Forex Investment and Currency Trading

MBA Mortgage Applications (Actual: 11.9%)
Trade Balance (Survey: -$57.0B, Actual: -$56.5B)
Initial Jobless Claims (Survey: 480K, Actual: 516K)
Continuing Claims (Survey: 3825K, Actual: 3897K)
Monthly Budget Statement (Survey: -$200.0B, Actual:)

USD
The dollar continues to outperform as risk aversion and headline risk dominate the FX markets. In a global economic downturn where every country’s economic data is weak, comparative fundamentals are key and the market sees the US coming out of recession first. The market reacted badly to Treasury Secretary Paulson’s proposed changes to the TARP. Paulson abandoned plans to purchase troubled mortgage assets with the allocated fund and instead, the Treasury and Fed will look [...]

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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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