Forex Investment and Currency Trading

The CAD reached its highest level since September last year in the overnight session as investors continued to lean hard on the USD and snap up commodity currencies; crude oil remains firm, trading above $71, while gold remains well supported above $1000. With commodity prices firm and this week’s Canadian data flow so far bettering expectations – the run may continue with Friday’s employment data – the CAD’s broader undertone still looks quite positive. Domestic corporate and commercial interest to pick up “cheap” USDs has been evident on dips over the past three months or so, and the CAD’s inability to make more progress through the low/mid 1.05s at the moment may reflect a little more bargain hunting USD buying, slowing the CAD’s rise. Indeed, CAD strength though the London session has faded somewhat and it does appear as if the commodity bloc broadly has lost some short term momentum at least as equity markets slip back a little. The noted support zone on the daily chart at 1.0556 today is providing some underpinning for the USD at the moment and the very short term charts suggest the USD may be trying to form an intraday base ahead of the 1.05 area. Traders expect some resistance in the low 1.0615/20 area intraday and stronger resistance in the 1.0675/1.07 range in the next day or so. Market chatter of a 1.0480 option structure (one touch, with a large pay out supposedly) suggests there may be some interest to defend the strike if spot starts to move significantly lower again in the near term. Overall though, market still like the CAD and retain a generally negative view of the USD.

Today’s session is starting off with a fair degree of volatility and uncertainty; the early trend appears to be a little more risk averse – and therefore USD-supportive – with the AUD and NZD slipping back from fresh intraday highs and suggesting that investor risk appetite being shaded back as equities give up some ground. Risk appetite continues to manifest itself in the still negative correlation between equity market returns and the USD’s intraday performance. AUD/USD appears to have reached a short term peak on the hourly chart and is pressuring intraday support around 0.8913. Losing support here could see the AUD dip back to the low/mid 0.88 area intraday.

Elsewhere, this morning, the GBP has been unable to benefit from better survey data (consumer confidence, prices and jobs) and the underlying bias remains negative for the GBP; the BoE’s aggressive QE programme and UK officials’ frequent references to the benefits of a weak exchange rate represent major headwinds for the GBP presently and second or third tier data cannot help the pound significantly. However, the market has been unable to extend the recent sell off below the 1.6150 support zone that much, suggesting that positioning may be an issue; fresh news to drive more short interest may be needed – soon – or we may see a squeeze on existing short positions. EUR/USD has slipped under short term support at 1.4713 as North American trading gets underway; the underlying EUR bull trend remains intact, however, and look for good support on dips to the 1.4650/70 area today. Above 1.4730 intraday is EUR-bullish.