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.

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

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

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

6, September, 2010

Today is Labour Day in the US and in Canada which means very little work will be done anywhere.

Going back to Friday, the stripped out version of the non-farm payrolls figure produced much stronger numbers than had been anticipated. The market now feels that removing the seasonally volatile short-term Government hirings gives a much more relevant picture of the employment situation.

Accordingly, August private payrolls were reported to have grown by 67,000 (against the consensus figure of 40,000) whilst the July number was revised up from the previously reported -131,000 to -54,000. Economists quickly concluded that, although the US economy continues to face problems ahead, and that the unemployment rate will likely remain stubbornly high, Friday’s employment report is an important step in the right direction, and should weaken the case for additional quantitative easing on the part of Federal Reserve.

Listen to  the full report with Tim Lewis on the podcast >>>

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

1, September, 2010

Listen to the full report from Tim Lewis on the podcast >>>>>>>>>>>>>>>>>>>>>

The highlight overnight was the release of the minutes from the August 10th Federal Reserve Open Market Committee meeting. Some Federal Reserve officials were concerned that a decision to keep securities holdings unchanged would inadvertently signal an intention to resume large-scale asset purchases.

Also, a few policy makers said the economic effects of the decision “would be quite small,” but at the same time, some officials saw “increased downside risks to the outlook for both growth and inflation” and voiced concern that further shocks would cause “significant slowing in growth”.

The debate shows the challenge Fed Chairman Ben S. Bernanke may face in achieving consensus for any additional monetary stimulus to reverse a slowdown in growth and reduce joblessness more quickly. In a speech last week, Bernanke said “Policy makers haven’t agreed on specific criteria or triggers for further action”.

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

27, August 2010

Global markets are in the doldrums and with decreased trading volumes and a lack of positive data there has been little to prevent a downward path this week. The Dow is down 2.23% on the week and just over 6% on the month, slipping below the critical 10,000 level (closing yesterday at 9,985). S&P 500 and Nasdaq have followed suit heading into the end of the month 6.7% and 6% down on the month.

In the UK the FTSE clawed back from the 6 week low of 5070 seen on Wednesday but is still 3.50% down on the month. In Asia, the Nikkei and Hang Seng haven’t bucked the global trend also down 5.5% and 2% on the month.

Yesterday the Labor Department in the States reported a reduction in new U.S claims for unemployment benefits. Initial claims for state unemployment benefits fell 31,000 to a seasonally adjusted 473,000, below market expectations for a drop to 490,000.

However this figure did little to support the dollar as firstly the claimant’s number still remains high and there is still a real concern about the recovery of the States after the horrendous week it has had. Many economists also look at the four week average price of initial claims which is viewed as a better gauge of employment trends; this figure was up slightly by 3,250 from 486,750.

Despite the onslaught of poor data Germany continues to shine as German consumer morale increased for the third month running, hitting its highest level since last October. German CPI data is also due out this morning and if it follows the positive trend we may seen the reading come out ahead of expectations however seasonal trends suggest August CPI readings are usually low.

In Euro trading news, money supply growth held steady in July as loans to the private sector steepened. The Conference Board’s leading economic index for the Eurozone (which is used to identify turning points in the business cycle of the Euro Zone) rose by 1% to 112.5 in July. The European Central bank reported loans to the private sector grew at a annual rate of 0.9% up from 0.5% rise in June.

Today should be an interesting day with GDP readings from the UK and US coupled with Bernanke speaking this afternoon. UK GDP Q2 2nd release is expected to be unchanged at 1.1% and US GDP Q2 2nd release is expected to be revised down slightly to 1.3%. This afternoon all eyes will turn to Bernanke who is speaking at a conference at 3pm (GMT) at the Economic Symposium in Jackson Hole, Kansas.

It is anticipated that Bernanke will revise down the US 2nd quarter economic growth figure at this annual conference. The recent flow of disappointing data from the States has fuelled fears of a double dip recession. Finally, the gold market news: Gold has edged higher this week to current levels of 1236 per ounce (Gold has surged this month as investors seek safe havens and is up 4.80% on the month).

