Euro Under Renewed Pressure

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Euro Pressure Continues

Festive cheer in the market seems to be running out as we move towards the end of the first trading week of 2012. Disappointing Italian and Spanish PMI data more than offset a decent German figure and the Euro-zone is looking more and more likely to be heading into another recession.

The Euro was under pressure for most of yesterday as risk was dumped and the US Dollar strengthened. The theme is continuing this morning as the single currency continues to be sold; European banks continue to make headlines for the wrong reasons as they park newly created ECB cash back at the central bank rather than lending or investing it in the real economy.

Retail gloom continues to hang over the UK with many of the retailers reporting crucial Christmas figures this week. NEXT shares were pummeled after they reported disappointing sales over the festive period and set a gloomy tone as we wait for results from rivals M&S. John Lewis were a ray of light in the gloom, posting impressive sales growth compared to last year, but most if not all retailers are suggesting that economic conditions remain a real concern and are expecting a challenging year.

The Pound has opened the year in much the same way as it finished the last, namely taking a back seat to the Euro and Dollar with economic fundamentals remain less of a driver than politics.

Data from the US this week has been mixed, ISM manufacturing and Auto sales both showed growth month-on-month ahead of the consensus estimates but factory orders disappointed coming in on the lower side of estimates.

The market is hoping for a clear sign of the economic picture on Friday from the Non-farm payrolls, either showing the recovery continuing or a worsening picture and the prospect of further QE this year. More likely is that the number shows the US economy to the chugging along slowly, leaving both the Fed and the markets disappointed.

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Euro Falls To New Lows

See how events in the Eurozone are affecting currency market news today. Latest currency market news prices are on the right ==>>
 

Focus on Eurozone

Renewed pressure on euro as the single currency falls to 15-month low versus pound and nears decade low versus yen as investor focus returns to eurozone debt. Risk appetite drives the ‘loonie’ strength of the Canadian dollar, which is now C$1.32 to the euro, is correlated to firmness in growth-focused assets, particularly commodities.

Asian shares lose ground on Europe fears. Stocks stumbled, led by financials and exporters, as investors shifted their focus back to Europe’s debt crisis.

India woos foreign capital to regain lost sheen widening the investor base has been welcomed but few analysts expect to see immediate results. SNB publishes ethical code after currency trades. Political storm over the transactions conducted by Kashya Hildebrand, former foreign
exchange trader married to central bank chairman.

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Pound Prepares For A Busy Week


 

With Chinese New Year and a lack of new data releases, last week turned into a bit of a non-event for currency markets.

14, February 2011

With the exception of today (where the only thing of interest is the meeting of European finance ministers’) the rest of the week will very busy, especially for the Pound.

On Tuesday, figures will reveal just how far from the Bank of England target inflation actually is. This is the first month that will include the recent VAT rise, with CPI expected to hit 4% and RPI (which I think is a better gauge of the inflation rate experienced by you and me) through 5%. Up till now, for a great many people, it has difficult to distinguish between 2 or 3 per cent inflation. In my opinion, a 5% rate is psychologically important and will push the BoE into action much sooner than people expect.

The bank minutes are due for release next week, which will show how many members voted for a rise this time around, but on Wednesday the quarterly inflation report will detail their outlook for inflation over the coming months. The key point will be if the Bank thinks that current inflation levels are temporary (their current thinking) or that it is more permanent in nature and we will probably be able to guess the voting preferences from the report.

Also this week we see unemployment figures and jobless claims on Tuesday and retail sales, a measure of the health of the high street, on Friday. Positive sales data and no change for unemployment should be positive for Sterling, but we are very dependent of the content and tone of Wednesdays report.

Elsewhere, US retail sales are also out on Tuesday and are expected to show a moderate increase with US CPI data, in contrast to Britain, forecast for 1.6%. The Dollar pushed higher over the weekend after University of Michigan consumer sentiment data moved to eight month highs and until the data flood gates open tomorrow we do not expect any large reversals of this trend.

Once again rising bond yields in periphery nations has started to drag down the Euro. As politicians continue to disagree about debt reduction targets and the enlargement of the EFSF, the merry-go-round may begin to focus again on Europe and this will probably manifest its self in a weaker Euro. Data wise we are pretty light on the ground, with only German GDP and Eurozone industrial production of note later in the week.

Report by Alistair Cotton

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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UK Inflation Rising Again


 

Yesterday’s publication of the UK inflation rate made for an interesting day for Sterling.

19, January 2011

The current rate now stands at 3.7%, getting on for double the Bank of England’s official target rate of 2%, surges in the price of fuel, transport and food the headline grabbers of price rises across the board pushing Sterling over the magical 1.60 level for most of the day.

The usual media circus ensued, most of the articles giving the impression of modern day Britain as the new Weimar Republic and informing anyone who would listen about the Bank of England’s incompetence and why they should raise rates immediately. Once we drill down into the data, we get a slightly less hysteric picture. Tax rises and the drop in the value of Sterling seem to be much more influential to the current inflation rate but even with these effects stripped out the inflation rate would be above target.

