Forex Investment and Currency Trading

The positive economic outlook contained in the Bank of Canada’s MPR yesterday was picked up in comments made by Trade Minister Day overnight; speaking in Singapore, Mr Day said the Canadian economy was moving closer to a “more positive and robust” performance. Interestingly, considering the recent focus on the renewed strength in the CAD, Mr Day seemed to downplay the currency issue, noting that while the stronger CAD puts some pressure on exports, gains in domestic “efficiencies and productivity” are helping offset the rise. Most importantly, he said while the government did not want a “super hot” currency, “we like our dollar to be relatively strong and the Canadian business community has largely risen to the occasion”. The subtext here for Canadian businesses appears to be that exporters should not necessarily be banking on a currency bail out by way of action to curb CAD strength, at least at the moment. USD/CAD is making a run towards the 1.08 level as North American markets get going, helped by Day’s comments. Along with further evidence to suggest that the Asian economy is rebounding (South Korean GDP rose 2.3% in Q2, the strongest rate of growth since 2003) commodity price gains (copper retains a firm tone and crude oil is marginally higher on the day) should support the CAD’s undertone. With the USD generally on the back foot again this morning as equity markets ignore yesterday’s late round of disappointing US earnings, the broader backdrop also supports the notion of further CAD strength. New lows below the June 1st low of 1.0784 should open up the downside for a move towards 1.03/1.04.

EUR/USD feels like the little train that could, chugging higher over the course of the past couple of weeks but puffing and struggling as we push above the low 1.42 zone. Yesterday’s late afternoon meltdown will not help market confidence that today’s move up is any more reliable but the EUR has found good support overnight, with Asian central banks rumoured buyers on dips and Euro zone data helping underpin gains through the London session. A weekly close above 1.4225/35 should still be technically positive from a longer term point of view even if yesterday’s session was a technical negative – an outside session with a lower close; the scale of the rebound today so far will have a lot of traders (and analysts) second guessing the technical signal though and looking at their screens in despair; if the charts are not working, FX will look even more like a pure a derivative of equity market swings.

Weaker than expected Q2 GDP data from the UK – especially disappointing after the positive build up to the release earlier this week – has undercut the GBP, leaving it as the worst performing major currency on the session so far; EUR/GBP shorts from earlier this week have been partially squeezed out today and the cross may take another leg higher if we move above the 0.8690/00 area. Technically, the cross remains in a modest upward sloping channel and has found good support this week against the 21-day MA and a sustained move through the upper 0.86 area could put the cross on a short term track towards 0.8800/50.