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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The US government announced a USD17.4bn rescue package for the automakers, which is allowing the Detroit Big 3 to avoid bankruptcy. GM and Chrysler will get USD13.4bn in emergency government loans in exchange for restructuring, and another USD4bn will likely be available to GM in February. There has been a modest positive reaction to this news with most Asian equity market indices trading higher and the JPY crosses trading higher. Reports of troubled Irish banks receiving a EUR7bn bailout appears to be having little impact on FX markets and EUR strength so far.
The shortened week and potentially low trading volumes [...]

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It’s hard to achieve a 15 percent EURUSD move over a short period of time. To reiterate the major drivers:
1) US rates taken essentially to zero
2) An open ended commitment to use quantitative easing to end the US economic and financial markets downturn
3) Several months of massive risk aversion accumulation of USD assets
4) A likely flood of US Treasury issuance in coming years
5) ECB indications of a slowing pace of rate cuts
6) Some easing of risk aversion that renews interest in yield differentials
7) Positions having gone to very flat
It is also even possible that the losses among European institutions and [...]

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1-3 Month Euro Outlook
After a month of thrashing around in a broad range, EUR/USD ended June at the top of the range and up 1.5%. In part, this reflects a further 20bp rise in ECB rate expectations, though a parallel move higher in rate expectations in much of the rest of the world, limited EUR’s gain. The view is remained that EUR/USD will not retest the all time high of 1.6018 and that a gentle downward trend is in prospect for the remainder of the year. In the very near term, technical resistance at 1.5840 is expected to attract new [...]

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