Forex Investment and Currency Trading

It has been a very quiet start to the week in light of the lack of data scheduled for release today. Currency pairs have been broadly range bound, consolidating Friday’s post-non farm payroll moves. EUR/USD and USD/CAD stand unchanged, GBP/USD is down 0.2%, AUD and NZD are up 0.3%, and USD/JPY has fallen 0.3%. Asian bourses were higher overnight (Nikkei +1.08%, HSI +2.72%), but in Europe equities are lower (FTSE -0.4%, DAX -0.7%).

There are no macro data releases scheduled in North America today, but event risk will pick up from tomorrow with some key events later in the week. These include monetary policy announcements from the FOMC and Norges Bank (Wed), as well as US retail sales (Thu) and CPI (Fri). The BoE’s Inflation Report (Wed) and RBA Governor Stevens’ semi annual testimony (Fri) will also be of interest. In Europe, June Industrial production (Wed) is followed by Eurozone (and German) Flash Q2 GDP (Thu) and July CPI (Fri).

Market expects the forthcoming FOMC statement to only change incrementally from the previous one. Perhaps the most interesting aspect will be whether or not it formally acknowledges a stabilisation of real activity, or just continues to note that the “pace of economic contraction is slowing”. Other statements such as “household spending has shown further signs of stabilizing but remains constrained on ongoing job losses…” are unlikely to change meaningfully. The benign inflation outlook should also remain unchanged, especially after the lower than expected Q2 GDP and June PCE deflators recently announced. On the other hand, however, there is a high probability the committee will allow the QE program to expire and could note such.

USD/CAD tracked sideways within a 40pip range overnight in line with the general lack of direction evident in many currencies. In the week ahead, Canadian data is light, though housing starts (Tue)  and manufacturing shipments (Fri) will garner some attention.

GBP: The Inflation Report will detail the BoE’s conclusion that in the UK, “the recession appears to have been deeper than previously thought.” The Times reported that the BoE will downgrade its growth forecast for the year, pushing it even further below the UK Treasury forecast of minus 3.5% and also warned that the UK risked a Japan style lost decade. Support at the 40dma at 1.6460/65 is a long way from market; broad resistance at 1.70 remains intact.

EUR/NOK leapt 0.5% following the release of weaker than expected Norwegian CPI data. From a previous high of 3.3%y/y, underlying CPI inflation fell to a 13-month low of 2.5%y/y ahead of Wednesday’s Norges Bank rate decision. The Bank is widely expected to leave the official rate at 1.25%, but there is much speculation that Norway will be the first to hike. Accordingly, look out for tonal nuances in the central bank’s missives, and in the Norges Bank’s press conference.

AUD and NZD both rose 0.4% versus USD overnight as they outperformed the rest of the G10 currencies. Australian Jun housing loans were weaker than expected, up just 1.1%m/m (cons: 1.8%m/m) as the proportion of dwellings financed by first home owners fell from 28.5% to 27.1%. In the Antipodeans, the most important event this week will be RBA Governor Stevens’ testimony to Parliament on Friday.

JPY: There was a slew of Japanese data overnight which generally came in to the firmer side of expectations. Among them, the June current account surplus registered JPY1152.5bn (cons: JPY655.0bn) and June Machine Orders rose 9.7%m/m (cons: 2.6%m/m).