Forex Investment and Currency Trading

While this week got off to a shaky start, thanks to the US-China trade “disagreement” that seems to be all but forgotten, risk is back on again with the equity screens flashing green, NYMEX crude oil back above $70, and gold at new highs. Some of the strength is being attributed to Chairman Bernanke’s comment yesterday that “the recession is very likely over at this point”, some to Warren Buffet’s recent comments that he’s buying equities, and some to yesterday’s strong US retail sales numbers.

The DXY index is sitting at new lows for the year, with just about every single major currency at or near new highs against the USD. EUR/USD broke above 1.47. USD/JPY also hit new marginal lows this morning, aided and abetted by comment from the new Japanese FinMin Fujii, who said that he opposes currency intervention as long as the market moves were moderate. It will be interesting to see what he says if USD/JPY breaks below 90, and heads back towards the February lows of just above 87.

Sterling is lagging these moves, and GBP/USD is still 5 big figures or so off its recent (early August) highs of just over 1.70. Yesterday’s comments from BoE Governor King still seem to be weighing on the currency; given the BoE’s extreme dovishness, there’s no guarantee at all that it’s finished with expanding its unconventional policies, leading the pound to underperform.

One thing to keep in mind with these huge moves in gold, and talks of gold driving commodity currencies, is that not all commodity currencies are created the same – since gold really started picking up again this month, the correlation with AUD has picked up, but the correlation with the NZD and CAD is still near zero.