Forex Investment and Currency Trading

Having broken above its November 2008 high during the Asian session, the DXY USD index has consolidated above this level during the European morning. Pressure on equity markets following the technical break lower in the S&P500 on Friday and the failure of EU ministers to agree a support package for Eastern Europe continues to provide a USD supportive backdrop. A caveat to this is that extreme form risk aversion could potentially start to drive relative expectations in a USD negative direction. Indeed we would attribute the stalling in USD-JPY (ahead of the 50% retracement of the move down from Aug-08 [...]

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The unprecedented 10% rise of the EUR against USD during December 2008 caused by historically low USD interest rates led to a significant increase in the over-valuation of the EUR against USD. Additional significant interest rate decreases by the Bank of England also led to a strong weakening of GBP against USD increasing the British currency’s under-valuation. With respect to USD/JPY, AUD/USD, and USD/SEK the under or overvaluations were more moderate, but generally reflected the weakness of the USD in these currency pairs.
After continued USD strength in November, December brought a correction to the USD as well as EUR and [...]

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Australia

RBA surprises by cutting 100 bps

At today’s Board meeting, the RBA decided that circumstances required the largest easing in monetary policy since May 1992, reducing the cash rate by 100bp to 6.0%. While a 100bp easing is a dramatic move by the RBA (markets had factored in 50bp), the size of the cut is fully justified by the exceptional circumstances for global financial markets and the deteriorating outlook for the global economy. They therefore see today’s action by the RBA as a positive development, putting Australia at the forefront of global central banks dealing with the current phase of the [...]

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EURO The July PMI manufacturing was revised down slightly. The weakness came from Spain, Italy and France, pointing to stagnation at best, and recession risks at worst. Meanwhile, the German PMI held up marginally above the boom-bust threshold, confirmed at 50.9 in July from 52.6 in June. German retail sales were weak in June versus consensus. In fact, after the outsized 1.5% surge in German 1Q GDP, market looks for 0.5% contraction in 2Q as a natural correction, with weakness in retail sales indicating downside risk to that call. Despite the bad news, EUR/USD has managed to hold trend line support [...]

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