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

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All Talk And No Action


 

The ECB left interest rates on hold yesterday…

4 February 2011

This in action potentially brings to an end the recent Euro bounce led by earlier hawkish comments by its president Jean-Claude Trichet over above target inflation. The prospect of higher Eurozone rates had pumped up the Euro over the past month.

However, in his briefing to the markets, Mr Trichet explained that current rates remain ‘appropriate’ in spite of rising food and energy prices. Further price developments will be monitored closely, according to the ECB, which mirror the tone of the previous meeting and keeps the Euro Bulls, disappointed with the lack of a rate hike, keeping the Euro well bid even if the price drops back from current levels.

Another day, another positive PMI figure in Britain. Yesterday, the services PMI figure jumped to its highest level in 8 months, dragging Sterling over 1.62 on the Dollar and 1.18 versus the Euro before an afternoon of profit taking put an end to the rally. Again, the data points to an upward revision of the previous quarters GDP and along with the current Bank of England offensive on inflation expectations, suggest that the BoE at least wants us the begin to think about rising interest rates again, even if actual increases remain in the distant future.

The severe economic headwinds of the government cuts about to hit Britain will constrain any potential rates rises, so the Bank is aiming to shift our expectations onto future rises, keeping our expectations of future inflation anchored and enabling them to keep rates low for a prolonged period.

Dollar wise, the Federal Reserve Chairman Ben Bernanke gave a speech to assembled journalists last night, in which he touched again on the unsustainable path of the US government finances (scary) but also what he sees as improving prospects of the troublesome US labour market.

His comments come just in time for the first Friday of every month – Non-Farm Payrolls, the important US data release showing the health of American job market arte released this afternoon. Expectations for today’s figure are for the creation of roughly 140 thousand jobs this month, which should give the Dollar a boost just after lunch.

Report by Alistair Cotton

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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.

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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

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Euro Heads For 6-month Low As Portugal Comes Under Pressure


 

Euro currency news looks bleak today with Portugal set to fall and Spain to follow suit.

10 January 2011

The Focus last week was on Friday’s US Unemployment Report and the numbers didn’t fail to surprise the pundits. Against expectations of a headline increase in non-farm payrolls of 150,000 – 160,000, the actual number was reported as an increase of just 103,000; not good. The amendments to the October and November outcomes however, added a further 70,000 to the totals, which in the end dragged the total above the predicted level.

It was enough to calm any fears over the recovery in the US, abetted by the unexpected sharp drop in the employment rate from an expected 9.7% to 9.4%. A staggering fall in the context of the data set, but explained away as being the result of a contraction in the workforce rather than a lot of unemployed getting jobs. Euro/Dollar settled into its recent trend of slipping lower, closing the week at its lowest point since the middle of September.

Having cleared that potential high-hurdle, the Dollar does look set for further gains (1-1 parity?) with the emphasis now on the Euro to convince investors that it has a long term (or even short term) future. Upcoming events don’t bode well for the single currency though.

3-month old press reports on Ireland have been dusted off, with ‘Ireland’ being replaced by ‘Portugal’ ahead of the Portuguese bond auction on Wednesday. The country’s 10-year bonds have already been driven to having to yield over 7 1/2%, well above the price paid by both Greece and Ireland for their own IMF/EU rescues. It can’t be sustainable for Portugal to pay this sort of cost just to avoid assistance, but the threat to the Eurozone might prove much greater.

If markets succeed in pushing Portugal through the same trap-door as the other two, then Spain will be placed well and truly in the firing line – and that will be a real problem for member states of the Eurozone, in both financial and economic terms. Following Portugal’s attempt of Wednesday, both Spain and Italy have bond auctions scheduled for Thursday and unless the former is able to conjure up a surprise result, then I expect to see the Euro hitting a 6-month low before the month is out.

Elsewhere, talk is all about inflation, with lots of press inches and TV time devoted to the quandary in which the BoE/MPC find themselves. There is no doubt that the committee would like to express their concern about the recent stubborn upsurge in UK inflation but are certainly not yet convinced that the economy is ready for a return to normal interest rate levels. This would require a ‘surprise’ 0.25% rise in rates, but of course, if everyone is looking for it then it wouldn’t be a surprise and therefore be of no use what-so-ever other than making what loans are available, more expensive.

