Forex Investment and Currency Trading

EURUSD has pulled back from the 1.4635 highs seen at the end of last week as the fears regarding increasing trade tensions between the US and China mount, proviidng the USD with some initial support. The USD is likely to be supported in the near-term from a position adjustment perspective. But, longer term it must be remembered that the US is an importer of capital and if it harms its trade relationship with China, the Peoples Republic might retaliate by reducing its purchases of USD denominated securities, which would be bearish for bonds and other US assets. The euro may hold up better on the crosses than may fear. Trade restrictions will do more harm to small and open economies when compared to more inward looking economies such as EMU. However, eurozone data is unlikely to help EURUSD. The eurozone Industrial production data for July was weaker than expected, falling 0.3% m/m, while the EC forecasts reveal a greater divergence of economic performance within the region. Indeed, while the contraction in German and France is now forecast to be less severe than previously projected for 2009, deterioration in the outlook is forecast for much of the rest of the region. A EURUSD break below 1.45 will trigger a sell signal targeting 1.4350