Forex Investment and Currency Trading

USD vulnerable
USD came under renewed downward pressure late in July, after trading in a tight range through mid-month, when equity indices were testing key support. Early Q3 earning reports helped rekindle appetite for risk sending the S&P 500 from around 880 and the then 200-DMA to over 1000. As risk sentiment improved, USD tumbled and it remains vulnerable to further declines in risk aversion. Over the next 6-12 months FED exit strategies will be in key focus. Not only will this relate to stimulative fiscal and monetary policy, it also relates to Fed Chairman Bernanke whose term as Fed Chairman [...]

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USD: The underlying asset market backdrop appears to have tilted decisively against the USD in light of technical breaks higher in the major equity indices and the recovery in the oil price. Safe-haven demand for USD denominated assets seems set to be limited over the near term as stronger data encourage markets to focus on the potential for a strong cyclical recovery. The risks associated with US policy settings may come into focus in this environment.
EUR: Reserve accumulation and subsequent “flow” diversification demand for EUR appears to be rebuilding on the back of strong capital inflows to emerging markets. This [...]

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As the FOMC begins its two-day policy meeting, focus on the impact of quantitative easing on FX is higher than ever.
Since the Bank of England adopted quantitative easing earlier this month, the market has punished the Swiss franc, pound and dollar – the three currencies where some form of quantitative easing/monetary base expansion has been adopted.
The current weakness in these QE currencies and potential for more, are different in all cases. With sterling already at weak levels, the case for a sustained, further decline is not compel ling. On the flip side, the Swiss franc began quantitative easing at elevated [...]

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BRL: best positioned for the global shock to risk appetite
Traders expect BRL to strengthen for the year as a whole, boosted by an improvement of the global risk appetite in the last quarter. Beforehand, persisting global financial market uncertainty should maintain BRL’s performance broadly flat, highlighting the currency’s resilience to a challenging risk environment. BRL will outperform its peers in the context of a shock to risk appetite, a long BRL-MXN position is recommended.
Brazil’s balance of payments position had warranted a weaker BRL, but the currency is oversold at these levels. The economic slowdown and the weaker currency should slow [...]

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