US Dollar and Sterling weaker on risk appetite ECB interest rate decision awaited
Thursday, 2 September 2010
Today's Highlights
US Dollar and Sterling weaker on risk appetite ECB interest rate decision awaited
FX Market Overview
Now that my identity as ‘The Stig’ has been rumbled and I have arranged for my stunt driver Ben Collins to pretend it was him, they will be seeing a lot more of me around the office now. Gone is the white helmet and gone is the racing suit so it is back to pin stripes and sensible shoes after all these years. Ah well; it was good while it lasted.
As for the other passion in my life, the currency markets; well that’s a pretty hairy place right now. Take the US Dollar as an example, in the last few days we have heard the head of the US Federal Reserve warn of a slowing economy, the minutes from the last Fed meeting spoke of sluggish and modest growth and then yesterday’s US manufacturing sector supply managers index was remarkably upbeat. That raised level of expectation raised a few eyebrows and raised the appetite for risk. This was especially so after China’s purchasing managers were equally upbeat. Even the poor showing in the ADP payroll report failed to stifle the enthusiasm but Friday’s official US employment might change all of that if those numbers are equally downbeat and it will be interesting to see if today’s release of the US factory orders data matches the supply managers’ optimistic expectations..
The consequence was that investors exited the safety of the US Dollar and bought higher yielding assets elsewhere. The US Dollar weakened and the Australian, New Zealand and Canadian Dollars all strengthened. The renewed optimism in the US and China also boosted commodity prices and the countries behind all of these currencies are heavily reliant on commodity exports, prompting another reason to buy.
These strengthened against Sterling and the Euro both of which were hampered by their own purchasing managers indices; both of which reflected a moderation in growth prospects. Sterling had a poor day as it fell against everything except the US Dollar. The Pound had been riding for a fall as it tested the tops of its trading ranges over the last few weeks and a period of correction was inevitable at some stage. That stage was yesterday and may extend into today and onwards unless we can find a reason to buy the Pound. It must be said though that the Pound did find buyers around the €1.20 level and bounced before the end of the day.
The Euro is trading in a nervous tentative narrow pattern ahead of today’s European Central Bank decision. No change is expected from the ECB in either their base interest rate or the level on quantitative easing but we can expect warnings from the head of the ECB, Jean-Claude Trichet that they are watching and ready to react if they see further economic slowing. At 1 percent, the Eurozone base interest rate is certainly what you would call ‘accommodative’ but there is room to lower that if needs be. The other big data for today is the Eurozone economic growth data. This is the 2nd estimate of the quarter 2 number; the first guesstimate showed that German manufacturers had almost uniquely salved growth from the jaws of contraction for the whole region so it will be very interesting to see if that is still the case now that more of the data is available for analysis.
The other major talking point in the forex market is a bit narcissistic really; the Bank of International Settlements (the central bank for bankers effectively) publishes a triennial report assessing volumes of currency traded and the significant changes in the breakdown of the volumes. This report reflected growth in volumes after the collapse of Lehman Brothers to $4 trillion per day and reflects that the US Dollar is still a component of 85 percent of trades and that London accounts for more than 36 percent of the market. So when London is on holiday, the drop in volume is hugely significant.
And finally, you know that jar in the corner of the bedroom with all your spare change in it. I think blokes have these more than women because we don’t carry purses but most houses have a dumping place for small coins. Anyway, a chap in China called Zhao called in at a car dealership in Jining (it almost sounds like Ching-ching but not quite) and paid for a 100,000 Yuan (£9,500) van in all the change and small notes he had accumulated in just such a jar over a period of several years. It took extra staff working in shifts to count the cash but Mr Zhao is apparently delighted with his new van. Penny for your thoughts?