The problem for the BoE is in managing inflation expectations with the rate as it is. If current inflationary pressures are indeed temporary (which in one sense they are) then they need to be more proactive in forcing this point home and keeping expectations anchored. For Sterling this should be positive, but probably not as important as market currently thinks.

The meeting Euro zone ministers failed to produce any agreement on an enlargement to the current bail-out fund or any more for further fiscal consolidation. The spreads on bonds between the periphery nations and Germany once again blew out, with the yield on the Spanish 10 year passing the key 7% level we have discussed before as being the level that signalled the beginning of the end for Ireland and Greece.

In terms of data for today we are very light, with only Euro Zone construction data on offer. The focus will remain on ministers coming to some agreement over the enlargement of the bail-out fund and also if there will be any changes in what the fund is used for, which may include buying Euro Zone debt.

The Dollar took a back seat yesterday and that will probably continue today with little on the horizon. Thursday sees the release of a big stock of figures including initial jobless claims to it is looking like a quiet end to the week for the Greenback.

Report by Alistair Cotton.

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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Euro Trading Lower


 

Anyone who was short the Euro last week got their fingers burnt, with the Euro/Dollar pair rising almost one and a half percent on the back of successful bond auctions in Spain and Italy.

17  January 2011

Today the euro posted its largest weekly gain in almost two years after successful auctions of Portuguese, Spanish and Italian debt garnered more demand than expected and Germany’s Chancellor Angela Merkel pledged to do whatever’s necessary to ease the sovereign-debt crisis. The 17-nation currency rose last week against all of its major counterparts except the Swedish krona and Danish krone including a 4.2% weekly gain versus the US Dollar and a 2.1% move higher against Sterling

It was another round of positive news for Uncle Sam on Friday’s with data indicating that consumer spending is coming back to life. Inflation pressures on the other hand, remain negligible, based on the core reading stressing the Fed’s concern that inflation is running constantly below the target level. Therefore it looks like it will be a long time, most likely late into 2012 before we see a rate rise in the US.

While Bernanke is in no rush to increase rates, rumours are circulating within the European Central Bank (ECB) that they are more eager to pull the trigger for higher rates. ECB President Trichet’s hawkish press conference last week caused a stir and marked a clear shift in ECB reaction towards a more hawkish stance.

So far this morning though, the euro has marginally fallen against the dollar, snapping last week’s five-day gain, again on concern the region’s debt crisis will continue to worsen, even as European finance ministers meet today to hammer out a new strategy to stem the contagion.

Fitch’s decision to cut Greece’s sovereign debt rating to BB+, outlook negative, from BBB-, citing its “heavy public debt burden” which renders “fiscal solvency highly vulnerable to adverse shocks”, also weighed on the single currency this morning. All three of the main ratings agencies now rate the sovereign as sub-investment grade.

Looking at the week ahead on the economic data front, the calendar is reasonably light starting with today’s bank holiday in the US. The key data this week is primarily due from the UK with December’s inflationary figures scheduled for tomorrow morning, unemployment data on Wednesday followed by retail sales on Friday.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Outstanding Results For Sterling


 

While Sterling and the US Dollar are enjoying something of a revival it is at the expense of the Euro.

5 January 2011

Given that nearly all the UK was frozen solid for almost all of December, yesterday’s tremendously positive UK production data caught many in the market by surprise. British PMI rallied to 58.4, the quickest pace of growth since 1994. Sterling has reflected the weather recently, depressed throughout last month and over the Christmas holidays.

The Pound was up almost one percent against the Dollar and half a percent against the Euro yesterday as investors’ optimism on the UK economy returned. Quite how long the positive sentiment will last is anyone’s guess – along with Sterling the FTSE 100 has broken through the key level of 6000 over the last few weeks and even the recently downbeat housing market received some good news with mortgage approvals increasing. But given that most items are going up in price after the VAT hike and the Government cuts begin to bite, the current optimism may once change as quickly as the forecast second cold snap takes hold.

Continuing the positive news flow, in America the minutes from the latest Federal Reserve Open Market Committee (FOMC) were released last night. In it, the Fed showed cautious optimism on the ongoing economic recovery. Labour market conditions, once of the Fed’s main concerns, seemed to be improving but the pace of recovery is still “disappointingly slow”. Unsurprisingly, given the ‘better, but not that much better’ stance, the Fed made no change to the ongoing QE program. Alongside, the Fed minutes, we also had positive US data. Factory orders rose as did auto sales to their highest level in 16 months.

The flip-side to the Dollar and Sterling performing strongly is that Euro/Dollar has been moving in the opposite direction. Another year begins, but it’s the same old problems causing further Euro weakness, namely the ongoing funding issues of Eurozone nations. Several commentators suggested Portugal will throw the towel in and tap the bail out fund at some point in the first quarter which can’t have helped the selling pressure.

But not even a Chinese announcement that it will remain a long term investor in Spanish debt seems to be able to reassure investors that €200 bn will be successfully rolled over by Spain in 2011 alone.

In terms of data today, we have Eurozone PMI data and from the US ISM non-manufacturing figures and employment change.

