Forex Investment and Currency Trading

The worse-than-expected September non-farm payroll data released last Friday (-263,000 versus market consensus of -175,000) was a reminder that the US economy is facing considerable difficulties. The jobless rate also rose to 9.8% in September from 9.7% in the previous month and is on track to reaching double digits. Sluggish wage growth also reinforces the view that inflation will not be an issue for the Federal Reserve for some time, and it can hence afford to maintain low interest rates for an extended period.

Meanwhile, the G7 meeting in Istanbul fell short of calling for a stronger US dollar (USD), and maintained the same rhetoric on currencies as the last G7 Communiqué. This is a green light for further US dollar (USD) weakness, as the G7 could have argued more forcefully against recent currency moves. Traders expect the USD to weaken broadly in Q4 on a trend improvement in risk appetite as the USD is increasingly used as a funding currency. Technically, the USD (DXY Index) has retraced from trend-line resistance back from the top on 4 March 2009, which came in around 77.25-77.50. Key support comes in around 75.42, which is the 76.4% Fibonacci retracement of the up-move from the low of 70.70 on 17 March 2008 to the high of 89.62 on 4 March 2009.

Japan – finance minister warns against excessive JPY moves
On the sidelines of the G7 meeting, Japan Finance Minister Fujii said that if currencies show excessive moves in a biased direction, the Japanese authorities will take action. This reflects a warning against recent strength in the Japanese yen (JPY), and suggests that the authorities may be closer to intervening than the market expects. Recent JPY gains have been too far, too fast. With the market significantly long JPY, investors look overly complacent about intervention risk. Fundamentally, market expects USD-JPY to grind lower on relative interest rates and the Japanese equivalent of the US Homeland Investment Act. Technically, USD-JPY is currently in consolidation, without any clear trend.