Forex Investment and Currency Trading

The USD index consolidated over the course of last week, while the S&P 500 lost ground. This could be an initial sign that the dollar’s repatriation bid is fading. As this development continues, the dollar will likely weaken towards year-end, especially in the present context of weakening yield support. Market expectations for easing from the Federal Reserve at its next meeting in December have shifted to a 50bp cut versus the 25bp decline seen one week ago.
EUR/USD should recover as stabilization returns to the financial markets. The ECB’s restrained easing of only 50bp on Thursday has led the market to [...]

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USD/CAD witnessed a sharp rejection of the 1.3000 level on October 28 after the daily studies formed a bearish divergence from oversold levels. With the resulting sell-off to 1.1477 resolving this divergence, we now focus on an important pivot point at 1.1840. A daily close above this resistance trendline would generate a bullish trend reversal – and effectively terminate the retracement phase that is underway. This outcome would then favour a price extension to resistance levels at 1.2110 and
1.2436. Support is located at 1.1477 and 1.1313. Note that 61.8% Fibonacci retracement of the September-October advance at 1.1339 has contained the [...]

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The recent global firestorm wreaked havoc on Emerging Market (EM) assets. No EM region was spared and African markets were also impacted.
FX Correlations

African currencies, outside of BWP and ZAR, still have very low or negative correlations with EM FX
BWP and ZAR have consistently the highest correlations within Africa to other major EM currencies
NGN correlations with TRY, BRL and IDR are becoming increasingly negative
KES correlations have increased marginally from very low levels; higher correlation with TRY
GHC, ZMK and TZS have very low or negative correlations with TRY, BRL and IDR
ZAR and BWP have consistently the highest correlations to other major EM [...]

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USD-CAD turn from 1.30+ set a near-term top
1.1300/1.0940 support is expected to be tested over the coming weeks
Technically, clients should stand aside for now, buy the dip to 1.1300/1.0940

Analysis – Daily Chart
After finding sellers at 1.3017, the sharp downward reversal in USD-CAD should extend towards 1.1340, the 61.8% retracement of the rally from 1.0300. The 20-day Moving Average (MA) at 1.2031 has been broken, as has the 1.1900 congestive support area, which is now expected to offer resistance. While the longer term view argues for a USD-CAD rally towards 1.45, short-term USD losses look open to extend, with daily momentum [...]

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The massive spot market moves in October have given a further boost to implied vol in the FX options market. Natural sellers of volatility have largely been absent (or, indeed, have been unwinding positions) whilst trading spreads have widened sharply. Amidst the powerful risk aversion and de-leveraging dynamic, risk reversals have stretched out, favouring USD-EM calls over puts. In the majors, implied vols for the “risk appetite” crosses such as AUD-JPY reached exceptional levels (90% implied in the 1-week) whilst risk reversals have favoured USD-JPY puts. In general, the implied vol surface has become more inverted amidst the market turmoil, [...]

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