Report by Alistair Cotton

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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Euro Weakens In A Cold Run Up To Christmas


 

The Euro support is weakening as a cold Christmas looks on the cards…

20 December 2010

The present temperatures in London gives the best analogy for the various markets this week. The Met Office is urging people to stay at home after London was hit by serious snow, and that is exactly the same thing traders will be doing with their cash this week. Expect very light market conditions, and current themes across the Euro, Dollar and Sterling are bound to continue into the New Year.

Eurowise, the IMF published a staff report on the viability of the financial reforms in Ireland and it was not pretty to read. According to the IMF the challenges facing the Irish economy are “intense”. The currency market reaction? The Euro/Dollar graph on Friday looked like a black run at Chamonix. 2011 will not likely bring any rest-bite for the single currency.

Even more countries will be pulled into the markets crosshair, which means more Euro weakness over the coming weeks and months. We all remember the Greek story was like observing a slow motion car accident. It seems inescapable that the same drawn-out future lurks in wait for a few more Eurozone nations, and the stability of the single currency rests on the capability and patience of Germany to keep playing backstop.

Just like the Euro trading news, Sterling will probably trade at, or similar to current levels with little economic details this week to push it in any certain direction (it might be pulled by developments in the Eurozone however).

Wednesday sees the release of the Bank of England’s minutes, with the prolonged split in voting between Andrew Sentance, Adam Posen and the rest of the rabble. It will also be intriguing to see their discussion on short-term inflation and just how long the bank expects it to return to target.

Increasing US bond yields have been the driver of new moves in cable towards the 1.54 level. Regardless of whether you believe that this is due to increased optimism of the US economic recovery or investors eventually running scared of American government debt we will need to wait and see, but the QE pumped stock market continues to rise.

There are lots of low key US numbers due for release this week including new house sales and buyer confidence which may or may well not lend support for the recovery narrative but just like the Euro and Sterling, range trading throughout the week is the most probable result.

Original Report by Phil McHugh

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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French Economy In The Firing Line


 

France could be the next target for bond investors further weakening the Euro as USD regains some stability despite poor payroll figures.

6 December 2010

Concerns were growing over the weekend that Europe’s second largest economy could be next on the hit list for Bond markets according to the London Stock Exchange chief executive Xavier Rolet. The chief stated that “It won’t be long before bond investors turn to France after they have finished with Portugal and Spain”.

The chief then went on to say France has a much higher debt than people realise and markets could lose confidence in the euro completely if it becomes evident France cannot obey to Eurozone fiscal rules. This latest revelation comes as head of the IMF Dominique Strauss-Khan places increasing pressure on the Eurozone to raise the size of its €440 bln bailout fund. This is likely to be met with further domestic unrest in Germany as Tax payers are becoming increasingly frustrated at paying out for Irish and Greek bailouts. With regards to Ireland, their government will tomorrow vote on the emergency budget that is required to gain access to the emergency funding.

Stateside and the greenback regained some stability from a renewed focus on U.S quantitative easing. The USD moved higher off a three-week low against the yen and two week lows against the EUR. Instead of an expected gain of 140,000, the payrolls only rose by 39,000, in addition the unemployment rate rose to 9.8% from 9.6%.

Fed Chairman Bernanke’s TV interview was the focus over the weekend as he defended Fed’s QE program and said that Fed’s “not printing money” as “the amount of currency in circulation is not changing”. The money supply is not changing in any significant way.” And he hit back on criticisms and said fear of inflation is “way overstated”. Bernanke said the program is for lowering interest rates by buying treasuries to stimulate the economy to grow faster. The dollar now sits at 1.57 against the pound and 1.3310 against the euro.

Commodities are widespread at the start of today’s session with gold close to all time highs at $1415 / oz and Brent Crude at $91.85 / barrel. Commodity driven currencies have therefore started well against the majors with the Aussie’s move further helped by Fitch confirming the Australian Sovereign rating at AA+ with a stable outlook. Not a bad achievement in the current climate.

We are due a monetary policy meeting result later this week and although no change in rates is expected this month, the feeling is still that they will be raised during the second quarter of 2011 at the latest. Expect to see the cross have another go at parity very soon.

Other highlight’s this week are interest rate decisions for Canada, New Zealand and UK expected 1%, 3% and 0.5% respectively and University Confidence figure to end the week on Friday.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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Euro Trading Sees USD on the Back Foot Again


 

The euro has gained against the US dollar but this is not likely to be sustained.

19, November 2010

Earlier this week we saw a squeeze higher on the USD catalysed by good US retail sales numbers at the close of last week but more so through the concern over Ireland tripping into USD strength. Today the market is appeased as a bailout is inevitable – ECB and IMF officials are looking into the formalities of what will be needed for the Irish economy.

The euro has pushed higher on this realisation trading back up to 1.37 against the USD supported by middle-eastern buying. The key question is will confidence remain in the Euro arena – according to Citigroup Inc and Nomura Plc it is a no. They say that relief will be short-lived as attention turns to who is next and all fingers are pointing to Portugal. The Portuguese Finance Minister said that while “there is a risk of contagion”, that does not mean that the country will seek financial aid- so the merry go round could start again.