Report by Philip Ryan

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

23, August 2010

Reports today suggest the forex market analysts are the most pessimistic on the Pound since May 2009, predicting the Chancellor’s cuts will eat into economic growth, the already soft economic recovery is forecast to slow causing Sterling to fall back against both the Dollar and Euro. Median estimates suggest the Pound will drop 8 per cent against the Euro by year end as the recent bullish UK data starts to deteriorate.

The US Dollar rose sharply on Friday against the Euro, Sterling, Aussie and Candian dollar on the back of risk aversion, while safe haven currencies such as CHF and the YEN strengthened against the dollar.

The Fed is perceived by the markets to be in a holding pattern until further directional economic data is released. Weakness in global equities carried through to European markets sending major indices lower while US stocks are lower as the sell off continued. The current lack of Tier 1 economic data out of the US is putting the focus on the equity markets.

The Euro fell against a basket of currencies on Friday and remains on the defensive this morning as comments by a senior ECB official fuelled expectations for liquidity to remain a concern for the single currency. ECB Governing Council member Axel Weber told Bloomberg in an interview published on Friday it would be “wise” to extend unlimited liquidity to banks past the end of 2010.

The Euro was further hit after the US Federal Reserve said the US and global economic recovery was losing steam, striking a nerve with investors. The euro zone is seeing an increasing split not only in banking but in the economy in general. While the euro zone economy improved in the second quarter with Germany setting the tone, southern Europe recorded much more muted growth. Market analysts believe the ECB may have little option but to keep flooding the money market with cash to help banks and governments in the EU.

The Euro zone economy will remain under the spotlight today with the release of the flash August euro zone PMI’s which are expected to fall back from 56.7 in July to 55.5. In the US the focus will be on the release of housing and labour market figures. On Friday of this week the focus will be on the UK with the release of Q2 GDP growth figures.

Report by Alistair Cotton

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

20, August 2010

Gilts opened lower and Sterling remained on the back foot on Thursday morning ahead of UK Public finances and UK retail sales. The market continues to be concerned about public sector debt so any poor data was expected to see the market react abruptly as investor’s fear the UK government will struggle to meet its target for narrowing the deficit this year.

However, unexpectedly, retail sales actually rose three times faster then had been predicted in July. The Office for National Statistics said retail sales rose 1.1% on the month, the strongest growth since February 2010 and well above analyst forecasts for a 0.4 % rise. On the year, retail sales rose 1.3 %, again above forecasts of 0.6 %.

There was also a sharp improvement in Public Finances mainly driven by strong growth in tax receipts. The Treasury were quick to react after seeming concerned that this figure would be interpreted as more positive for future budget forecasts and they announced that their figures were still in line with the Office for Budget Responsibility full forecast. Sterling strengthened off the back of these figures and moved 1% higher against the Dollar and 0.5% against the Euro.

The UK managed to start the day off on a positive note but unfortunately the States were unable to continue this trend. U.S unemployment claims spiked to a nine month high. The Labour Department reported initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 500,000, the highest since mid-November.

The dollar came under further pressure after factory activity in the US Mid-Atlantic region fell in August to -7.7 from 5.1 in July reported by the Federal Bank of Philadelphia on Thursday. This reading was the lowest reading since 2009.

The Dollar fell further against the Yen and nearly touched the 15 year low we saw earlier on this week as investors continue to remain apprehensive about the pace of the US economic recovery. Obama spoke out yesterday urging the Congress to push legislation to force tax cuts and ease credit for smaller businesses.

Gold benefited yesterday as investors flocked to safety. Gold looks set to climb higher and closed yesterday up at $1235.40. Conversely, Brent Crude Oil slumped by 1% to close at $74.40 as uncertainty in the US may signal lower demand.