As for the other passion in my life, the currency markets; well that’s a pretty hairy place right now. Take the US Dollar as an example, in the last few days we have heard the head of the US Federal Reserve warn of a slowing economy, the minutes from the last Fed meeting spoke of sluggish and modest growth and then yesterday’s US manufacturing sector supply managers index was remarkably upbeat. That raised level of expectation raised a few eyebrows and raised the appetite for risk. This was especially so after China’s purchasing managers were equally upbeat. Even the poor showing in the ADP payroll report failed to stifle the enthusiasm but Friday’s official US employment might change all of that if those numbers are equally downbeat and it will be interesting to see if today’s release of the US factory orders data matches the supply managers’ optimistic expectations..
The consequence was that investors exited the safety of the US Dollar and bought higher yielding assets elsewhere. The US Dollar weakened and the Australian, New Zealand and Canadian Dollars all strengthened. The renewed optimism in the US and China also boosted commodity prices and the countries behind all of these currencies are heavily reliant on commodity exports, prompting another reason to buy.
These strengthened against Sterling and the Euro both of which were hampered by their own purchasing managers indices; both of which reflected a moderation in growth prospects. Sterling had a poor day as it fell against everything except the US Dollar. The Pound had been riding for a fall as it tested the tops of its trading ranges over the last few weeks and a period of correction was inevitable at some stage. That stage was yesterday and may extend into today and onwards unless we can find a reason to buy the Pound. It must be said though that the Pound did find buyers around the €1.20 level and bounced before the end of the day.
The Euro is trading in a nervous tentative narrow pattern ahead of today’s European Central Bank decision. No change is expected from the ECB in either their base interest rate or the level on quantitative easing but we can expect warnings from the head of the ECB, Jean-Claude Trichet that they are watching and ready to react if they see further economic slowing. At 1 percent, the Eurozone base interest rate is certainly what you would call ‘accommodative’ but there is room to lower that if needs be. The other big data for today is the Eurozone economic growth data. This is the 2nd estimate of the quarter 2 number; the first guesstimate showed that German manufacturers had almost uniquely salved growth from the jaws of contraction for the whole region so it will be very interesting to see if that is still the case now that more of the data is available for analysis.
The other major talking point in the forex market is a bit narcissistic really; the Bank of International Settlements (the central bank for bankers effectively) publishes a triennial report assessing volumes of currency traded and the significant changes in the breakdown of the volumes. This report reflected growth in volumes after the collapse of Lehman Brothers to $4 trillion per day and reflects that the US Dollar is still a component of 85 percent of trades and that London accounts for more than 36 percent of the market. So when London is on holiday, the drop in volume is hugely significant.
And finally, you know that jar in the corner of the bedroom with all your spare change in it. I think blokes have these more than women because we don’t carry purses but most houses have a dumping place for small coins. Anyway, a chap in China called Zhao called in at a car dealership in Jining (it almost sounds like Ching-ching but not quite) and paid for a 100,000 Yuan (£9,500) van in all the change and small notes he had accumulated in just such a jar over a period of several years. It took extra staff working in shifts to count the cash but Mr Zhao is apparently delighted with his new van. Penny for your thoughts?
Wednesday, 1 September 2010
Today's Highlights
Fed speaks of Struggle ahead Yen still in spotlight Australian growth fastest in 3 years
FX Market Overview
The reports that Tony Blair’s book point to a rift between him and Gordon Brown and that Princess Diana was manipulative only confirm one thing; there is nothing new in the book. I think I’ll stick to my le Carré and Grisham novels where the fiction is more realistic than the interminable stream of “non-fiction” political memoirs.
As for the markets, well last week ended with economic growth data from the UK and US. The UK numbers were roughly in line with forecasts but the US data showed a reduction from the 1st estimate of Gross Domestic Product growth although the final figure was well above markets expectations and that was enough to keep the demand up for the US currency. As you might expect though, all it yielded was a frantic calculation by traders and investors over whether the Q3 data will be an improvement or a disappointment and most seem to think it will disappoint. The minutes from the last Federal Reserve Open Market Committee were published yesterday evening and they offered some insight into the thoughts of the policy makers. The whole report is probably best summed up by this comment “monthly data suggested that the pace of recovery remained sluggish going into the third quarter". The Fed are clearly worried that we may see more slow growth but they were optimistic that this would be followed by a pickup in 2011. Crucially, there appeared little concern over a 2nd recession which is a real plus point. The US Dollar had a small scale rally overnight.
