Forex Investment and Currency Trading

Payroll Friday’s often seems to provide some sort of short term watershed for the markets and it seems that the May report for all its issues (higher than expected unemployment rate, question marks about the scale of the business births/deaths model job adds in the month) will provide a window for some short term USD strength at least. Weaker equity markets have allowed the markets to revert back to the risk on/risk off justification for a USD bounce this morning but some of the USD’s rebound reflects positioning rather than fundamental strength; certainly, some of the steepness in the US yield curve that we had noted in previous weeks was erased but the bulk of the shift occurred at the short end of the curve; that may not be a good thing with little data but a lot of UST product to shift again at this week’s auctions – especially at the longer end (3s, 10s and 30s up for grabs this week). Plus, the USD rebound is taking place while US inflation concerns remain alive and well; US 10-year breakeven rates remain elevated around 2.01% and the USD has tended to track this market very close since the end of January.

S&P cut Ireland’s debt rating one notch earlier today – hardly surprising after all the recent focus on the matter – but the report added to the pressure on the EUR overall, forcing EUR/USD below support in the high 1.38s. There is no any firm signs that the USD’s weak trend has turned on this front and suspect that the market will encounter good support on dips to the mid/upper 1.37 area (retracement support but also important high/low support from earlier this year); The 1.3740/80 area will be pivotal for the EUR – and the broader USD tone – in the next few weeks.