Other news in the headlines includes a slew of takeover activity as companies eye up targets. There will be ongoing coverage of BHP’s now hostile takeover bid for Potash. BHP will begin the hard sell of the $40bn hostile bid to their own shareholders next week at road shows across the globe. It wouldn’t come as a surprise if BHP increase their bid after Potash rejected it and due to the likely scenario of a rival bidder entering the market. BHP could probably hike their offer to as much as $165/$170.

Analysts have tipped Brazil’s Vale and rival Chinese and Russian firms to be on the sidelines. Other M&A activity includes Intel’s announcement that it will buy McAfee for $8bn and the $2.9bn hostile bid launched by Korea National Oil Corp for UK explorer Dana Petroleum after it’s takeover offer was rejected. No doubt we will get more stories about this flurry of hostile M&A activity over the weekend.

Today is a quiet day with only Canada’s CPI date for July out at 12.00.

Report by Philip Ryan

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

18, August 2010

The Euro regained ground against the Dollar and Sterling yesterday as Ireland’s 2014 and 2020 bond auctions largely passed without incident. Spreads were already tightening ahead of the auction, and final bid-to-cover ratios of 5.4 and 2.4 respectively showed that demand remains firm.

Spain also sold 5.5 billion euros of 12- and 18- month bills at lower yields than in previous auctions in July. We wait to see if ECB intervention was the main reason for the strong demand. The European data picture was less rosy, however, as the ZEW Economic Sentiment survey was much lower than expected at 14.0 (consensus. 20.0), though the current situation index was firm at 44.3 (cons. 24.0).

Sterling is trading up 50 pips after the release of the Bank of England minutes showed one member, Andrew Sentance, voted to start the withdrawal of the exceptional monetary stimulus. This is the third straight meeting that Sentance has been the lone dissenting voice calling for a 25 basis point increase in the banks base rate.

He argued that the economic recovery is gaining momentum and the Bank needed to act to make sure inflation expectations are not allowed to deviate from current levels due to the current inflation rate stuck stubbornly above target.

Traders have taken this as a positive sign for the UK economy and the Pound now has just broken through 1.56 against the Dollar and 1.21 against the Euro.

Overnight, currency markets exhibited all the symptoms of risk aversion in overnight trade, with the US Dollar and the Japanese Yen tracking higher against all of their major counterparts. The dollar was also supported by data released yesterday which showed that producer prices for finished goods rose slightly in July, the first such increase in three months.

The price rise of the core index was the largest gain since January and, taken with the Consumer Price Index last Friday which also showed an increase for July, the report should help ease concerns among some Fed officials about the possibility of a drop in prices and salary, or deflation.

Apart from the Bank of England minutes, today is very light on the data front with Eurozone construction and US crude oil figures the only highlights.

Report by Alistair Cotton

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

16, August 2010

Friday was a busy day on the economic data front. First up, we saw figures released showing that the Eurozone economy expanded in the second quarter at the fastest pace in nearly four-years. The Euro-Zone’s seasonally adjusted preliminary second quarter GDP showed an expansion of 1.0%, compared with the previous 0.2% and the expected 0.7%.

The biggest jump in the figures came from Germany’s GDP, with a preliminary reading of Q2 GDP showing extremely robust 2.2% q/q growth, well above expectations of 1.3%. This was the fastest pace of growth in nearly 20 years since German reunification. Global demand and a weaker Euro helped boost exports during the period, sustaining growth in the area.

Whilst the UK can take comfort from the fact that they can control their own currency, there are still issues. House prices in the UK have taken a bit of a knock for the month of July according to figures posted by Rightmove, the property website. The figures reflect that people wanting to sell their homes are having to cut prices faster than at any time this year following a flood of properties hitting the market.

On a national basis house prices have come in by 1.7% from July to August. Following the Bank of England cutting its growth forecast on Wednesday and raising its estimate of inflation this housing data has not helped the continued fear around the risk of a double dip recession.

Friday’s US data was broadly in line with expectations. July retail sales rose by 0.4% (versus market consensus +0.5%) and the June reading was revised up to -0.3% from -0.5%. Crucially, core CPI inflation for July was steady at +0.9% as expected, suggesting there has been no increase in deflationary pressures in the past month. This may help calm fears that the Fed will be forced to launch another round of QE later this year.

