JPY closed weakly on Friday- back under short term trend and “cloud” support; that suggests that last week’s rally back through the low 97s – essentially retesting the technical breakdown point from earlier in May – was a flash in the pan.