On top of the bailout plans the Ireland will also announce a 4 year fiscal plan to help steady the ship. Although Dublin insists that there is no threat to Ireland’s 12.5% corporation tax, the mood over the loss of economic sovereignty was summed up by Mary Lou McDonald from Sinn Fein who stated “Officials from the EU and IMF and any other vultures circling around this country should be told to get lost”. Tough times ahead for Ireland and there is still a possibility that sovereign issues will continue to weigh on the euro for some time to come.

Focusing on the UK, retail sales rose for the first time in three months, by 0.5% providing a much needed boost as we approach the Christmas period. The pound has also been lifted on the news of a bailout for Ireland – the UK is exposed to Irish debt and this led to sterling weakness earlier in the week which has now been somewhat lifted.

A very quiet day ahead with no economic releases due, however there are a few speeches this afternoon from ECB, MPC and Fed officials. The speech from Ben Bernanke of the Fed will be the highlight as he steps up his defence of the latest round of Quantitative Easing for the US economy.

Report by Phil McHugh

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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G20 Meeting Turns Into Non-Event


 

Plenty of data out later this week as the G20 meeting fails to deliver anything concrete.

15, November 2010

The G20 meeting was the non event that everyone was predicting, with any firm commitment over currency reform off the table, the best we got was an agreement to agree – nothing concrete in terms of a path forward and certainly nothing of substance to make sure we avoid a trade war further down the line. (Nothing new for the G20 here then – see G20 – The Commitee That Cannot Commit )

The hope was for a commitment to restrict current account surpluses/ deficits to a percentage of GDP but surplus countries (Germany, China Etc) dug their heels in and even refused to accept such loose dialogue. Friday’s rumour that Ireland was about to go cap in hand to the EU gathered momentum over the weekend, Irish Prime Minister Bryan Cowen denied that a bail-out was needed. However, further comments this morning by Irish officials has left the door open for EU assistance.

German comments suggesting the Irish should accept the bail-out to avoid further contagion in debt markets (read Portugal and Spain) spooked the markets and undoubtedly made any market based resolution even less likely.

More poor data from Rightmove continues to show deterioration in the British Housing market, but this has not affected Sterling in the majors very much in light of the larger Eurozone story. The Bank of England minutes are released on Wednesday (not to be confused with the Quarterly Inflation report last week) showing MPC voting preferences from the last meeting.

We also have CPI and RPI inflation data out tomorrow which no doubt show inflation still running ahead of its target level of 2% plus or minus 1%. Finally we have jobless claims, retail sales and public sector debt levels also out this week in a busy one for Sterling.

Importantly for the Dollar we also get to see US CPI data (out on Wed). The US has flirted much closer with deflation than the UK and it will be very interesting to see how the inflation rate has reacted to the spectre of further QE. The effects of the bond purchase program will take several months to filter through into the official inflation figure. Inflation expectations, which also play a role on the inflation rate should rise as more QE is announced. This will take a much shorter time period to be reflected in the CPI data. We also have US retail sales in the important build up to Christmas to digest.

Report by Alistair Cotton

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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Sterling Suffers And US Dollar Waits…


 

Tonight’s FOMC meeting leaves currencies hanging…

3 November 2010

In the UK yesterday, trading was fragmented at best, with Sterling suffering after the sharply weaker construction PMI in contrast to the slightly improved numbers from Germany, Italy and to a degree, France. The current overall reluctance to hold Dollars combined with a nagging doubt over the resilience of the Euro tempered any Sterling losses, and rates between the G4 nations look set for a short period of consolidation. Economic data today has proved positive for Sterling; longs have benefited this morning with UK PMI data coming in at 53.6 which has boosted cable to 1.6133 at the time of writing.

The majority of analysts predict the Fed to pump $500 billion in asset purchases stretched over the next 6 months. The effect on currency markets will be based on the movement from this figure. If the Fed produces a greater result, for example of $1 trillion plus, the greenback will face renewed pressure. On the other hand, a more vigilant measure of quantitative easing will be US dollar positive.

One must accept that the Fed will probably steer clear of one particular economic direction to keep their options open and maintain an open ended program based on future economic data which it will use to adjust its levels of QE. Despite the cable surge, the dollar will likely trade within a tight range before the announcement. However with so much in the price, it may be astute to be suspicious of a sell rumour and buy on the fact.

As it stands many currencies are at pivotal levels against the USD, with AUD/USD trading around parity following yesterday’s surprising Australian rate hike, EUR/USD maintaining above the 1.4000, GBP/USD resuming gains above key psychological 1.60 level in spite of weaker than expected construction data, whereas USD/JPY continues to aim for 80.00. In addition, both AUD and CAD are close to parity with the USD.

The Fed result will be influential in shaping if the USD continues to linger on the weaker side of these key levels. Ahead of the FOMC meeting the USD continues its downward pressure particularly against Asian currencies as a result of renewed appreciation in the ADXY (a weighted index of Asian currencies) against the USD this week.

