Forex Investment and Currency Trading

Upside momentum is waning as buying fades and the Fed decision to not increase Treasury purchases last week could lead to more profit taking. In addition, market fair value model shows EUR/USD overvaluation is close to its highs over the past year. The question is whether any EUR/USD sell-off is likely to be large given that, from a technical perspective, most of the major USD crosses appear settled into well-defined ranges. That said there are several data/events this week, outlined below, which could trigger a sharp move in EUR/USD.
FOMC speakers will likely reinforce that a policy tightening is a long [...]

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Overnight we saw China stirring the pot again, renewing its call for the creation of a super-sovereign currency. In its annual financial stability report, the PBOC avoided mentioning the USD by name, but said that “An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis.” The report advocated a bigger role for SDRs, and suggested that the IMF be entrusted with managing a portion of its member countries’ foreign currency reserves. The USD underperformed overnight, partly on an improvement in risk sentiment, but particularly after the Chinese comments, [...]

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USD/CAD retains a heavy bias this morning after a rather choppy overnight session. USD/CAD dropped back to the mid 1.09 zone in London, driven by the apparent leak of Chinese data due for release later in the week (showing better than expected gains for industrial production, retail sales and investment) and the continued strength in oil prices. The CAD and crude remain tightly correlated at the moment (positive correlation of 85% on a 90-day rolling basis) so gains in oil (to the highest levels since November last year) should keep the tone in funds very heavy. Traders remain positive on the [...]

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The USD is on the back foot again this morning as equities pick up a little ground, investor risk appetite picks up and the markets reverse course after the broader USD short-covering that characterized the immediate aftermath of last Friday’s US non-farm payroll data. USD is more likely to head generally lower over the course of the next few months, reflecting mounting US debt levels and investor concerns about extending exposure to USD-denominated assets at the moment. While reports suggest that developing and emerging market countries intervened in their respective markets quite aggressively in May (Bloomberg reported that growth in [...]

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