Forex Investment and Currency Trading

It’s a US holiday and that can only mean one thing; wall to wall coverage of Warren Buffett on CNBC – again. That will not make the day any shorter for our markets and once Europe goes home in a few hours, the activity will trail off very quickly. USD/CAD be heading for another weekly gain (the third consecutive) but the momentum behind the move up in funds looks a little less convincing this week as the market has again struggled to hold gains above the 1.16 point. CAD is looking oversold on a medium term basis (and not just against the USD) and some continue to lean strongly towards the risk that the next big move will be towards CAD appreciation. Still, with the USD clinging to gains and the CAD struggling to pick up much ground elsewhere at the moment, the risk of a further move up in USD/CAD from here cannot be entirely excluded. We see important resistance in the short run at 1.1640/55 and support at 1.1420/50; intraday losses below 1.1520/30 would tilt the balance of risks a little more favourably towards the CAD but unless that move occurs this morning while Europe is still in, we are unlikely to see any significant moves today. Note that the NZD and AUD are two obvious outperformers in the session so far, closely followed by the CAD, with the other majors little changed. Now, back to Warren …

The surge in risk aversion following weaker than expected June non-farm payrolls data soon subsided in the run up to the London open. High yielders, which underperformed throughout yesterday’s session, managed to recoup around half their losses overnight with AUD posting a gain of 0.5% following the US close, and NZD rising 0.8%.

The US is closed today to mark Independence Day. As such, there are no US data releases and liquidity is likely to be thin which may result in some very choppy price action across currency pairs.

USD’s role as a reserve currency was mentioned again overnight following yesterday’s comments from Chinese officials that they would not push for a debate on the topic at the next G8 meeting. Japan was quick to support this sentiment and also ruled out any plans to talk about this at the G8, while noting that major currencies should support USD as a key international currency. The short-term sensitivity of USD to comments on this subject indicates that USD policy under Obama/Geithner lacks coherence. On May 21st Geithner noted that his “basic obligation is to make sure that we put in place policies that sustain confidence in this economy, in our currency, that we sustain a strong dollar, that we retain what is a great strength and asset to this country.” This falls far short of Robert Rubin’s “a strong dollar is in the US interest.”

EUR/GBP was marginally firmer overnight as GBP underperformed the rest of the G10 currencies with the exception of the Scandies. In terms of data, UK services PMI remained in expansionary territory in June, despite a marginally softer print than that seen in May. This not only provides some further endorsement of the worst-is-behind-us view but also provides a boost to hopes a discernible recovery may already be underway.

EUR/USD drifted steadily lower following yesterday’s non-farm payrolls and this downward momentum was accentuated just after the US close as the pair hit stops at 1.4 and fell 70pips in a matter of minutes. This tumble down to around 1.393 marked the low however, and the pair subsequently crept back up to the 1.4 handle. Eurozone data was largely ignored with a small upward revision to June services PMI from 44.5 to 44.7, and weaker retail sales data at -0.4%m/m, -3.3%y/y (cons. -0.1%m/m, -2.7%y/y) failing to have any impact on the currency.

EUR/CHF spiked higher during the London morning session but the SNB declined to comment on the move despite some talk in the market of possible central bank intervention.

AUD/USD fell 1.4% to support at a post-NFP low of 0.79, before catching a bid and steadily rallying higher to resistance at the 0.8 handle. The June AiG performance of service data rose from 39.9 to 50.2.

NZD was the best performing G10 currency overnight in line with rising risk appetite and the resultant bid for high yielders. After finding a bottom at around 0.6264, NZD shorts were squeezed and the currency followed EUR higher with NZD/USD posting a 0.8% gain as the pair test resistance at 0.6345.