Forex Investment and Currency Trading

CAD
Last night we had choppy overnight session, as stops above 1.2400 were triggered early in Asia, only to see aggressive selling in the London morning take us back down below 1.2300, triggering stops on the downside. We opened the day in North America somewhat in the middle of the range, with the market tentatively selling the USD across the board.
Today in Canada the focus will be on the trade data for September. With energy prices falling and a serious recession in its biggest trading partner, we could see a significant deterioration in Canada’s trade balance over the next few months. [...]

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The GBP is the worst performing major currency in the overnight session, with the pound falling sharply in response to a very dovish Bank of England (BOE) inflation report. The BoE said the UK economy was in recession and forecast a sharp 1.8% drop in GDP in Q1 2009. As a consequence, inflation would fall “well below” the central bank’s inflation target by the middle of next year. Gov. King stated a willingness to cut rates again “if necessary” though the very weak message from the inflation report (and today’s soft employment data) seem to make lower rates a certainty. [...]

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Headlines and Key Developments

Eurozone German ZEW survey of economic sentiment improved to -53 in aftermath of banking bail-out
UK Retail sales and the UK housing market remain under pressure, suggesting further easing
Sweden Slowing inflation and growing slack in the economy validate the Riksbank’s aggressive easing stance
Japan Bank loan growth accelerated only for precautionary funding demand; trade deficit continues
Australia A plunge in business confidence keeps alive exaggerated expectations of aggressive RBA rate cuts
Russia The CBR allow the trading band of RUB vs. USD-EUR basket to widen, implying a 1% devaluation
Hungary Disinflation continues but monetary policy stance will likely stay tight for the [...]

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The markets got a dose of mixed news overnight as Russia lets the RUB depreciate, HKMA fights against HKD gains, Citibank, FNM, FRE move to restructure mortgages to prevent defaults and the Chinese trade surplus, German ZEW both surprise on the upside.  CPI in China back to 4% - and the world sells equities but not aggressively.  We see the USD waffle back and forth around same ranges in EUR and JPY and NOK and AUD – as commodities give back gains from yesterday and more.  The net result is that we are waiting still for more information.  Trading in [...]

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USD
The announcement that China’s State Council agreed on an aggressive fiscal stimulus package amounting to 4 trillion yuan over the next two years has triggered a rally in EM and commodity currencies.  The increase in the US deficit and consequent jump in Treasury supply has become a topic of interest for FX markets. This topic will be at the fore this week: as part of its usual Quarterly Refunding, the Treasury will issue $55bln of new and reopened issues. Going forward, the Treasury is likely to auction approximately $100bln of 2-year, 3-year and 5-year notes monthly, so supply will [...]

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