Forex Investment and Currency Trading

Although G8 might have disappointed USD bulls with the lack of commentary on currencies, recent USD-bullish rhetoric from Paulson and Bernanke look set to deter the bears from pushing the USD further. On the Japanese front, while Japan’s trade and current account surpluses are likely to narrow temporarily in the near term, the risk appetite environment has not deteriorated. Thus, the recycling of the external surplus with capital outflows at prevailing JPY exchange rates should be relatively easy. Also, Japanese retail investors’ capital outflows have recovered. With USDJPY spot holding well after the broad USD recovery and the Fed looking [...]

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FX Fundamentals: Risky assets fell back overnight, and as a result US yields fell and the JPY rose. But the USD was generally stronger against other currencies, particularly the NZD and AUD. NZD weakness was fully justified by very weak employment data, but the Australian employment numbers were still quite strong (even though the unemployment rate rose) so the AUD decline was more down to general risk negative sentiment than AUD fundamentals. Having said this, the AUD has traded strong to yield spreads in the last few weeks, so market would not expect any major recovery. Nevertheless, in the short run [...]

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USD
Event risk: Mixed messages from the chain-store data but broad recessionary conditions and 4 consecutive falls in retail jobs suggest downside risk to consensus calling for a 0.2% rise in core retail sales (Mon). The ECRI leading index hints at still more potential downside for the Empire survey (Tue) and Philly (Thur). A 7%+ fall in Feb permits warns March housing starts (Wed) could fall sharply too. The Fed’s Beige Book (Wed) is likely to be peppered with anecdotes of yet more slowing in activity while the core CPI (Wed) should bounce back from an aberrant flat outturn to [...]

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CHF has gained handsomely on the worries over global growth, tightening credit conditions and the steady deterioration in risk appetite. FX models say relative to the move in risk sentiment (captured by option vol, credit spreads and equities), EUR/CHF is now broadly fairly valued.
Evidence of global economic recoupling will see the CHF appreciate further against the USD and other major currencies (the JPY likely the main exception). But European contagion will happen only slowly. Euroland has been hit by a supply-side shock that burns more slowly than the demand shock that’s hit the US economy. Transmission from slower US growth [...]

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