Forex Investment and Currency Trading

1 – 3 Month Outlook – past the trough
USD has yet to produce sustained upward momentum, as it continues to build a base for future gains, but upside near-term risks percolate. The threshold for good news for USD is very low, likely the result of the enormity of bad news that had been priced in and that thus far has failed to materialize. The broader US economy denies the recession bears with GDP advancing at a revised 0.9%q/q saar in Q1 (initially reported 0.6%). Slower, but not recessionary growth rates, even though the tax rebates are a short-term palliative and [...]

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The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.?
(FOMC statement on 31 October 2007)
However, many participants (noticeably more than January) saw the upside risk to inflation as greater than the downside risks to inflation.
The Committee agreed that that the statement to be released after the meeting should take note of the substantial policy easing to date and the ongoing measures [...]

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Markets are reacting this morning to a speech from Ben Bernanke, where most notably he has made comments about the US dollar, and it’s ongoing deterioration. This is significant, amongst other reasons for the fact that the Fed is signalling an end to downward policy adjustments, and acknowledging the impact that globalization and US dollar moves have in monetary policy.
Comments:
*BERNANKE SAYS MARKETS HAVE IMPROVED, THOUGH `REMAIN STRAINED’
*BERNANKE SAYS SECOND QUARTER TO BE `RELATIVELY WEAK’
*BERNANKE: FED AND TREASURY `CAREFULLY’ MONITORING CURRENCIES
*BERNANKE SAYS FED `ATTENTIVE’ TO IMPLICATIONS OF DOLLAR SLIDE
*BERNANKE SAYS RATE `WELL POSITIONED’ FOR GROWTH, STABLE PRICES
*BERNANKE SPEAKS ON ECONOMY TO [...]

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Fed shifts towards neutral…
The minutes from the April FOMC meeting indicated that the Fed believed that the risks to the economic outlook were becoming more balanced. The summary of policy-makers’ discussions opined that the policy easing already undertaken had diminished the threat to growth. Furthermore, the
Committee added that “future policy adjustments would depend on the extent to which economic and financial developments affected the medium-term outlook for growth and inflation”. Some members went so far as to argue that further easing would be inappropriate unless there was “significant weakening in the economic outlook”. Indeed, Kevin Warsh expressed exactly that sentiment [...]

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USD net shorts declined from 98,782 contracts on May 6 to 68,940 contracts on May 13. USD (represented by the DXY index) continued to rebound from its late April lows, helped along by surprisingly strong retail sales in Apr. While headline sales were down 0.2%, as expected, sales ex-autos were up 0.5% (cons: 0.2%).
EUR net shorts continued to decline from the recent peak of 21,315 contracts (Apr 29). While EUR has continued to decline, the pace has been more moderate compared to the decline from near 1.60 to below 1.56 in the week to April 29.
Net JPY positions became slightly [...]

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