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

20 December 2010

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

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

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

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

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

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

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

Original Report by Phil McHugh

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

The contents of this report are for information purposes only.

Currency Market Updates

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

22 October 2010

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

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

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

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

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

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

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

Report by Tim Lewis
The contents of this report are for information purposes only.

Currency Market Updates

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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

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

The contents of this report are for information purposes only.

Currency Market Updates

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Europe is a predictable part of the world. France, Germany and Italy the largest members of the European Union (EU) usually have high budget deficit and tend to keep the interest rates more stable as compared to United States. One of the most heavily traded currency pair is the EURUSD. Now when trading EURUSD, you need to keep an eye on what is happening in both US and Europe.

FED tends to follow a more free market approach with frequent adjustment to the interest rates. The general policy of the FED is to make USD trend in one direction for a long period of time. Now, technical analysis when combined with fundamental analysis can be a great tool in the arsenal of a currency trader. Fundamentals can tell you the long term general direction of a particular currency.

Now, the most important thing that you need to keep in mind while trading Euro is that the European Central Bank (ECB) tends to take a strict policy against inflation. This has something to do with the period of hyperinflation experienced by Germany after the First World War that had devastated the German economy and the German working class. With history at the back of their minds, ECB raised interest rates more than it lowers it.

Now, another thing that you need to keep in mind is the politics and economic growth is interlinked. When US economy slows down and interest rates are lowered by the FED just like the present, money starts to flow abroad. In the past, it used to be Japan. But the market knows that the Japanese Central Bank (JCB) does not like a strong Yen (JPY). So it starts selling JPY to stabilize it. This means that the default currency when USD weakens is the Euro now.

On the flip side, when there are economic and political problems in Europe especially when the European economy is slowing down and the British economy is showing signs of strength, market often sells the Euro. Now fundamental analysis is going to tell you the long term behavior of a currency pair. When you trade daily, you only look at the charts. This is the one and only truth that matters for a currency trader, you only trade what the charts show you.

Currency Market News on UK Jobless Figures, EU Anger at Greece and Market Movement

17, February 2010

Jobless claims were up 23,500 against the expectation of a fall of 10,000 so not good feedback for the employment sector. This data for January was disappointing but not wholly unexpected and simply reinforces the fact that the employment sector remains very sluggish.

Although we may have officially exited the recession on paper the reality is that we still have a long a painful road ahead.

The official unemployment rate remains at 7.8%. In addition to the employment data we also had the minutes from the February interest rate meeting for the UK. The Bank Of England minutes came in 9-0 as expected to keep interest rates and Quantitive Easing (QE) on hold. Although all members voted to leave the size of the asset purchase programme unchanged,it was noted that some members felt the arguments for a further increase were “finely balanced”. This underlies the uncertainty within the MPC on the future impact of the £200 billion already introduced and therefore the MPC will not close the door on further QE if required.

Sterling is likely to remain subdued as the BoE feel that inflation will fall further in 2010 and further expansion of QE is a weapon that they will use again if necessary.

Back to Greece and yesterday it was agreed to give the government time to co-ordinate their future policy on their budget. However there was a clear tone of anger from the EU for the shocking handling of their finances to date and they have until the end of March to come up with some answers. The EU also stripped Greece of its voting rights at next months meeting in an attempt to demonstrate their anger towards Greece.

So although no firm agenda or plan in place the markets have started to feel more comfortable or possibly bored with the affairs in Greece and investors once again started to dip their toes in again. The USD and the JPY weakened in line with a tentative return to risk. GBP/USD pushed back through 1.57 and tested 1.58 in early trading and EUR/USD pushed through 1.37.

Report by Phil McHugh

Currency Market Updates by Tom Nadir

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

The contents of this report are for information purposes only.

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