Profitsee – Future Economic Surivival

Divinations in Forex, Commodities and Economic Patterns

Frothy USD; Equity Level Tests; CAD 1.25 Play (From Scotia)

(Following from Scotia Capital Global Research for 2/13/09)

Yesterday’s strong USD buying was reversed by a late day equity rally that helped US equities cut losses and generally get back to even on the day. The USD still ended the day up but saw large gains against most of the majors cut significantly. The rally was explained by news that the government was working on a plan to ease the burden of mortgage payments to homeowners, however we suspect that it may have had more to do with the fact that indices were testing (and some breaking) two and a half month lows with the market looking for any reason to rally away from these levels. The optimism has continued into today’s Asian and European sessions as buoyant equities have helped to induce strong USD selling. This kind of currency market action reiterates how keyed to equities and the ebb and flow of pessimism that the USD remains.

CAD has had its general movements continue to be dictated by the USD, as has most of the major currency universe this week. We’d remain of the opinion that in a perfectly functioning world where everything is decided by economic fundamentals, that USDCAD should be trading somewhere north of 1.25. However it would be foolish to not recognize that, yet again, fundamentals take a back seat to risk driven flows and the gyration of market sentiment between a thirst for risk or safety.

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Filed under: Research, Scotia,

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