Forex Investment and Currency Trading

EUR

• EUR-USD raliied since putting in higher lows
• EUR-USD short term fair value overvalued vs. S&P 500 IRS spreads
• EUR-USD short term fair value undervalued vs.Baltic Dry Index
• EUR is benefiting from broad USD weakness in 2009

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

NZD

• New Zealand’s economy remains in a deep recession
• Market expects the RBNZ to keep cash rate at 2.5% through 2009
• 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
• Expect CHF underperformance while downturn lasts
• CHF is 35.8% overvalued vs. USD on OECD PPP basis

GBP

• GBP rallied strongly in past month
• Most negatives already priced in; C/A deficit is narrowing sharply
• BoE quantitative easing should support growth prospects
• Long term fiscal risks remain a key issue

CAD

• CAD has been outperforming along with other commodity FX
• Sentiment over long erm growth prospects is helping
• Canada’s trade surplus has collapsed, but this should stabilise