The UK number was revised higher by just 0.1 percent which was in line with most forecasts and showed growth in business inventories; a relatively finite factor and one which will not be reflected in the Q3 numbers. Traders and investors are also very wary of the fact that government spending cuts will start to feature in the Q3 figures as well so Sterling failed to make further headway. I guess it is not surprising that the Pound, which has tested the top of its trading ranges against the Euro, Australasian Dollars and Canadian Dollar, should decline before breaking any higher. Although UK traders were not at their desks, there was a smattering of UK data and it was very mixed; a fall in house prices, a rise in consumer confidence and a report from the British Chambers of Commerce that suggested economic growth would average out at roughly 2 percent over the next few years and that UK interest rates would stay low for a considerable time. Compared to a lot of recent forecasts, that is pretty encouraging.
For its part, the Australian Dollar gained a little strength overnight after positive retail sales data was released over the weekend and after it was announced overnight that Australia’s economy grew at its fastest pace in three years in Q2. The strength of Australia’s economy will come as sweet music to anyone migrating to Australia but the increased likelihood of higher interest rates will most likely make the Aussie Dollar more expensive and that is bad news for migrants and those importing goods from Australia.
The New Zealand Dollar which generally tracks the Australian Dollar had a bit of a scare when Government backed Canterbury Finance called in the receivers. This 85 year old bank is the first in New Zealand to fail as a result of the financial crisis and it took two years of global slowdown for the effects to be felt. Nevertheless, it has caused inevitable concern over whether there may be other problems lurking in the NZ financial system and the NZ Dollar could come under a bit of pressure as this story unfolds.
The Euro is a tad weaker against the US Dollar but failed to make any significant headway against the Pound. Traders are looking ahead to Thursday’s European Central Bank interest rate decision and, although no one is forecasting any change in the interest rate or the level of fiscal stimulus, it is apparent that the Eurozone is running at two separate speeds. The German and French economies are in a different league to the Mediterranean countries and some of the more recent members of the Euro club; the ECB has a pretty complex task on its hands to balance efforts to stimulate growth in the weaker economies whilst not allowing overheating in Germany and France and maintaining strength and confidence in the EU banking system which is at the heart of the problem. It’s a bit like juggling 16 balls whilst putting on eye makeup and changing clothes behind a beach towel...all at the same time. Bonne chance Monsieur Trichet.
The Canadian Dollar is likely to be fairly inactive until we get the Canadian economic growth data today and the strength of the US economy and relatively well performing commodities will add weight to the case for a stronger Canadian Dollar. The forecasts for GDP growth are pretty positive so Canadian Dollar buyers may want to protect themselves ahead of the numbers.
This week brings a lot of inflation and growth related data from around the world so it should be another lively one; it also sees a return to full trading desks as the schools go back and dads and mums return from their holidays. Higher volume and heightened nervousness will tend to boost volatility so let’s be careful out there.
One of the major movers in the market is the Japanese Yen which the Bank of Japan are attempting to weaken through a combination of an extra 10 trillion Yen being thrown at the market for extra liquidity and BOJ members talking about how uncertain everything is. The extra cash is a 50% increase on the previous total of fiscal stimulus and a very significant move indeed. It begs the question over whether the US, UK and EU will all be forced to follow suit in the months ahead - albeit to perhaps a lesser extent. That kind of activity; specifically designed to weaken the Yen and restore some of the advantage that Japan’s exporters have enjoyed, is precisely what the US and EU have been berating the Chinese authorities for during the last few decades. The silence over the Japanese move has been deafening.
I’ve just read this back and it is a bit of a leap and dive around the globe but the markets are all over the place both geographically and figuratively speaking so it is hard to leave anything out. I will leave you though with some research carried out by a bunch of long haired whipper-snapper hippies in Ohio State University. These youngsters who should be doing something more useful with their time and were probably on drugs or something seem to think that older people make disparaging remarks about the young in order to boost their own self esteem. Poppycock; we didn’t waste our time on daft surveys like that in my day.
