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

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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

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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

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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

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11, August 2010

The Dollar strengthened overnight after the Fed took steps to try and bolster the fragile US economy, saying they will maintain their holdings of securities to stop money from draining out of the financial system. (see Tuesday’s post) In a bid to avoid a double dip recession, The US central bank said it would reinvest between $200-300m of proceeds from maturing mortgage bonds from the first $1.2 trillion QE cycle.

It left its policy rate unchanged and renewed its pledge to keep rates low for an extended period. Following the fed announcement, treasuries surged and stocks pared losses as markets anticipated a renewed round of asset purchases should the economy slow further. Figures since the last FOMC meeting in June indicates that the pace in recovery in output, manufacturing, retail, employment and housing has slowed significantly.

The pound fell against the Dollar to its lowest level in more than a week after data signalled Britain’s economic recovery may be slowing. A UK housing market gauge showed the first decline in prices in a year in July, while a separate survey reported stores showing slower sales growth in July.

UK consumer confidence dropped in July, a third month in a row to its lowest level in 15 months. The biggest budget cuts since World War II, faster inflation and resilient unemployment have undermined consumer confidence.

This morning’s Bank of England inflation report accompanied by the usual speech from Governor Mervyn King will be closely watched along with UK jobless claims. Other data released today is this evenings US trade balance along with a monthly budget statement.

Report by Tim Lewis

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10, August 2010

Speculation over the announcement of QE2 at tonight’s Federal Reserve meeting is reverberating around the market at present. The consensus seems to be that that additional liquidity will be added to the system through reinvestment of maturing assets already on the Fed balance sheet, rather than return to fully blown quantitative easing.

The recent surge in commodity prices after Russia placed a halt on exports of grain is a worrying development for the Fed, it will need to consider that further down the road after it may find certain parts of the economy experiencing inflation at the same time as others are suffering from rampant deflation. This is why this Fed meeting is seen as so important– we wait to here which way the inflation/deflation needle is pushed (unless we end up waiting until next month!).

Sterling continued its climb against the Dollar yesterday as momentum from Fridays disappointing US jobs figures continued in early trading. But the Dollar has regained some ground this morning after the announcement from the Royal Institute of Chartered Surveyors that UK house prices have declined for the first time in a year.

The Bank of England has announced it is to overhaul its macroeconomic model (excitingly named the Bank of England Quarterly Model) after a glut of large revisions to GDP figures and because inflation has been above target for 42 of the 51 months, triggering seven letters from BOE Governor Mervyn King to the Chancellor over the same period.

A chat over three pints of warm lager and a packet of crisps are no longer deemed an acceptable method of assessing the health of the UK economy and the Bank plans to spend £3.5 million (or 350,000 magic eight balls) on overhauling and improving their forecasting model.

The announcement has led some commentators to suggest the markets may start to lose credibility in the Banks ability to forecast inflation – this could feed into Sterling weakness, but since the story broke Sterling has hardly budged and along with us, the market probably sees the announcement as good rather than bad news. UK trade balance figures were better than expected

The release of better than expected German June trade data helped the euro remain on a firmer footing for most of yesterday against the US Dollar . The strong 3.8% m/m increase in exports aided the idea of a Germany export led recovery. It is also worth noting that the rise in imports was better than expected; a factor which may support growth elsewhere in the Euro zone. On the data front later today we have the Nationwide & ABC consumer confidence surveys from the UK and US respectively.

Report by Alistair Cotton

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Bulls and Bears

The battle between the Bulls and the Bears continues with negative news pushing the market lower and positive earnings pushing the market higher and helping the Bulls.

So who’s going to win?

In this short video, I show you two items that are important in this market. I also point out where support is and why this is a crucial level to watch this coming week.

The Battle Continues

Our Trade Triangle technology is neutral on the SP500 but it could turn
any day now and this is what I want to share with you today.

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09, August 2010

In the final session of trading on Friday, US Employment fell for a second straight month in July as more temporary census jobs ended, as private hiring rose less than expected, pointing to an stunted economic recovery and a potential requirement for further Quantitative Easing. The main points were as follows: Non-farm payrolls fell 131,000 the Labor Department said on Friday, as temporary jobs to conduct the decennial census dropped by 143,000.

