Forex Investment and Currency Trading

Commodity prices have fallen further - the Dow Jones AIG commodity price index is down 45% from its peak in July. Market continues to expect commodity prices to struggle to recover before the second half of 2009 due to continued deleveraging, weak demand growth, and USD strength. However, much of the downside is now already in the price, and that supply cuts are beginning to have an impact, even where investor sentiment is poor.
Prices are approaching or below the marginal cost of production in some cases, including (to varying degrees) palm oil, soybeans, aluminium, zinc, and crude oil. The notable exception [...]

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During its recent fall EURUSD seemed to break ranks with any correlation that people focused on, (Interest rate differentials, crude Oil, relative fundamentals etc) severely outpacing any targets these dynamics would have suggested. Bottom line the EURUSD, GBPUSD , AUDUSD moves etc were a function of de-leveraging i.e. issues on the funding side of the balance sheet. In recent days something different seems to be happening suggesting that possibly at this point we should be focusing on the “investment side”.
On 15th July Gold turned down from $988 after posting a perfect 76.4% bounce off the $845 May low. This was the [...]

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So where are the positives for the commodity currencies amidst the cyclical slowdown? May of the medium-term themes in the global economy remain constructive. The powerful growth in China, India and the rest of the Emerging Markets is relatively commodity intensive (compared to that in the developed economies). It requires more “stuff”. To the extent that the outlook for the EM economies remains favourable medium term – particularly in the context of Asia – any set back in commodity prices and currencies may eventually be reversed. Indeed, even the near-term outlook for commodities is not uniformly bearish for commodities. In [...]

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The cyclical downturn in the global economy and the associated slide in commodity prices have triggered a powerful retreat in the so-called “commodity currencies” such as the Australian (AUD), New Zealand (NZD) and Canadian dollars (CAD). Whilst the set-back for these currencies has been abrupt, many remain significantly overvalued on standard Purchasing Power Parity (PPP) and Real Effective Exchange Rate (REER) methodology. The OECD has PPP-based “fair value” as of the end of 2007 for AUS-USD, NZD-USD and USD-CAD at 0.70, 0.65 and 1.22 respectively, suggesting these currencies have some ways to go before stabilizing. AUD-USD is now –14% from [...]

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There had been a correlation between movements in EUR/USD and the price of crude oil, although the dynamics driving that relationship appear to have shifted. Over the last 6-12 months it appears an asymmetric response function among major central banks to movements in oil prices that may have contributed to the correlation between EUR/USD and the oil price. Given rising headline inflation in the Euro zone and the ECB’s sole mandate of inflation control, rising oil prices were viewed as an upside risk to inflation. For the Fed and its dual mandate, however, rising oil prices marked an upside inflation [...]

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