Forex Investment and Currency Trading

The CAD benefited from the rebound in risk appetite and strength in commodity prices yesterday to stage a solid looking turnaround versus the USD – though it should also be noted that the CAD has gained notable ground versus the EUR and JPY over the past couple of days also. It seems that the CAD’s recent period of under-performance may be poised to reverse. With speculative long CAD exposure reduced following the burst of BoC commentary on the CAD late last month, the path for renewed CAD appreciation looks a little clearer. Higher commodity prices should make renewed CAD gains something less of an issue for policy makers, particularly in the context of the weak USD environment and relatively better economic data in Canada (Friday’s employment data pending). Technically, USD/CAD appears to have put in a top/reversal on the daily chart yesterday; the USD is looking over extended against the CAD (and other markets) and the CAD also forged strong gains versus the EUR and JPY this week (CAD/JPY is back above its 55-day MA). The CAD looks a buy on dips, not just against the USD but against some of the other majors also.

Risk appetite did an abrupt about turn yesterday morning after it was reported that Berkshire Hathaway had agreed to buy BNSF, the largest US railroad; news that Warren Buffett had signed up for his largest ever takeover was good enough for investors to move back towards riskier assets again. Equities and commodity prices continue to firm this morning – gold remains very well supported after India’s purchase from the IMF – keeping the USD and the JPY on the defensive. EUR/USD’s underlying trend remains positive, despite the heavy selling seen last week, the USD looks overbought by some technical metrics and firm support has emerged in the low 1.46 zone – the bull channel base. A move back through 1.4800/05 in the next few days should lift the EUR back towards 1.50.

Sterling has attracted a little support overnight on M&A speculation (Kraft/Cadbury) and further focus on the scope – or lack of it – for the BoE to extend it QE program after Thursday’s policy meeting. Most in the City appear to be leaning towards the BoE adding at least GBP25bn to the current asset purchasing program. Also, note that the JPY has under-performed again in the overnight session; this reflects renewed risk appetite to a degree though some also suspect that the continued focus on Japan’s spiralling debt situation has added to broader bear momentum in the JPY. While risk appetite remains skittish, the JPY is unlikely to fall significantly but the fiscal challenges are starting to mount in a big way for Japan and some investors appear to agree.