As for the markets, well last week ended with economic growth data from the UK and US. The UK numbers were roughly in line with forecasts but the US data showed a reduction from the 1st estimate of Gross Domestic Product growth although the final figure was well above markets expectations and that was enough to keep the demand up for the US currency. As you might expect though, all it yielded was a frantic calculation by traders and investors over whether the Q3 data will be an improvement or a disappointment and most seem to think it will disappoint. The minutes from the last Federal Reserve Open Market Committee were published yesterday evening and they offered some insight into the thoughts of the policy makers. The whole report is probably best summed up by this comment “monthly data suggested that the pace of recovery remained sluggish going into the third quarter". The Fed are clearly worried that we may see more slow growth but they were optimistic that this would be followed by a pickup in 2011. Crucially, there appeared little concern over a 2nd recession which is a real plus point. The US Dollar had a small scale rally overnight.
The UK number was revised higher by just 0.1 percent which was in line with most forecasts and showed growth in business inventories; a relatively finite factor and one which will not be reflected in the Q3 numbers. Traders and investors are also very wary of the fact that government spending cuts will start to feature in the Q3 figures as well so Sterling failed to make further headway. I guess it is not surprising that the Pound, which has tested the top of its trading ranges against the Euro, Australasian Dollars and Canadian Dollar, should decline before breaking any higher. Although UK traders were not at their desks, there was a smattering of UK data and it was very mixed; a fall in house prices, a rise in consumer confidence and a report from the British Chambers of Commerce that suggested economic growth would average out at roughly 2 percent over the next few years and that UK interest rates would stay low for a considerable time. Compared to a lot of recent forecasts, that is pretty encouraging.
For its part, the Australian Dollar gained a little strength overnight after positive retail sales data was released over the weekend and after it was announced overnight that Australia’s economy grew at its fastest pace in three years in Q2. The strength of Australia’s economy will come as sweet music to anyone migrating to Australia but the increased likelihood of higher interest rates will most likely make the Aussie Dollar more expensive and that is bad news for migrants and those importing goods from Australia.
The New Zealand Dollar which generally tracks the Australian Dollar had a bit of a scare when Government backed Canterbury Finance called in the receivers. This 85 year old bank is the first in New Zealand to fail as a result of the financial crisis and it took two years of global slowdown for the effects to be felt. Nevertheless, it has caused inevitable concern over whether there may be other problems lurking in the NZ financial system and the NZ Dollar could come under a bit of pressure as this story unfolds.
The Euro is a tad weaker against the US Dollar but failed to make any significant headway against the Pound. Traders are looking ahead to Thursday’s European Central Bank interest rate decision and, although no one is forecasting any change in the interest rate or the level of fiscal stimulus, it is apparent that the Eurozone is running at two separate speeds. The German and French economies are in a different league to the Mediterranean countries and some of the more recent members of the Euro club; the ECB has a pretty complex task on its hands to balance efforts to stimulate growth in the weaker economies whilst not allowing overheating in Germany and France and maintaining strength and confidence in the EU banking system which is at the heart of the problem. It’s a bit like juggling 16 balls whilst putting on eye makeup and changing clothes behind a beach towel...all at the same time. Bonne chance Monsieur Trichet.
The Canadian Dollar is likely to be fairly inactive until we get the Canadian economic growth data today and the strength of the US economy and relatively well performing commodities will add weight to the case for a stronger Canadian Dollar. The forecasts for GDP growth are pretty positive so Canadian Dollar buyers may want to protect themselves ahead of the numbers.
This week brings a lot of inflation and growth related data from around the world so it should be another lively one; it also sees a return to full trading desks as the schools go back and dads and mums return from their holidays. Higher volume and heightened nervousness will tend to boost volatility so let’s be careful out there.