Even though it looks like central banks in Asia have the go head to interfere at will following the recent G20 meeting the force of capital inflows into the region is a growing concern for politicians. One choice is placing restrictions on “hot money” inflows but up to now no central bank in the region has shown an enthusiasm to implement measures that are deemed as particularly aggressive.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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Currency Market News:Pound Gains Ground


 

The pound gained ground on the dollar and euro against a backdrop of quantitative easing fever…

29, October 2010

The greenback fell yesterday, losing some of the gains made earlier in the week as a short covering rally fizzled out and US treasury yields fell. Analysts consider dollar selling against the euro and other currencies by reserve managers was forcing the US currency down and that it would remain under selling pressure, especially if the Fed says it will continue to pump money into the market to improve liquidity.

The issue for the US dollar seems to be whether the market believes the Fed will deliver significant quantitative easing over a definitive time period. In other news out of the US, the durable goods data showed an increase to 3.3% against expectations of 2%. Month on month new home sales also showed an increase in September at 6.6% against expectations of 4.2%. The market reaction to these figures was muted as markets await the QE2 announcement in November.

Confused about quantattive easing? Watch the video …

Sterling strengthened against the euro and US dollar on Thursday after stronger than expected Q3 GDP data cooled speculation of an extension of quantitative easing by the BoE in the near future. The pound got a further boost from talk that there is persistent buying interest on UK sovereign bonds from Middle East. In other UK data news, yesterday saw UK CBI reported sales dropped less than expected to 36 in October.

In the Euro zone, economic sentiment indicators showed a general improvement in October. The European Commission’s monthly sentiment survey showed sentiment in the 16 countries using the euro at 104.1 points this month from 103.2 in September, the highest reading in nearly 3 years. The improvement was mostly due to more optimism in Industry, where sentiment rose to 0 from -2 in September. Confidence among consumers remained unchanged at -11 and the service sector also remained unchanged at 8 points.

The German unemployment rate fell slightly to 7.5% in October, its lowest level since in 18 years as the impact of persistently strong growth from Germany continues to filter through to the jobs market. The number of jobless fell by 3,000 to a seasonally adjusted 3.153 million.

Today, up until the US GDP data this afternoon, we are a tad bereft of scheduled numbers having just the composite Eurozone employment figures to look forward to. The overall number is expected to be maintained at 10.1% as although things seem to be improving in Germany, with their jobless figure reportedly hitting an 18-year low yesterday, the situation elsewhere in the region appears much more grim

Markets look resigned to having a slow morning with an early softness in Asian equities mirrored but so far, not carried forward on European bourses.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Currency Market News – Euro Remains High Against Dollar


 

With no positive news expected from the G20 meeting, the euro should remain high against the dollar for the present. Euro may be on the point of becoming a sell against the sterling despite this weeks poor data out of the UK.

22 October 2010

A day of little action yesterday with attention focused on the G20 meeting in South Korea. The Dollar did soften during the European trading day, but not on anything tangible – more on speculation of an impasse on the G20 discussions rather than fundamentals or economic news. Sterling did not fare well however with continued concern over the UK economic outlook.

Today, we are not scheduled to receive any 1st tier economic data from either the UK or the US. This will necessitate traders being left to their own devices for today and accordingly, I find it very unlikely that we will see the Dollar make much headway before the weekend break. Buying the Greenback on an assumption that the G20 participants will be able to come to any agreement on currencies’ values or global economic rebalancing looks a very dangerous strategy and therefore I expect Euro/Dollar to ease back up into the high 1.39s before London’s close.

Remarks made by Tim Geithner, supporting a letter from the US delegation sent to the other nineteen G20 members, gave risk currencies a bit of a bid feel. He said that G20 countries should cap their external imbalances at a particular, though unspecified, share of GDP. It appears that the aim of any such measure would be to force export dependent economies to focus instead on stimulating domestic demand, and this should in theory reduce local objections to currency appreciation.

The US, however, are encountering strong opposition from other nations, specifically those in the Far East towards who, the accusative finger of the US Treasury tends to point. Lack of progress at the G20 meeting will undoubtedly mean a continuation of Quantitative Easing driven markets and a longer term change of sentiment towards the Dollar would only emerge if and or when US data begins to improve or it was deemed that the whole concept of QE was deemed ineffective.

Today’s German IFO results were mildly more positive than had been anticipated, but not by enough to trigger any Euro buying. We are therefore left clock watching with the only possible stimulus for rates movement coming from Wall Street opening this afternoon.

Sterling has had a torrid couple of weeks as bad news mounted up which in turn, took its toll on the currency’s international appeal. Opinion however does appear to be shifting, especially versus the Euro, with the thought emerging that Euro/GBP is becoming a sell at these dizzy heights. Recent bad news has been well priced in to Sterling so strategists are looking for some degree of retracement over the coming weeks.

Andrew Sentence, in an interview with The Sun newspaper, reaffirmed his commitment to tighter monetary conditions saying that the recently announced spending cuts would not endanger the economic recovery and although growth patterns will remain uneven, it is inflation that is still the elephant in the room…. no change there then, as far as the MPC’s uber-hawk sees it.