Private employment, considered a better gauge of labor market health, rose 71,000 after increasing 31,000 in June. The government revised payrolls for May and June to show 97,000 fewer jobs than previously reported. Analysts polled by Reuters had forecast overall employment falling 65,000 and private-sector hiring increasing 90,000. The unemployment rate was unchanged at 9.5 percent in July for a second straight month, just below market expectations for a rise to 9.6 percent.

It was a similar sentiment in the UK as both consumer and business confidence dipped again. The most recent purchasing managers’ index from the services sector indicates that, while growth continues business expectations have suffered a fall of about 10% since Spring. Friday’s PMI data showed a rise in cost of 5% which is rather high and pulls inflationary pressures into focus.

The other area of alarm for most is the idea that whilst interest rates remain low and are expected to stay as such until 2011 there seems to be greater comment around the fact that when they start to move they are likely to move quickly. It is still a very fine balance to control inflation, implement spending cuts and tax hikes whilst in the meantime not cause a double dip.

The general market view seems to be that interest rate rises back towards more ‘normal’ levels can only be implemented if the economy grows confidently the idea of pushing an already fragile economy back into recession is simply not palatable.

This week we have Mervyn King also know as Merve the Swerve will be speaking and The Bank of England is expected to give a gloomy assessment of Britain’s short-term prospects this week, forecasting weak growth and high inflation. This has been the case viewpoint-wise for a while and they are quite correct the market was heavily positioned short and we have seen sterling recover dramatically; the popular view is we may see further gains before the market renews its negative view and momentum.

It’s a key week for the majors, with the Federal Reserve meeting on Tuesday for their monthly policy announcement with speculation intensifying of further support for the economy to be announced. Also in the US we await the release of July’s retail sales, June’s trade balance and the latest inflation report.

In the Euro zone we await the results of growth figures for Q2 with flash GDP estimates for April to June expected on Friday. In the UK, the BoE release their quarterly inflation report on Wednesday which will be watched very closely to see what effects the government’s tightening fiscal policies are having on the economy.

Report by Philip Ryan

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Currency Market Updates

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06, August 2010

The pound is heading for a fourth weekly gain against the Dollar and the Euro after the Bank of England left rates unchanged at 0.5% and kept the asset purchase program unchanged also. Focus will turn to the quarterly Inflation Report to be released on August 11 and minutes to be released on August 18.

The dollar is on the defensive after reaching a three and a half month low against a basket of currencies after weak U.S jobless claims figures heightened worries that Friday’s payroll data due for release this afternoon could paint a bleak picture of the U.S. economic recovery.

Yesterday U.S labour department reported that the number of Americans filing for initial jobless benefits rose 19k to 479k, the highest since early April. Markets are expecting non-farm payrolls to shed 65k jobs in July following the 125k jobs lost in June. The unemployment rate is forecast to edge up to 9.6%, up from 9.5% in the previous month, a weak reading could fuel talk that the Federal Reserve may consider additional easing steps.

ECB left rates unchanged at 1% for the 16th consecutive month as widely expected. President Trichet said in the press conference that current rates are “appropriate” and expects “price developments to remain moderate”. Economic data in Q3 were so far “better than expected” but Trichet warned again that recovery will be “moderate and uneven”. There is no change in markets’ expectation that ECB is in no rush to remove policy accommodation any time soon.

Today is all about US non-farm payrolls but firstly there are some UK and Eurozone numbers to negotiate. A large gap between producer input and output prices is expected to remain and industrial production is anticipated to have slipped from the previous month in both regions. Non Farms is anybody’s guess after the divergent numbers over the last couple of days. The market looks for an improvement from last month’s -125,000 but it will be from the Private Payrolls component that the markets will be hoping to see a strong out-turn.

Report by Tim Lewis

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Currency Market Updates

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2, August 2010

On Friday, the Dow Jones fell by as much as 120 points after annualised growth in gross domestic product (GDP) was found to have slowed from 3.7% in the first quarter to 2.4% in the second. That came on the back of growth of 5% in the final three months of 2009. (see Friday’s post)

The US was initially thought to have grown by 2.7% in the first quarter but that was revised upwards on a day of surprises for economists. The US Commerce Department also revised downwards GDP figures all the way back to the beginning of 2007. The second-quarter slowdown led economists to question whether the US might be poised to enter a period of negative growth later in the year, leading to a much-feared double-dip recession.