One of the major movers in the market is the Japanese Yen which the Bank of Japan are attempting to weaken through a combination of an extra 10 trillion Yen being thrown at the market for extra liquidity and BOJ members talking about how uncertain everything is. The extra cash is a 50% increase on the previous total of fiscal stimulus and a very significant move indeed. It begs the question over whether the US, UK and EU will all be forced to follow suit in the months ahead - albeit to perhaps a lesser extent. That kind of activity; specifically designed to weaken the Yen and restore some of the advantage that Japan’s exporters have enjoyed, is precisely what the US and EU have been berating the Chinese authorities for during the last few decades. The silence over the Japanese move has been deafening.
I’ve just read this back and it is a bit of a leap and dive around the globe but the markets are all over the place both geographically and figuratively speaking so it is hard to leave anything out. I will leave you though with some research carried out by a bunch of long haired whipper-snapper hippies in Ohio State University. These youngsters who should be doing something more useful with their time and were probably on drugs or something seem to think that older people make disparaging remarks about the young in order to boost their own self esteem. Poppycock; we didn’t waste our time on daft surveys like that in my day.
Thursday, 26 August 2010
FX Market Overview
David and Samantha Cameron did well; there I was being facetious about calling the baby Clovelly or Truro and they found St Endillion. Well played the Camerons; good name.
In thinly traded and tightly ranged August markets there is the danger that a daily report such as this will begin to sound like a stuck record. Trapped exchange rates and shallow fluctuations often mean we exit August at roughly the same level that we entered but the volatility in the intervening period can be very interesting even if the market themes remain frustratingly familiar from one day to the next.
Yesterday’s brief foray to higher levels by the Pound was exciting; I know many of you had orders triggered at the top of that movement and we felt that we may be finally witnessing the strength that the Pound has hinted at for a number of weeks but we closed the day at similar levels to the start; proof perhaps that traders are not yet ready to pile headlong into the Pound until they see solid proof that UK growth can be sustained through harsh spending cuts and tax hikes. The profit takers may well maintain the cap on the Pound for a while yet which makes the highs we saw yesterday fairly obvious targets for the months ahead. The fear is that, if Sterling can’t rally, traders will feel the urge to sell the Pound to see if it can decline and that could be a recipe for disaster for those who need to sell Sterling. There isn’t space to cover all the details of all the currency pairs here but your Halo Financial Consultant will be happy to discuss your specific requirements when you have a moment.
Sterling was flattered by weakness in other currencies. US New Home sales fell less sharply than existing home sales as shown in the previous day’s release. It is this kind of mixed data that has plagued the markets for months now and it sent the US Dollar backwards. Sterling and the Euro both gained against the US Dollar after the Euro hit a technical low around $1.26.
For its part, the Euro is still hampered by fear over the state of EU state’s economic prospects. The fact that Ireland had its sovereign debt credit rating downgraded yesterday didn’t help Europe’s common currency and neither did a rather poorly supported auction of Portuguese government bonds but German business expectations were rather better than expected; thanks partly to positive effect of a weaker Euro on export sales no doubt. The fear remains that even if the Euro makes German exports affordable overseas, the lack of demand from the US could well prove more of a problem that the affordability of the goods. The bottom line is that people in fear of losing their jobs don’t invest in a new Mercedes or BMW.
The inconclusive nature of US data has an effect on the Canadian Dollar as well; Canada’s reliance on US buyers for its export goods makes a US downturn almost more significant for the Canadian Dollar than for the US Dollar. Even a rise in oil prices failed to boost the Canadian Dollar which weakened across the board. However, as with most other currency pairs, that weakness was largely within recent ranges and profit taking corrected most of the gains the Pound made before the end of the day.
In amongst all this uncertainty, the obvious thing for many investors to do is put on their tin hats and hunker down somewhere safe until all the unpleasantness has passed. That safe place appears to be either Switzerland or Japan right now. The Swiss Franc continues to make fresh gains against most other currencies and that is a man sized thorn in the side of Swiss exporters. The Swiss national Bank though is hamstrung by a lack of available capital to use for CHF sales in order to weaken this currency. The Bank of Japan has no such constraints but has so far managed to at least slow the Yen’s advance through threats and intimation that it may throw money at the problem. It hasn’t yet resorted to doing so though.
