Forex Investment and Currency Trading

AUD
Policy rates rose for two months consecutively in February and March. But markets now price the next move in rates as down and this represents a significant danger for the AUD as it is starting from high levels supported primarily by attractive rate differentials.
Immediate rate cut risks shouldn’t be exaggerated. The RBA’s latest monetary policy statement was certainly more dovish, but that only made it broadly neutral as the previous stance had been clearly hawkish. There are, as the RBA said, some tentative signs of weakness in the Australian economy, with business and consumer sentiment both weakening and credit growth [...]

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FX Bottom-line: A thought provoking asymmetrical relationship between CAD and commodity prices has developed since December 07. Traders are reluctant to buy CAD as commodity prices rally citing Canada’s close ties with the US, but are eager to sell CAD on commodity sell-offs as part of a broader risk aversion trade. This relationship is expected to continue until more evidence of a bottoming in the US economy emerges.
Unfamiliar Commodity Relationship for CAD
The emergence of China and a synchronized global growth cycle favoured commodity prices and CAD given Canada’s healthy mining sector and 173 billion barrels of proven crude oil reserves [...]

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EUR wins ‘ugly contest’- easily
EUR/USD peaks after, not before, Fed Funds target rate has bottomed, so not yet. Cue a break through 1.60 as the Fed cuts to 1.50%, or less. Relative to the end January Quarterly, we are much less sure that ECB cuts soon and a bit surer that Bank of England cuts more. So EUR/GBP breaks and holds above 0.80 into the summer, much higher than previously forecast. If EUR/USD rises hard, Cable is static. If the dollar rallies, Cable falls, hard. Either way, Cable has peaked for this cycle, for sure.
Markets have given up pricing more [...]

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FX Update
Initial Jobless Claims (Survey: 366, Actual: 407)
Continuing Claims (Survey: 2860, Actual: 2937)
ISM Non-Manf. Composite (Survey: 48.5)
Upcoming Data releases: Nonfarm Payrolls, Unemployment
USD
The broad USD has staged a recovery over the course of the past few trading sessions. The DXY USD index has climbed 1.7% since the beginning of trading on Monday. Today’s jobless claims print came in well above consensus but only had a muted effect on FX markets. The market will remain keenly focused on tomorrow’s nonfarm payroll report as a better indication of the stat of the US labor market.
EUR/USD
The Euro has come off significantly this morning [...]

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Over the weekend and into yesterday the FX market dealt with the bone-chilling stories about EURUSD nearly blowing down the 1.60 door, USDJPY below 100 (first since 1995), and USDCHF at parity (first time ever). But, by mid-day yesterday, the market’s seemed soothed in anticipation of today’s FOMC meeting.  Now one-week EURUSD and USDJPY implied vols are only 15% and 21%, respectively.  Now, everyone is waiting for the Fed.  Some people think that they will go a whole percentage point today (that’s 100bps to the layman).  But some only expect 50bps (a number that previously seemed huge).  Depending on what happens, we could see a [...]

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