The Dow Jones fell sharply after the release of the GDP data before recovering ground to settle down 40.72 at 10,426.44 in lunchtime trading. Economists had predicted second-quarter growth of 2.5pc, but their disappointment was compounded by the revised data for the first three months of 2010.

The biggest concern in the City was the size of the downward revisions to previous years’ growth. In 2009 the economy was previously estimated to have declined by 2.4%, but the figure was revised to a drop of 2.6%. The disappointing growth numbers were compounded by the International Monetary Fund’s (IMF) annual report on the US economy. The IMF said there may be a need for the Obama administration to increase the amount of fiscal stimulus in order to boost the recovery, warning the “outlook remains uncertain”.

In the UK, George Osborne has said that banks must increase lending to businesses rather than boosting bonuses and dividends now that they have weathered the worst of the credit crisis. Britain’s Treasury chief told the Sunday Telegraph newspaper that banks “have an economic obligation to assist” small and medium-sized businesses. The statement comes in line with half-year figures released this week that are expected to confirm that the major institutions have returned to profit after two years of turmoil.

Lloyds Banking Group, which is 41% owned by the taxpayer, and the 84% state-owned Royal Bank of Scotland are both expected to post a profit. But Osborne questions the ability of British businesses to raise credit from the banks. “The danger is that, particularly next year, when there is a huge amount of refinancing required, that the small and medium-sized businesses suffer from a lack of access to working capital,” he said.

Osborne continued that British banks “are in no doubt that the government wants to see reasonable access to credit on reasonable terms in the small to medium-sized business sector.” The expected bank profits have boosted the recent Cable rally and we are now trading in the 1.58s and well on track to the key 1.60 psychological level.

As we look ahead this week, Interest rates will watched closely with monetary policy meetings taking place in several countries over the next 4 days. Tonight, Australia get the ball rolling followed by the UK, Eurozone and The Czech Republic all on Thursday. Following the softer than expected Australian CPI figure, the Reserve Bank of Australia are now deemed unlikely to move rates – a change away from the previously anticipated tightening – despite the stronger, but very volatile, manufacturing PMI number. No change from the BoE or the ECB is also on the cards but as usual, it will be the post-meeting press conferences that will draw the forex market’s attention.

Report by Philip Ryan

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30, July 2010

Of late, UK economic data has been extremely positive. However, since yesterday this trend has been broken. Overnight GfK Consumer Confidence fell by more than expected to -22 (consensus -20, previous -19). This follows yesterday’s news that house prices fell by more than expected in July, coming in at -0.5% m/m (consensus -0.3%, previous 0%).

It appears that concerns about the medium-term impact of fiscal austerity measures on personal finances is outweighing any potential optimism about the recent recovery’s momentum, thus keeping demand low. In other data, both mortgage approvals and mortgage lending in June fell more than expected and M4 money supply was unchanged for June.

Despite this negative development, sterling continued its recent surge against the US dollar and managed to close at levels not seen since February of this year. Significantly, sterling is well supported ahead of a key technical level, the 200 day moving average of 1.5543.

The euro has continued to push higher against the US dollar as optimism continues to spread throughout Europe following the release of numerous corporate earnings yesterday, all surpassing market expectation. Additionally, the narrowing of Euro zone sovereign debt spreads over recent days has boosted the single currency.

This positive sentiment was further helped by continued improvement in Germany’s unemployment data. For 13 months, the German unemployment rate has dropped consistently which has taken the level of unemployment back to 7.6%, its lowest level since Nov 2008. Yesterday we also saw German CPI which showed inflation coming out slightly higher than expected with inflation rising to 1.2% Y/Y in July from 0.9% in June.

On Thursday morning the Reserve Bank of New Zealand raised its policy rate 25 bps to 3.00% as widely expected. The central bank however was far more dovish in the accompanying statement than predicted stating future growth prospects had deteriorated considerably.

The US dollar has been on the slide for several weeks now and this negativity in the Greenback could continue further with the release of Q2’s QoQ GDP figure (consensus 2.5%, previous 2.7%) at 13:30 BST. Recent data from the US has been poor with manufacturing and durable goods numbers disappointing the markets.

This afternoon’s GDP figure will be key for the short to medium term trading levels of the dollar and views of it being a safe-haven could begin to fade.

