Forex Investment and Currency Trading

In his keynote address on Friday at the Kansas City’s Annual Economic Symposium in Jackson Hole, WY, Fed Chairman Bernanke stated that the global economy is starting to emerge from recession, but also emphasized that challenges lie ahead. He stated the economic recovery should be relatively slow in the beginning with unemployment declining only gradually from high levels. The message over the weekend from other central bankers was similar, with a round-up by the FT suggesting that many, in particular those from the Fed and ECB, thought that interest rates could stay low for a long period of time without generating excess inflation.

These comments are consistent with the Fed lagging other central banks in terms of its response to strong US economic data. While the strength of the last payrolls release shed some uncertainty around this view, it seems the USD could remain vulnerable to positive US data surprises. Indeed on Friday, the much stronger-than-expected existing home sales data led to a significant rally in risk, but the knee-jerk rally in the USD was muted and partly unwound during the rest of the day.

In terms of this week, market expects most of the major macroeconomic releases - the German IFO data, and the US consumer durables and personal spending data - to remain supportive of the rally in risk. Economists think that the second estimate of Q2 US GDP could surprise modestly to the downside, however. Market risk model continues to point to market conditions remaining favourable for long risk positions.