The University of Michigan consumer sentiment index rose to 69.6, fractionally ahead of consensus of 69.0. The weakening risk environment allowed the US Dollar to hold onto much of last week’s gains. On the week, the euro shed 4.13% against the dollar with sterling only loosing 1.9%.

In other news, China is officially the second largest economy in the world, after the US. The Japanese GDP data out overnight reflected that China has moved into the lead and a number of economists are forecasting that China will take over as Number One by 2027.

This week’s economic calendar starts with today’s Eurozone’s CPI inflation data for July with a market expectation for 1.7% year on year. This is a heavy week for UK data starting with July’s CPI, due on Tuesday, expected to moderate again to +3.1% year on year versus previous month’s +3.2%. On Wednesday, the minutes from the August 5th MPC meeting are due, with weekend press speculation suggesting the possibility of a three-way-split in how the votes were cast.

We expect MPC Member Sentance to remain a lone voice in calling for a rate hike. After the recent weakness in house price and consumer confidence, retail sales due on Thursday will be a useful barometer of whether consumer spending has been affected by headlines warning of imminent and severe fiscal consolidation.

Out from the US this week, starts with tomorrow’s July’s housing starts and industrial production. This is then followed on Thursday by weekly initial jobless claims and two indices of manufacturing activity.

Report by Tim Lewis

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

13, August 2010

Global stock arkets look set to end the week well in the red. Across the globe indicies are about 4% down on the week wiping a whopping USD $1.7trillion off global stock values in the past 4 days.

An unexpected rise in US jobless claims yesterday ironically caused the dollar to make further gains as the world’s most liquid currency benefitted off the back of risk aversion. Disappointingly US new claims for jobless benefits rose to a six month high as the labour market in the States continues to struggle.

The labour department figures showed the initial jobless claims rose by 2,000 to 484,000 when a significant reduction was expected. Freddie Mac also reported further disappointing figures as home loans in the States hit new lows off the back of a soft US economy.

European Industrial Production figures out yesterday did little to boost confidence in the market. Output in the Euro area dropped 0.6% from May versus expectations of a 0.3% gain suggesting the Euro Zone economy is still far away from making a recovery. Coupled with extremely poor growth figures from Greece, EUR came under pressure reversing early gains.

The Greek economy shrank by 1.5% in the second quarter, this figure was significantly lower then economists had expected. The Greek economy is expected to contract by 4% this year according to the EU and IMF.

However, this morning’s data shows more positive signs for the Eurozone with Germany and France reporting better then expected GDP. Starting with Germany their GDP grew 2.2% (compared to the 1.3% expected) in the second quarter driven mainly from strong investment and exports.

Impressively this figure was the biggest gain in 23 years and economist are expecting at least a 3% growth this year. France’s GDP figures, although not nearly as superior as Germany’s, were still marginally better (by 0.1%) than the market had predicted coming out at 0.6%. French consumer prices fell less than expected in July at -0.3% month on month (up 1.9% on an annual basis).

In Asia, all eyes have been upon the Yen which reached a 15 year high on Wednesday of 84.73. Yen has since sold off slightly to current levels of 85.90. It is being very closely watched by, no doubt, anxious officials. in an unscheduled press conference yesterday, the Finance Minister, Yoshihiko Noda pledged that “appropriate action” would be taken against the strength of the yen. Exactly what the action will be however is unknown but one would expect this to signal possible intervention.

With very little data out elsewhere this Friday, focus today will be on the Eurozone GDP out at 10am followed by US data later this afternoon.

Report by Alistair Cotton

The contents of this report are for information purposes only.

Currency Market Updates

BlogCatalog – Finance

Currency Market Updates, keeping
an Eye the DOW:

Adam Hewison
President of INO.com
Co-founder of MarketClub.com

Free Teaching Resources
Free Educational Trading Videos

Trading Videos
Latest Trading Videos

The contents of this report are for information purposes only.

BlogCatalog – Finance