Report by Tim Lewis

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28, July 2010

Sterling received another boost this morning after a leading think-tank announced that Britain will avoid a double-dip recession and its economy will expand at trend growth rates as early as 2012. In the latest forecast from the National Institute for Economic and Social Research (Niesr), it predicts GDP growth of 1.3% this year, 1.7% next year and 2.2% in 2012.

The news follows recent strong economic data over the past week where GDP and retail sales figures shocked the market on the upside. The pound has surged to 5 month highs against the dollar and the general consensus is Sterling will continue on a long term rise against the Greenback.

Merv “the swerve” King will be speaking today and as usual, I’d expect “doom and gloom” comments from the Bank of England chief. Most likely on his radar will be the GDP figures from Q2 which showed a rise of 1.1% QoQ (0.6% forecast).

The euro has risen against both the dollar and the yen once more this morning as improving demand for riskier assets continues to push European equities higher. The single currency remains near its strongest level against the dollar in more than two months after European stocks climbed. Eurozone M3 money supply rose by 0.2% Y/Y versus expectations for a 0.1% decline.

The Australian dollar dropped by the most in more than a week overnight as a government report showed consumer prices increased at a slower pace than economists had forecast, giving the central bank scope to keep rates unchanged in August.

The Aussie slid against all 16 of its most- traded counterparts as traders cut to zero the likelihood that Australia’s central bank will increase its key rate when policy makers meet on August 3rd. New Zealand’s currency also ended a four-day winning streak versus the yen as a report showed business confidence declined in July.

Today, the economic calendar contains the US durable goods orders and German CPI inflation data. The Reserve Bank of New Zealand will also decide on rates whilst the ECB publishes its Bank Lending Survey and the Fed will publish its Beige Book.

Report by Tim Lewis

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21, July 2010

This week is all about the euro and the approaching stress test results which will offer much needed feedback on the health of European banks. The euro has experienced a significant turn of fortune from its June 4 and half low against the USD gaining over 10 cents to test the 1.30 level.

One reason that the euro has gained is simply that the market was significantly over short in the euro and naturally alot of these short investors paired their positions leading to a short squeeze higher. In addition some comfort has come back into the euro approaching Fridays stress test results as comments in the run up from members of the IMF and the ECB have been bullish – we will see!

Recent gains have led to EUR/USD testing the 1.30 level and GBP/EUR falling back into 1.17 territory. The results are due out from 5pm GMT on Friday. Good feedback should push EUR/USD over 1.30.

Today we have the BoE minutes which should not spring any significant surprises with a 7-1 vote expected- comments from policy members Posen and Sentance will be the highlight and naturally the market will be looking for future objectives from the Monetary Policy Committee. Posen is more dovish and sees UK rates moving lower, whereas Sentance is a hawk and is pushing for a hike to combat the threat of inflation.

Later today in the US we have Fed chairman Ben Bernanke delivering his semi-annual report to Congress. Recently the sentiment and the economic feedback from the US economy has turned bearish with consumer sentiment falling nearly 10 points last week. It will be interesting to see if the tone of Bernanke turns more cautious and dovish- if so we could see this turn into short term selling pressure for the USD.

Earlier today we saw GBP/USD fall off a cliff dropping 120 points at 8:00 am before retracing back up within 5 minutes…a crazy move which has been blamed on a Dutch bank- we seem to be getting more of these huge moves in the forex markets- could well be another case of a “fat finger” mistake triggering this move….

Report by Phil McHugh

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BlogCatalog – Finance

Market Club’s Adam Hewison takes an opposing view on the euro. In his short market analysis video he takes an in-depth look at the euro and its relationship to the US dollar. He believes the recent sharp rally in the euro, may be coming to an end.

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19, July 2010

The recent Euro surge finally ran into resistance on Friday, EUR/USD briefly traded above 1.30 before falling back and now sits in the mid 1.29.

This strength will be tested over the coming week for several reasons. Firstly, Ireland was downgraded from AA1 to AA2 by ratings agency Moody’s. They blame the worsening financial situation facing the government, weakened growth prospects & recognition of contingent liabilities in the SPV created to rescue the Banking system. Umbrella anyone?

Secondly, Hungary was denied a credit line of €20 billion from the EU/IMF over the weekend, a very unusual step, due to a lack in confidence in the new Hungarian government’s budget plans. The Florint has weakened off, but the extreme volatility some commentators were predicting in the markets today has not materialised as yet.

