Forex Investment and Currency Trading

Euro

The euro is marginally lower this morning as USD performance remains mixed.  However, as there were no major economic releases or events with many players still in the Easter holiday, moves seemed to be exaggerated by very illiquid market conditions.  A FT article about the debt-deflation dynamics in Greece, stating that the country will eventually default, did little to rattle the currency.  The current risk environment is supportive of EUR today and may allow EUR to claw back early losses. 

GBP

GBP sharply rallied in the early morning session.  Chancellor of the Exchequer Darling said “we must, must get our borrowing down,” and explained that “it is partly going to be achieved through tax, mostly the top rate of tax and partly through cutting expenditure.” He also added that “If you take money out of the economy now that would be a big, big risk.”  Prime Minister Brown, sliding in opinion polls as he prepares to call a general election, said a victory by the opposition Conservatives would risk tipping the economy back into recession. Brown said the U.K. economic recovery is too fragile for spending cuts proposed by the opposition.  GBP will most likely remain supported by stronger investor confidence, widening election polls, and heightened risk appetite in the near term. 

JPY

The Japanese yen is stronger this morning, breaking its four-day losing streak where USD/JPY reached a seven-month high last week.  JPY has gotten a boost from speculation the Japanese exporters bought the currency after it touched those high levels on 4/2.  In terms of recent news/commentary, Vice Finance Minister Noda said the nation’s economy is showing clear signs of improvement.  JPY will find it difficult to hold on to its gains as risk markets perform well at the start of the week. 

AUD

The Australian dollar is marginally higher this morning.  In terms of recent commentary, the country’s Treasurer Wayne Swan stated that Australia is approaching the budget from a position of strength because of the success of the stimulus program.  All eyes will be focused on the RBA rate decision tomorrow; with the likelihood of a 25 bp hike priced into the market at about 50%, the result should have a decent effect of the currency either way. 

CAD

The Canadian dollar is the best performing G10 currency on the day, up about 0.5% against USD and trading firmly below the 1.01 level.  Positive risk sentiment from the encouraging US payroll data Friday has pushed CAD closer in its run toward parity.  The market will be focused on employment data out of Canada on Friday; however, with a lack of data releases until then, CAD should remain supported by higher commodity and equity markets. 

Emerging Markets

With the releases of major US economic data, including Mar. job data, having passed, the market focus should shift to political events now with the special focus on China’s currency issue. On Saturday, The US Treasury Secretary Geithner announced that the publication of the US Treasury’s report on currency manipulation would be postponed, which was originally scheduled for release on April 15, due to the series of very important high level meetings over the next three months. These meetings include G-20 Finance Ministers meeting later this month, the Strategic and Economic Dialogue with China in May and the G-20 Leaders meeting in June and Geithner cited them as “the best avenue for advancing US interests at this time.” Having heard this announcement, the scenario that the US will label China a “currency manipulator” which would delay the timing of CNY revaluation has faded (heightening external pressures on China should be seen as negative for an early revaluation for CNY). China Premier Hu Jintao will be visiting Washington next week so we should watch out for any sound bite from both US and China officials regarding this issue.  Asian currencies are generally outperforming on the day, with INR, MYR, PHP, and KRW the best performing EM currencies on the day.