Forex Investment and Currency Trading

If the market’s verdict on Friday’s payroll is correct, we have entered a new (or reverted to an old) paradigm whereby the USD response positively to positive (or less bad) US data. We are not so sure that this really is the case but this week’s data flow from the US should provide a decent test of the theory at least. Note a couple of points; firstly, there is no discernible weakening in anything but the very short term (less than 10 days) correlation studies between in the USD and equities; all of the longer term studies continue to show a deeply entrenched, negative correlation.

Secondly, interest rate spreads along the curve (looking at 2 and 10s spreads) actually moved against the USD Friday. If the global recovery is at hand, better data may not be enough to support the USD if other central banks around the world have an itchier interest rate trigger finger. Colour us a little sceptical but we remain to be convinced that the USD slide is over, in other words. USD is expected to remain under pressure for the remainder of this year, largely as a result of the large US fiscal imbalances. In the short-term, while last week’s EUR/USD losses were impressive, they were not technically damaging and we have seen more obvious signs of price weakness reverse quickly quite often in the recent past. In the short term, look for a little more directional movement today outside of 1.4175/1.4225 and traders do not think the EUR is in serious danger of extending last week’s losses unless or until spot trades under 1.4075/85 at the moment.