Report by Tim Lewis
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Sterling Down Following Public Spending Review


 

The pound is in for a rough ride following poor UK public spending forecasts and public sector net borrowing data.

20 October 2010

Watch out for Sterling volatility today as the Pound gets pushed around by the release of the MPC minutes from the last meeting and the long awaited public spending review, which will be presented by Chancellor George Osborne at lunch time. Right on cue, the former has just been released, showing a MPC member (surprise surprise it was Adam Posen) was the only pushing for further stimulus measures (extra QE) and sending Sterling down 30 pips in quick time.

We finally have 3 different views on the committee, 7 voted for no change and Andrew Sentence again voted for a rate rise. We’ve also just seen worse than forecast public finance and public sector net borrowing data no doubt adding to the negative Sterling sentiment.

The Public Spending Review will detail where the axe will fall, right across government departments. If there are no surprises and the cuts are in line with the plans announced in the Budget, then most of details should already be priced into the market. However, we are not ruling out a bolt from the blue by Mr Osborne, as this is why the market will be very choppy right for the majority of today.

In Other Currency Market News:

The surprise interest rate increase by the Chinese helped the safe haven Dollar to gain slightly across the board. The move can be seen as part of the Chinese government efforts in unwinding the stimulus measures put in place during the financial crisis and also can be seen in the context of the on going ‘currency wars’ as a olive branch to the US. Eventually the rate rise should see further appreciation of the Yuan against the Dollar.

German & Eurozone ZEW sentiment continued to slow, pointing to lower growth prospects over the next six months. This makes sense in light of the current euro rate against the Dollar and Sterling eating into export growth, and anticipation of further Euro strength is the US announces further QE. Data this week is fairly light, tomorrow we should get a snapshot of the Chinese economy with CPI, PPI, GDP and retail sales which coincidentally are also released in the UK.

Report by Alistair Cotton

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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USD Fights Back


 

18 October 2010

The USD made ground over night after better-than-expected manufacturing data and an unexpected rise in retail sales. This  has reduced concerns that falling consumer spending may weigh heavy on the economic recovery. The US Treasury’s budget shortfall remained in the trillions and the University of Michigan consumer confidence index fell to 67.9 points. Consistent high levels of unemployment (unchanged at 9.6% in September) and increasing initial job claims numbers are contributing to downside pressure.

Overall, the Dollar has spent the last 6 weeks sliding lower on the opinion that QE2 is required in order to firm up the declining US economy. Ben Bernanke’s explanation on Friday indicated that additional monetary stimulus may be necessary, stating “there would appear… all else being equal… to be a case for further action” in order to “promote our dual objectives of maximum employment and price stability” yet gave no indication on how much, or when.

The USD pared losses and finished the day higher, which suggests the contrast between expectation and reality that can exist in currency markets and questions how much easing is already factored into the price. This in turn could make the Dollar susceptible to sharp rebounds. The market will now seek direction from the FOMC meeting on Nov 3rd.

The pound will be in centre stage this week, with markets watching to see what areas of the economy will be most affected by Osborne unveiling the details of the largest budget cuts in UK history and the release of the minutes from the Bank of England meeting (6-7 Oct) both on Wednesday. We’ve already seen reports from the Centre for Economics and Business (CEBR) suggesting the Bank of England will expand its stimulus program by £100bn to boost the economy as growth begins to contract and austerity measures begin to curb spending. They also stated that the central bank will keep its benchmark interest rate at a record low of 0.5% until at least “late” 2012

In Europe, the Euro set a fresh 9 month high against the dollar after Bernanke’s announcement but then late on Friday it reversed and couldn’t hold the gains against the Dollar, finishing the day below the open & implying the recent rally is over and it was time for a correction. Trichet distanced himself from Weber comments over the weekend saying that the majority of the ECB council is still in favour of keeping the sovereign bond purchasing program in place. We now look to Tuesday when Trichet is expected to speak with regards to the European economy.

Expect some significant volatility in currency markets over the week as central banks look to talk their recovery prospects up and their currencies down.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

The contents of this report are for information purposes only.

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US Dollar Slides Against Yen and Euro


 

Expect a quiet start to the week before a busy few days in terms of key economic releases. Friday’s release of US retail sales  follows the slide of the US dollar against Yen and Euro.

11, October 2010

On Friday, the US dollar fell towards an eight month low against the Euro on further speculation that Federal Reserve policy makers will shortly signal their willingness to buy more government debt to support economic growth. The Dollar also touched a 15-year low versus the Japanese Yen ahead of tomorrow’s release of the Fed’s September 21st policy meeting minutes. The moves on Friday were primarily driven by the release of the US payrolls report for September.

Both the headline print and the private payrolls component disappointed expectations. US employers cut payrolls by 95,000 workers in September after a revised 57,000 decrease in August. Average expectations had been for a 5,000 drop. Markets are now expecting the FOMC will formally announce renewed balance sheet expansion on November 3rd.

The weekend’s G7/IMF/World Bank meetings ended without any specific agreement on FX matters, despite Eurodollar trading close to 1.40. However, the issue will likely resurface at the G20 meeting of finance ministers and central bankers which begins on October 22nd. Overnight was a relatively quiet Asian session with Japan on holiday.

