Forex Investment and Currency Trading

Improving credit and business conditions highlighted by yesterday’s BoC surveys (dousing the last flickers of speculation that the BoC could yet resort to additional easing measures to boost the economy), combined with a more constructive approach to risk assets, have pushed USD/CAD quite decisively lower over the past 24 hours. The move lower has extended a little further overnight and, with spot currently trading below the 11 and 21-day MAs as well as the base of the June/July bull channel, the USD rally – that was looking overcooked – appears poised to unwind a little further. Much still depends on the market’s broader risk appetite of course and, with earnings season in full swing and a lot of near-term risk and volatility remains in store for our markets. Still, there does appear to be a growing sense of confidence that the global recovery has finally found some legs and traders look for the CAD to take full advantage of that optimism over the course of the second half of the year. Traders also expect very firm resistance in the 1.650/1.1750 range for funds from here though in the near term, it seems more likely that the low/mid 1.15 area represents the best entry point that USD shorts can expect.

The general flow of data over night has been positive – with one or two exceptions; Singapore GDP rebounded sharply in Q2 (+20.4% q/q, ann.), Australian business confidence was firmer, UK housing and retail sales survey data were better, although inflation data disappointed and Germany’s ZEW survey came in below expectations. With the data looking quite positive from a growth perspective and equities retaining yesterday’s bounce – and looking for further good news today – the risk switch has flipped quickly back to the on position; commodity currencies are notable out performers, the USD has slipped back and the CHF and the JPY are the session laggards. Sentiment remains very fragile, however, and it would be quite in keeping with the recent stop/start flow of the financial markets recently if something gave the upbeat mood reason to pause or reverse in the short term – even if the global recovery pulse appears to be beating a little stronger overall at the moment. While risk appetite is on, some look for more gains in the “growth” currencies (EUR/SEK to push below support at 10.9580 and ease back to the 10.80 level, NZD/JPY to extend its short term rebound above 59.15 to 61.30) and suspect that the USD may struggle (even on better US economic data).

EUR/USD remains confined to a relatively tight consolidation range – though the fact that the market is consolidating close to recent highs, with solid support on weakness to the 1.3750/1.3850 range recently suggests to us that the technical risk remains higher here from a broader point of view. If we are to see a breakout though, we would expect a move to occur relatively soon. Converging MAs suggest 1.3980/85 is the pivotal support/resistance zone for spot in the short term; USD/JPY has bounced following firm demand on weakness yesterday and the fading safe haven play overnight.