Lastly, Friday sees the long awaited publication of the EU stress test results. As mentioned before in this report, the tests are designed to shore up confidence in the EU banking system. The results all boil down to credibility.

If the market believes that the tests do not illuminate the health of the banks tested then expect investors to express this sentiment though selling the Euro as well as the bank stocks themselves.

The Dollar continues to weaken and shoot itself in the foot; reports now show that the market is now net short on USD, finally reversing the previous trends of net short Euro and Sterling. (see market analysis videos) Continuing fears over a double dip recession in the States and disappointing CPI and PPI data last week have a large drop in Dollar sentiment and it is this rather than positive data in the UK or Euro zone which has driven both pairs large moves.

A quite start to the week in terms of data, but on Wednesday we see the release of the Bank of England’s minutes, which will closely examined for any change in voting from MPC members. On Friday UK GDP figures are also released along with the results of the bank Stress tests.

Report by Alistair Cotton

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16, July 2010

The dollar hit a two month low against the euro and a basket of major currencies as soft inflation and manufacturing data added to concerns about the strength of the U.S economy. Data released showed a third straight monthly decline in producer prices and came just a day after the Federal Reserve meeting minutes revealed policymakers think they may need to do more to boost the economy if a stuttering recovery slows any further.

Euro/Dollar soared towards 1.30 while Sterling rose to 1.54 as investors removed their money from the safe haven currency. The dollar will remain under pressure if the current run on weak data continues. Today’s CPI and University of Michigan consumer confidence figures could foster some USD strength, though consensus is low.

Worries about the euro-zone’s fiscal crisis have been somewhat allayed by successful debt raisings by Greece, Spain and Portugal. Investors are anticipating that stress tests of European banks on 23rd July will paint a picture of a healthy regional financial industry. It is a slow day on the data front as we head into the weekend with Euro-zone trade data the only item released in Europe.

The British pound extended gains to a fresh 10-week high against the US Dollar , as data mentioned above from the US kept pressure on the dollar. Market reaction was limited as Bank of England policymaker David Miles said it was not appropriate to raise interest rates now.

He also downplayed the risk of inflation staying above target in a sustainable way without a pick-up in wage inflation. This view was, of course, different from BoE’s Sentance’s call for higher rates that he has reiterated several times of late.

Report by Tim Lewis

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15 July 2010

The ETF EUO, has a great potential play and definitely worth keeping an eye on:

This short video looks at the Euro/Dollar and considering all the problems in Europe which have yet to play out, is well worth 2 minutes of your time.

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BlogCatalog – Finance

14 July 2010

Is The S&P Teasing Us?

This short new video indicates that we should be careful when looking at the sudden S&P rally.

Take a look and see for yourself.

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BlogCatalog – Finance

Inflation Feedback Boosts Sterling

14, July 2010

UK CPI rose by 3.2% y/y in June 2010 compared to 3.4% in May, more than the 3.1% average forecast by analysts. RPI decelerated to 5.0% in June compared to 5.1% in May. RPI-X also slowed from 5.1% in May to 5.0% in June. However, core inflation accelerated from 2.9% in May to 3.1% in June, which matched the highest reading since 1997.

According to the Office for National Statistics, the biggest downward pressure to CPI inflation between May and June came from falling energy (petrol and diesel) prices. Another significant downward contribution came from clothing and footwear, where prices fell due to the June sales season.

The latest inflation data will boost the case by Andrew Sentance who is the sole member of the MPC who is looking for a gradual interest rate rise and said the path to economic recovery could be uneven but that did not equate to a risk of a double-dip recession. “I favour a gradual rise in Bank Rate which would be aimed to avoid destabilising confidence through a sudden lurch in policy.”

Sterling reacted well against the Dollar and moved up to above the 1.52 levels at the close of play from opening at 1.4996.

In euro trading news yesterday, the rating agency Moody’s downgraded Portugal’s debt rating by two notches to A1 from its previous AA2 rating, with a stable outlook. Moody’s explained the downgrade with the ongoing deterioration in the debt ratio as well as the dim medium-term growth outlook. Markets showed little reaction to the news, probably because Moody’s initially placed Portugal on credit watch in May 2010.

