Forex Investment and Currency Trading

Risk aversion appears to be creeping back into some asset classes but is yet to show itself in FX markets. US equities were down around 4% last week, the closely watched VIX (US equity market volatility index) bottomed out and started trending higher and credit spread measures across a number of countries are pushing higher again. Yet in FX markets crosses like AUD/JPY have remained well supported, although the topside in these crosses has been fairly limited.
It’s also worth noting that there is now significant divergences in commodity markets. Oil has continued to push to fresh record highs but other [...]

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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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The SEK outlook is clouded by Sweden’s position as a small open economy. Domestic demand is still reasonably strong and this will provide some insulation. So too the country’s solid current account surplus position, though judging by the performance of the NOK during the current bout of risk aversion, support from this source may be meagre. SEK remains too rich to the NOK. That has been the case for some months. A corrective rally in NOK/SEK looms.
That EUR/SEK has drifted to the top end of its twelve month trading range largely reflects EUR strength rather than SEK weakness. SEK has [...]

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Rather improbably, global risk aversion has hurt the NOK due to its new found ‘status’ as a high yielder. A binary focus on yield ignores the currency’s obvious safe haven characteristics and won’t last.
Trading the NOK/oil correlation has also been popular. Again, the market’s view has been one dimensional as even a $30pb oil price decline would still leave NOK fundamentals rock solid.
Despite a poor start to 2008, the outlook for the NOK is positive. The last Monetary Policy Report is consistent with the policy rate rising further into summer. The Executive Board anticipates rates in the interval 5 – [...]

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