Forex Investment and Currency Trading

Is the global financial system healing…or getting worse? In one sense there are multiple signs of reduced stress in the global banking system, a slowing in cross-border capital flows and, as a result, signs of a reduction of volatility in currency markets. At the same time, global equity markets remain weak, consistent with ongoing uncertainty about the breadth and depth of the global economic slowdown.
The signs of stabilization emanate from the major source of stress during the late summer – basic funding in the financial system. Commercial paper (CP) outstanding has jumped about $150bn in the first 10 days of [...]

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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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The focus today is on the Chinese stimulus package that was announced over the weekend, and the comments coming out of the G20 meeting this past weekend. G20 finance ministers and central bankers spoke dovishly on interest rates and advocated taking further action. We could see more concrete measures come out of this coming weekend’s meeting of G20 heads of state. China’s stimulus package sent a wave of optimism through the markets, with equity markets up in Asian and Europe, equity futures up in North America, and commodity prices up across the board. Yen crosses are all higher as risk [...]

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