The Euro held steady against the Dollar after a smooth Greek Treasury bill auction eased some concerns about Europe’s debt crisis, this helped take the sting out of Portugal’s expected credit rating downgrade and disappointing German Zew index.

Today the dollar could receive a boost, especially against the higher yielding currencies, in reaction to robust U.S corporate earnings from Intel Corp. Other major U.S corporates to report quarterly earnings this week include JP Morgan, Chase & Co and Bank of America.

The main focus this morning will be UK job data. Markets expect claimant count to drop by -20k in June while unemployment rate is expected to be steady at 7.9%. Eurozone CPI final and industrial production will also be released. In the US, main focus will be on retail sales, which is expected to drop slightly by -0.2% in June. Import price index and business inventories will also be released. Also, another main focus will be on FOMC minutes.

Report by Philip Ryan

The contents of this report are for information purposes only.

BlogCatalog – Finance

July 13, 2010

By Elliott Wave International

While many people spend time yearning for the financial markets to turn back up, a rare few have looked back in time to compare historical markets with the current situation – and then delivered a clear-eyed view of the future informed by knowledge of the past.

One who has is Robert Prechter. When he thinks about markets and wave patterns, he goes back to the 1700s, the 1800s, and — most tellingly for our time now — the early 1900s when the Great Depression weighed down the United States in the late 1920s and early 1930s. With this large wash of history in mind, he is able to explain why he thinks we have a long way to go to get to the bottom of this bear market.

Here is an excerpt from the EWI Independent Investor eBook, which answers the question: How close to the bottom are we?
* * * * *
Originally written by Robert Prechter for The Elliott Wave Theorist, January 2009

Some people contact us and say, “People are more bearish than I have ever seen them. This has to be a bottom.” The first half of this statement may well be true for many market observers. If one has been in the market for less than 14 years, one has never seen people this bearish. But market sentiment over those years was a historical anomaly. The annual dividend payout from stocks reached its lowest level ever: less than half the previous record. The P/E ratio reached its highest level ever: double the previous record. The price-to-book value ratio went into the stratosphere, as did the ratio between corporate bond yields and the same corporations’ stock dividend yields.

During nine and a half of those years, from October 1998 to March 2008, optimism dominated so consistently that bulls outnumbered bears among advisors (per the Investors Intelligence polls) for 481 out of 490 weeks. Investors got so used to this period of euphoria and financial excess that they have taken it as the norm.

With that period as a benchmark, the moderate slippage in optimism since 2007 does appear as a severe change. But observe a subtle irony: When commentators agree that investors are too bearish, they say so to justify being bullish. Thus, as part of the crowd, they are still seeking rationalizations for their continued optimism, and one of their best excuses is that everyone else is bearish. This would be reasoning, not rationalization, if it were true.

But is the net reduction in optimism since 2000/2007 in fact enough to indicate a market bottom? For the rest of this issue, we will update the key indicators from Conquer the Crash that so powerfully signaled a historic top in the making. When we are finished, you will know whether or not the market is at bottom.

Figure 1 updates our picture of Supercycle and Grand Supercycle-degree periods of prosperity and depression. The top formed in the past decade is the biggest since 1720, yet, as you can see, the decline so far is small compared to the three that preceded it. There is a lot more room to go on the downside.

Figure 2 updates the Dow’s dividend yield. Over the past nine years, it has improved nicely, from 1.3 percent to 3.7 percent, near its level at previous market tops. If companies’ dividends were to stay the same, a 50 percent drop in stock prices from here would bring the Dow’s yield back into the area where it was at the stock market bottoms of 1942, 1949, 1974 and 1982. But of course, dividends will not stay the same.

Companies are cutting dividends and will cut more as the depression deepens. So, the falling stock market is chasing an elusive quarry in the form of an attractive dividend yield. This is a downward spiral that will not end until prices get ahead of dividend cuts and the Dow’s dividend yield goes above that of 1932, which was 17 percent (or until dividends fall so close to zero that the yield is meaningless).

Get the whole story about how much farther we have to go to a bear-market bottom by reading the rest of this article from EWI’s Independent Investor eBook. The fastest way to read it AND the six new chapters in EWI’s Independent Investor eBook is to become a member of Club EWI.

This article, The Bear Market and Depression: How Close to the Bottom?,was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.