This calmness likely to continue throughout the day with US markets also closed due to the Columbus Day holiday.

After a quiet start to the week, we have a busy few days towards the tail end in terms of key economic releases. Of note, Friday’s release of US retail sales plus preliminary Michigan sentiment survey for October being some of the highlights. This should help provide some insights into how the US consumer is holding up in the face of ongoing weakness in the labour market.

As sterling continues to be weighed down by the prospect of further action from the Bank of England and the pending budgetary cuts, this week’s round of data which includes the BRC retail sales survey and UK CPI for September should provide further clues for future BoE decisions.

Report by Tim Lewis

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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US Dollar Sell Off Continues


 

Expect a  large US dollar sell off this afternoon following the release of the latest US employment figures. Combine this with the anticipated re-introduction of quantitative easing by the FED and the dollar may sink even lower.

08, October 2010

20 years ago today marked Britain’s first day as a full member of the European Exchange Rate Mechanism (ERM), aimed at reducing exchange rate variability and furthering monetary stability in Europe. The ERM was a first step on the road to a single European currency which we now know as the Euro. But as we all remember, the experiment did not end well for Britain. Speculators including George Soros famously made a killing betting against the Pound and the downward pressure on Sterling first prompted interest rate hikes and finally Britain to formally pull out of the system.

The lesson the Bank of England learned that day was that no longer could a Central Bank of a small island hold back the tide (or should that be Tsunami) of the market. Although we now live in a world of floating rather than fixed exchange rates, informal Dollar pegs by many developing nations are still used to manage exchange rates.

The sharp Dollar sell off over the past month leaves these nations in somewhat of a pickle. To maintain international competitiveness they must buy Dollars and sell their own currency to maintain the desired rate of exchange, but the whole market seems poised to short Dollars as soon as the Federal Reserve announces a resumption of quantitative easing. Direct intervention may work in the short term (as witnessed by the spike in USDJPY after the intervention by the Japanese) but it is a futile and expensive policy if the market thinks otherwise.

Today’s US employment figures are seen a key barometer for a resumption of QE, so expect frothy trading this morning in the build up. The estimate is for a loss of 5K, with a larger decline almost certain to lead of Dollar sell of this afternoon. The Dollar Yen pair is approaching levels once again when the Japanese may be forced to intervene and may do so over the weekend before European and American markets open, for maximum effect.

Both the ECB and BOE kept rates on hold yesterday at 0.5% with no changes to asset purchase schemes. British house prices dropped 3.6% in September, one of the largest monthly falls on record, but such is the way as the moment Sterling shrugged this off and pushed over 1.60 in cable in the early afternoon. Positive manufacturing data may have helped in the move higher but further Dollar weakness was the main driver.

Report by Alistair Cotton

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Currency Market Updates: Dollar Index Hits Low


 

4, October, 2010

We look at an interesting week ahead as 4 major banks announce their monetary policies and we await the US employment figures on Friday. This, with the low Dollar index and the the EU-Asia summit taking place, will keep the EUR ready for a test of 1.3840.

Risk appetite remained at the fore last week, with markets failing to be deterred by concerns over Ireland’s banking sector and mounting resistance to austerity methods across Europe. The biggest loser remained the USD, with the Dollar index touching a low of almost 78.00 and speculative positioning (as indicated by the CFTC IMM data) identifying an additional sharp drop in sentiment to its lowest since Dec 2007.

It is a significant week for central bank meetings, with four major central banks announcing their monetary policy including Bank of Japan (BoJ), Reserve Bank of Australia (RBA), European Central Bank (ECB) and Bank of England (BoE). However, the main news for the markets to digest is the job number in the US on Friday afternoon. The RBA is rumoured to be interested in a rate rise by 25bps, the BoJ could announce additional asset purchasing despite both the ECB and BoE unlikely to adjust their fiscal strategies.

Despite the reality that the BoJ is by and large expected to hold its policy rate untouched at 0.1%, it might state additional measures aligned with the backdrop of relentless JPY muscle, a deterioration in economic attitude as reflected in last week’s Tankan survey and fall in exports. Newspapers in Japan indicate that the BoJ could add to borrowing of fixed rate 3 to 6 month loans to financial institutions in addition to buying further short-term government debt.

The methods along with risks of further JPY interference may thwart USD/JPY receding further, however as seen in the boost in speculative net long JPY positions last week, the market is trying to determine the resolve of the Japanese authorities. Strong support is seen around USD/JPY 82.80, with the authorities not likely to permit a split beneath this technical point in the short-term.

Even if we only see specifics of the voting in two weeks in the release of the UK BoE Monetary Policy Commitee (MPC) minutes it is possible that there was a three-way divide within the MPC as evident in latest remarks, with MPC member Posen appearing to favour more quantitative easing whereas the MPC’s Sentance is set to maintain his inclination for higher rates. The pound was a straggler over September as investors continued to worry over potential QE from the BoE. This doubt is unlikely to fade swiftly, signifying restricted gains against the USD and potentially more difficulty against the EUR. Sterling speculative attitude has enhanced but particularly positioning remains short.