Looks like no change at this Thursday’s MPC get together and will focus even more attention on the Bank of England’s quarterly inflation report, following on from the minutes from this week’s meeting (on 26th Jan) and the next MPC meeting in early February. The market is of the opinion however that the UK are going to be the first of the Gang of Four (the US, UK, Eurozone and Japan) to start raising rates and are hence pushing Sterling higher. No significant data today so Sterling will only react to further moves in Euro/Dollar.

Report by Tim Lewis

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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

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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

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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.

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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.

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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

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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

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Euro Trading News: EUR/USD – Euro Hits 8 Month High


 

The possibility of a second round of quantative easing in the US has led to the euro trading at an eight month high in euro to dollar news. The Non-Farm Payroll figures  due out on Friday are not likely to defer what seems like the inevitable by the FED, for too long.

6, October, 2010

The Eurodollar surge continued in overnight trading where comments from Chicago’s FED President Charles Evans further indicated that the US might be entering quantitative easing for a second time. His message that the Central should do “much more to spur the economy” has echoed rumours and quotes from other figures back up the need for QE2 in the States.

With the Chinese currency situation at a standoff and the Middle Kingdom refusing to devalue the Renminbi, the FED has been exploring other ways of weakening the Dollar to improve the desirability of buying from the US. The speculation surrounding QE2 has led to Eurodollar hitting 8 month high of 1.3873 and likelihood is we could be seeing 1.40 in the not to distant future. A whole raft of data involving the US is due this week, but the main indication for Bernanke and Co will be Friday’s release of Non-Farm Payrolls due out at 1.30pm UK time. It is expected to show an increase of 3,000 jobs in September vs August, but a negative figure for this and a revision of last months number would show the FED they need to act soon to support their ailing economy.

This mornings Eurozone GDP data did little to move the markets with the QE2 issue still controlling volatility. The results of 1% QoQ and 1.9% YoY were bang in line with expectations and as a result, the markets didn’t register the announcement with a reaction. Yesterday, following a gentle slide in the morning, the euro rallied on Eurozone PMI reports for September as they showed economic activity in the area was gaining traction.

The PMI Services and Composite readings for last month both rose to 54.1 with individual readings for Germany rising by a greater amount. The French reading dipped slightly, but maintained a far stronger pace of expansion than in any other Eurozone nation. A separate report showing retail sales dipped during August across the Eurozone was largely overlooked in the context of today’s survey data.

A positive surprise for the British economy came in the form of jump in the PMI Services reading for September when analysts had expected a fall. The index rebounded from a slip towards a standstill for the sector and improved to 52.8 from 51.3. The pound shot up from on the strength of the data, which economists reckon now reduces the likelihood of further quantitative easing in the UK.

The rate and policy decisions by the Bank of Japan in their last ditch attempt to boost their economy and weaken the Yen seem to have failed miserably. Whilst the BoJ’s move initially helped export-oriented stocks traded on the Nikkei, the Yen’s decline proved short-lived and it quickly moved back to ¥83 versus the Dollar.

Report by Tim Lewis

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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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Euro Trading News: Euro to USD


 

1, October, 2010

It’s a brand new month, but the underlying issues from September are still controlling the markets. The question is why is the Euro so strong and how long will this rally last?

Rumours have been circulating the markets for months now about whether the FED will go into a second round of quantitative easing. A move into QE2 would weaken the Greenback significantly and as a result, investors are running scared into the Euro. Why would they do that I hear you ask? The Euro should be tumbling, downgrades in Spain and a bailout of Anglo Irish which totals more than the entire tax income of Ireland. The single currency should be sitting unclaimed in the lost and found with the Dollar.

The problem for the USD holders is that selling vast amounts into many other currencies will push those markets through the roof thus costing them even more to get rid of their Dollars. Euro to USD is the most liquid pairing of them all and as a result, traders have moved billions of USD into Euros. As a result, Cable has shot up back towards the 1.60 level again, but Sterling-Euro is trading on 3 months lows.

Yesterday afternoon, we had some very positive data from the FED with the GDP figure coming in at 1.7% ahead of a forecast of 1.6%. Strong figures from the jobs market and the Chicago PMI strengthened the Dollar over 2 cents against the Pound and as a consequence, squashed Sterling-Euro down below 1.15.

