Forex Investment and Currency Trading

The markets still appear a little groggy after the holiday break and unsure of what to do with the major currencies – yesterday was a “risk on” sort of day on the basis of higher commodity prices and (mainly) higher global equities but the USD did relatively well, the JPY rebounded and the EUR turned in a rather middling performance – not exactly risk on sort of trends. The only thing that seemed to “fit” was a modest outperformance by the commodity bloc. It is notable that the inverse correlation between the USD and equities, which had shown signs of weakening late last year, is actually showing signs of strengthening again – to the point that the relationship has moved back into the range that held for much of last year.

Perhaps it is pre-NFP jitters. On the basis of the past few months, we should perhaps pay attention to the near term trend in the USD as the direction of the market preceding the NFP releases seems to be as important in determining the subsequent short term direction of the market as the nature of data itself. With the USD doing a little better over the past couple of days – and the EUR back on the defensive this morning after ECB Governor Stark said that there would be no EU bail out for Greece (not exactly news as there is no mechanism for a sovereign “bail out” in EMU) – the pattern of the past few months suggests that a modest positive surprise in Friday’s employment data could pressure EUR/USD a little lower at least. Spot key support for the EUR now between 1.4245/75 (recent lows and the 200-day MA). Sovereign reserve mangers continue to buy EUR dips, limiting losses below 1.43, and technically EUR/USD is trying to base; Still favour the outlook for medium term EUR gains but if we end the week below the 200-day MA (1.4243 currently), the EUR outlook will deteriorate somewhat at least.