Forex Investment and Currency Trading

The week ahead includes a fair amount of economic data, the highlights being May retail sales, April business inventories and the latest instalment of the Federal Reserve’s Beige book. On Thursday, the Fed will also release Q2 Flow of Funds figures which should confirm an ongoing destruction of household wealth, given poor equity market performance and ever-lower home prices. Several Fed official speakers are on tap, though the calendar begins to wind down ahead of the upcoming FOMC meeting on 23-24 June. At the end of the week, Treasury Secretary Geithner will head to Italy to join the G-8 group [...]

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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 [...]

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Euro/dollar stretched past 1.4300 to a new 2009 high in London time on risk positives from Asian news - notably Australia’s higher than expected 1Q GDP report of +.4% growth vs -.2% expected - and on Asian equity gains.  But equities reversed course in Europe time, led by a .5% drop in the MSCI index of 23 developed countries, first drop in 5 days.  Russia’s equity index dropped 3.4% and analysts say the risk positive trade has gone too far.  Earlier, Sterling joined Euro and broke past 1.6600 after a solid upside surprise in UK May PMI services, 51.7 vs [...]

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The RBA met market expectations by leaving its policy rate unchanged at 3.00% today, but its accompanying statement was more dovish than the market was looking for. In particular, the RBA said “… that scope remains for some further easing… , if needed”, adding that the “… Board will continue to monitor how economic and financial conditions unfold”. The market was looking for the RBA to potentially rein in the prospects of further rate cuts.
We think the RBA is trying to manage market expectations and avoid a further significant steepening in the yield curve, which could lead to higher local [...]

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