Contrary to GBP, the EUR has benefit from USD weakness and looks set to expand on its gains. Even though there is a risk that speculative positioning will before long turn out to be too stretched, it is worth noting that positioning is well below previous highs against the IMM data. EUR possibly will have some support from Chinese Premier Wen’s assurances to support Greece, and a steady EUR. Whereas there seems to be risks associated with the EUR from ongoing peripheral arrears concerns such remarks are expected to be recurring at the EU-Asia summit over the next couple of days, will keep the EUR ready for a test of 1.3840.

Report by Philip Ryan

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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Currency Market News: USD Under Pressure By Euro


 

Market Analysis Videos 29, September, 2010

Rumours are circulating that the Fed will commence a second period of asset purchases or QE2 as early as November. The weaker than expected level for US consumer confidence in September published on Tuesday has only supported this feeling as sentiment continues to be hit by job market concerns. Consequently, the USD remains under pressure, with little sign of stopping.

The potential of further USD unravelling as well as interference in many countries to avoid their currencies from strengthening against the USD continues to influence gold prices which hit a new record high, smashing through the $1300 per troy ounce mark. In the present financial situation it is hard to see gold prices turning much lower, however there will be the usual bounces as profit taking occurs.

The EUR remains a key winner of USD weakness but this currency has issues of its own to deal with. Without a doubt, peripheral debt concerns, particularly concerning Ireland and to a smaller degree Portugal have increased, with borrowing expenses increasing as the yield on their arrears widens in addition to core Eurozone debt.

The EUR rise will only make it difficult for these countries to make any kind of recovery and could also hurt the established exporting countries of Northern Europe led by Germany. To date however, the EUR has displayed some notable buoyancy to renewed peripheral country sovereign debt concerns together with comments by S&P regarding the high costs of saving an Irish Bank. Conceivably, the awareness that there is a still a vast bailout fund from the EU and IMF on hand if necessary and also the viewpoint that the ECB will add to its buying of eurozone debt, has provided a buffer for the EUR.

In the future the ECB may be required to join the group in at least trying to talk its currency lower however at this point the central bank is showing no preference to either talk down the currency or artificially intervene to weaken the EUR. In the interim, EUR/USD is likely to strengthen further in spite of the probable harmful impact on European growth.

A currency that may benefit in the wake of potential of Fed QE2 is the Pound. Indecision over whether the BoE will follow the Fed in implementing further quantitative easing could see GBP delay the gains in other currencies against the greenback. Contradictory comments from MPC members Posen who noted that there might be a requirement for additional QE in the UK to hold up the stumbling economy were opposed by Sentance who concluded that there was no need for more QE.

Sterling/Dollar is likely be whipsawed as the debate continues and is set to lose additional ground against the EUR.

Report by Philip Ryan.

Currencies Direct is a leading commercial foreign exchange company with offices in the UK, Australia and Spain and has offices across 5 continents. The Currencies Direct head office and global trading centre is based in the City of London.

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US Pressure China As Dollar Falls


 

17, September, 2010

Over the past 10 years, the deliberate undervaluation of the Yuan by Chinese authorities has always been the elephant in the room in FX markets. The Chinese economic juggernaut has been powered by exports of manufactured goods to the west made cheap by very low input costs. Quite rightly, China has been labelled the workshop of the world, and 8% average growth over the past thirty years has turned the underdeveloped middle kingdom to an economic powerhouse & the second largest economy in the world, behind the US.

America has long known China would overtake them eventually as the largest economy in the world, but they feel the Yuan undervaluation is giving the Chinese an unfair advantage. The cheap currency encourages Chinese exports and promotes outsourcing of jobs from the US to China, which in a time of sluggish economic growth and stubbornly high unemployment in the US, automatically makes it political hot potato.

Treasury Secretary Tim Geithner’s comments yesterday that the US would use “all the tools we have” to reverse the bloated trade deficit with China, including WTO rules on fair trade, should come as no surprise in content, only in strength, given the usual soft tone used in diplomatic circles. His comments come on the back of direct Japanese intervention earlier in the week aimed a curbing the strength on the Yen, and raises the prospect of a triangular trade dispute between the three largest economies in the world.

Sterling was, quite frankly, all over the place yesterday. Disappointing retail sales figures pushed the pound quickly lower in early trading, but as seems to be the way just now, we shook the negative news off quickly and resumed the march towards 1.57 against the USD. Improvements in risk sentiment has aided Sterling’s move, as has improving economic data in Europe and the successful Spanish bond auction yesterday. The Euro has been driven higher against the Dollar, lifting Sterling versus the USD as well and we now trade over 1.31 in EURUSD and 1.57 in GBPUSD.

Today, the eco calendar contains only some second tier eco data in Europe. In the US, the CPI and the Michigan consumer confidence are on the agenda. Recently, inflation data were no big issue for currency trading. Nevertheless, with markets focused on whether or not the fed should engage in more QE, a lower than expected figure could be slightly dollar negative.

Report by Alistair Cotton

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