Forex Investment and Currency Trading

Global markets are starting the week on a positive note. The news services are attributing this positive mood to G-20, after it mentioned that stimulus measures around the World will be maintained to ensure the economic recovery. This brought a renewed bid to risky assets. Stocks and commodity prices are higher, while the USD is lower. Also adding to the increased risk appetite is news out of China. Moody’s raised the country’s outlook to positive from stable. Non Farm Payroll data on Friday was positive due to the decent +91k revision in payrolls of the Aug-Sep period. Although the unemployment rates touched double digits and monthly pay-rolls remain negative, the 2nd derivative of the series is improving. Hopefully by the beginning of next year we will start seeing absolute positive results.

The G20 effort on the weekend at St Andrews, Scotland, went ahead without Japanese participation.  The meeting ended with no mention of foreign exchange in general or Dollar concerns in particular.  The currency market has taken that signal of benign neglect as a lifting of the caution flag and Dollar selling resumed against all currencies, with and without benefit of yield pick-up.  There is also a bid tone to other assets (oil, gold) with the Baltic Dry shipping index extending the rally from the bottom at the end of September. After all, every bank in the world can lend in Dollars; nothing contrains this trade to the currency pits. The rebound in currencies from local lows during last week’s Dollar rally has been so swift that CITI Technical analysts have taken profit on their EUR and GBP purchases, and are looking for a new re-entry point.

The implication from a sanguine G20 is that the world is prepared to allow further Dollar adjustment at the expense of local employment, or will continue to intervene to take up the slack. US bonds continue to find buyers.

This week is pretty light in terms of economic indicators. Special attention will by paid to US Treasury auctions this week.

- Equity markets in Asia/Pacific had another positive session. Thailand and India once again were the best performers after rallying 2.1%. In Europe, Western markets are rallying 1.5% on average; Russia is one of the best performers today, jumping 4%. US equity futures are pointing for to a strong session today.

- The US dollar is under heavy pressure this morning, both versus G10 and EM currencies. The International Monetary Fund said that the US dollar continues to be used as a funding currency and that it might be overvalued…overvalued??? We have to assume they meant against EM currencies. Measured by the DXY Index, the USD is falling 1%; the index is back to 75 and close to test the Oct 21st lows. The New Zealand Dollar is the strongest currency in the G10 space, it is rallying 2% both versus the USD and JPY after Fonterra (the country’s largest dairy exporter) raised its estimate payout to farmer shareholders by 19% due to strong rise in international prices.

- EUR/USD traded as high as 1.501. We’ve heard of decent 1.500 strikes coming off today. The higher we go, the more noise from Europeans, see below:

* EUROPEAN BUSINESS LOBBY BUSINESSEUROPE SAYS DEEPLY CONCERNED ABOUT EXCHANGE RATE DEVELOPMENTS

* BUSINESSEUROPE SAYS EURO’S STRENGTH HAS REACHED PAIN THRESHOLD FOR EURO ZONE INDUSTRY

- USD/CHF is approaching parity. No intervention so far today.

- USD/BRL is fighting with the 1.700 support level.

- The Mexican Peso once again under-performing its Latin american peers. Everybody agrees the Peso is too weak, all-things-considered, but nobody is pulling the trigger.

- Also, rumors of a Microsoft bid for  RIMM (a CAD 36 billion Mkt Cap company). If confirmed, this will be CAD supportive. This is also turbo charging the CAD recovery.