Don’t count on these optimistic announcements to calm fears of QE2 as most data has been revised in the weeks following the initial release. Cable has since rebounded this morning towards where it was trading before the US figures, which is further proof the Greenback is the weakest of them all at the moment.

With plenty of data due out today, volatility will continue to rule the markets, but it leaves us with a new question, when will the madness of Euro to USD end? The likely answer to that lies with Bernanke and Co and any comments they make over the next month. If the positive figures keep on coming and withstand the recent battering of downward revisions, QE2 could be avoided.

But, with a struggling economy and threats from China with the undervalued Yuan, you get the feeling the FED wouldn’t mind devaluing the Dollar making importing from the US more desirable and propping up their fragile financial system.

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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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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Euro Trading News:Euro Value Remains High


 

24, September, 2010

The big question economists are asking how long the recent Euro strength / Dollar weakness will last?

Price action topped at 1.3438 yesterday despite weaker Eurozone data in the form of Eurozone PMI. The rate held above 1.3335 which, coincidentally was the exact level we were at in August before the Euro decided move south and dip to 1.2600. Today is a quiet day in terms of data, the current level could make the German IFO release at 9.00am this morning very interesting.

Once again, the potential difficulty is the future expectation component and if, as seems likely, the position for the German economy remains ominous, coupled with the concerns over Eurozone sovereign debt issuance requirements, the present value of the Euro may demonstrate a little over reaction. However, numbers in line should see EUR/USD have another quick sniff at 1.3400.

The Far East session was again destroyed by holidays but what promised to be a ordinary trading period was enlivened by a swift leap in USD/YEN from 84.50 to 85.30 in the matter of half an hour, intervention perhaps? No comment was the official response (which would be surprising if the BoJ had been involved ie why try and push the rate and then deny it?) and so the market spent the next couple of hours allowing the cross to ease back to the 84.60 level.

With no additional action, it looks as though the move was just a business-related backed move but the European traders will remain cautious this morning. The BoJ are nothing if not consistent and if it was them earlier on, then they will be expected to mirror their previous attempt at currency manipulation on 14th September by overruling again in Europe and also in New York.

Today is quiet other than the German data we have to look out for durable goods and new home sales figures from the US. The previous is an extremely unstable and mostly ignored release whereas traders will wish that the housing numbers reflect yesterday’s better performance for the property market.

Commodities remain strong, with Gold the headliner. This continues to wend its way higher but other less high profile assets are also making waves. Silver is now at a 30-year high, again with further to go, and the entire commodity scenario argues for continued gains in the Aussie and Canadian currencies.

Have a good weekend!

Report by Philip Ryan

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Euro Trading News: Euro On Five Week High


 

20, September, 2010

The dollar has fallen towards a five-week low against the euro before a report today that may show that the U.S. housing market remains weak, adding to evidence that the world’s largest economy is slowing. The U.S. currency weakened versus 12 of its 16 major counterparts on speculation that the Federal Reserve’s Open Market Committee will also confirm that it is considering further measures to keep borrowing costs low at their meeting tomorrow.

In the U.K, data released this morning has revealed that home sellers lowered asking prices for a third month in September, wiping out half of the gains made since the start of 2010. Average asking prices in England and Wales fell 1.1 percent from the previous month and 3.4 percent over the last three months according to Rightmove, the operator of Britain’s biggest property website. A pickup in the supply of homes for sale is putting downward pressure on prices, while curbs on lending by banks are crimping demand. Bank of England Governor Mervyn King noted last week that bank balance sheets “are not in tremendously robust shape,” and that this may continue to restrain lending.

The Australian dollar has increased towards a two-year high after central bank Governor Glenn Stevens signalled earlier this morning that policy makers may need to resume raising interest rates should a mining boom stoke the economy next year and boost inflation. The currency has gained 6 percent so far this month as traders increased their assessment of the chances that the Reserve Bank of Australia will increase their benchmark rate on 5th October to 29 per cent.

Today, the economic calendar is again very thin. In US, the NAHB housing market index will be published whilst in the UK, M4 money supply data will be released. Global factors will continue to guide the price action on markets so market chatter on government finances of countries like Ireland and Portugal may continue to weigh on sentiment.

Report by Tim Lewis

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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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10th Federal Reserve Open Market Committee Minutes Released


 

1, September, 2010

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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”.


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Gold Market Shines As Dow, S&P And Nasdaq Fall


 

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

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