Forex Investment and Currency Trading

DXY began to recoup the losses suffered following Friday’s speculation that US Apr nonfarm payroll data would face a sharp revision lower, however, this recovery was short lived when USD weakened as London opened, causing the index to fall a further 0.5% down to a low of 72.552. The key focus for the US this week will likely be the release of April’s FOMC Minutes on Wednesday which should provide some indication as to who is winning the battle between the FOMC doves and hawks. Market hawks have dominated of late with US yields rising substantially on speculation that the Fed has ended its easing cycle and the next US rate move will be a hike later this year. Other significant US data releases this week include US PPI on Tuesday and Existing Home Sales on Friday. In Japan, the BoJ are expected to leave rates on hold at 50bps this Tuesday.

USD/CAD traded within a tight 10pip range before sliding 0.7% down to 0.9927 as London opened. There are no data releases scheduled for today with Canadian markets closed for Queen Victoria Day. The main focus for the rest of the week will lie with April CPI on Wednesday - which should reinforce the benign inflation backdrop, and Retail sales on Thursday - which should reinforce the resilience of Canadian consumers and highlight that the BoC is facing a vastly different set of circumstances to its peers. In addition, BoC Governor Carney is scheduled to discuss the principles for liquid markets in New York on Thursday.

EUR/USD consolidated Friday’s gains and managed to imporve on them as the pair rallied up to a high of 1.5633. The focus for the week ahead will lie firmly with the release of German sentiment figures. This starts tomorrow with the May ZEW surveys and finishes on Wednesday with the more closely watched IFO Surveys. Also of note will be the flash estimate of Eurozone PMI for Manufacturing and Services on Friday (RBC: 50.2, 51.5, cons: 50.3, 51.7).

GBP/USD continued to trade around the 1.957 level following Friday’s rally. The release of the May Rightmove House Price Index had little impact on GBP despite the index recovering 1.2%m/m, to take the y/y rate up from 1.3% to 2.2%. There are a number of key UK data releases this week including April Retail Sales on Thursday, BoE Minutes on Wednesday, and preliminary Q1 GDP on Friday. Market continues to see further easing alongside the August and November Inflation Reports. The risks as regards to the August move are finely balanced but a steady rate decision would arguably see the Bank having to play “catch up” heading into 2009.

AUD/USD reached a new 24 year high of 0.9571 as the pair continued its recent march towards parity. Following this move, AUD/USD traded a 20pip range just below 0.955 as gains in commodity prices and increasing talk of Chinese interest in Australia’s resource companies provided underlying support for AUD while USD strengthened. There is very little in the way of Australian data this week though the RBA minutes on Tuesday will be of some interest.

NZD initially sold off overnight but steadily rallied to more than recoup its losses. The focus for NZD this week will be on the New Zealand 2008 Budget due to be released at 20:00EDT on Wednesday. With the Labour led Coalition so far behind in the polls ahead of this years General election (to be held before Nov), there is political pressure for FinMin Cullen to spend up. As such, the risk is for more expansionary fiscal policy than the RBNZ has forecast, though it is important to bear in mind the RBNZ has shifted its view on fiscal stimulus from being an inflationary threat (March MPS) to putting a floor to rapidly deteriorating growth.