And last but certainly not least, the Australasian currencies are also caught in the backwash from all this nervousness and safe haven buying. The Australian and New Zealand Dollars offer a fairly unique combination of relatively high interest rates, proximity to China (a great export market that most countries would give their right arms to break into) and comparatively buoyant economies. However, their currencies are historically very volatile and that volatility means investors tend to shirk the advantages of investment in the Australasian Dollars in favour of the dead set security of US Treasury bills or Swiss or Japanese Government bonds. Consequently, these currencies tend to weaken when times are tight. That is what we are seeing right now although against Sterling, the range of movement is akin to an arm in a cast; it can move so far and then it ....just....runs....out ....of .....movement...because...it...hurts..... and you have to stop.
As for today, well Eurozone money supply data and the Confederation of British Industry retail market report (the Distributive Trades Survey to give it is somewhat obscure title) are the two major releases. Neither is a biggie but either could move the market in an otherwise lacklustre data diary. This afternoon’s US weekly jobless claims report will also be significant. However, tomorrow’s US and UK economic growth data is more important and the looming long weekend in the UK is also likely to cause some reorganising of traders’ positions before the break. Monday is also likely to be very volatile in the EU and US markets without the bulk of the UK volume to smooth the flow. This is a prime opportunity to place market orders which are just outside the current ranges to take advantage of any unforeseen volatility.
And finally, it may sound more like a moral dilemma than a horse race but two horses called "Mywifenosevrything" (trained by a woman) and "Thewifedoesntknow" (trained by a man) met at Monmouth Park in Oceanport, New Jersey. Apart from giving the commentator jowl exhaustion as he tried to announce the two while they ran head to head throughout the race, we might read something into the fact that “Mywifenosevrything” won the race. The tongue twisting commentary has apparently become major hit on YouTube.
In thinly traded and tightly ranged August markets there is the danger that a daily report such as this will begin to sound like a stuck record. Trapped exchange rates and shallow fluctuations often mean we exit August at roughly the same level that we entered but the volatility in the intervening period can be very interesting even if the market themes remain frustratingly familiar from one day to the next.
Yesterday’s brief foray to higher levels by the Pound was exciting; I know many of you had orders triggered at the top of that movement and we felt that we may be finally witnessing the strength that the Pound has hinted at for a number of weeks but we closed the day at similar levels to the start; proof perhaps that traders are not yet ready to pile headlong into the Pound until they see solid proof that UK growth can be sustained through harsh spending cuts and tax hikes. The profit takers may well maintain the cap on the Pound for a while yet which makes the highs we saw yesterday fairly obvious targets for the months ahead. The fear is that, if Sterling can’t rally, traders will feel the urge to sell the Pound to see if it can decline and that could be a recipe for disaster for those who need to sell Sterling. There isn’t space to cover all the details of all the currency pairs here but your Halo Financial Consultant will be happy to discuss your specific requirements when you have a moment.
Sterling was flattered by weakness in other currencies. US New Home sales fell less sharply than existing home sales as shown in the previous day’s release. It is this kind of mixed data that has plagued the markets for months now and it sent the US Dollar backwards. Sterling and the Euro both gained against the US Dollar after the Euro hit a technical low around $1.26.
For its part, the Euro is still hampered by fear over the state of EU state’s economic prospects. The fact that Ireland had its sovereign debt credit rating downgraded yesterday didn’t help Europe’s common currency and neither did a rather poorly supported auction of Portuguese government bonds but German business expectations were rather better than expected; thanks partly to positive effect of a weaker Euro on export sales no doubt. The fear remains that even if the Euro makes German exports affordable overseas, the lack of demand from the US could well prove more of a problem that the affordability of the goods. The bottom line is that people in fear of losing their jobs don’t invest in a new Mercedes or BMW.
The inconclusive nature of US data has an effect on the Canadian Dollar as well; Canada’s reliance on US buyers for its export goods makes a US downturn almost more significant for the Canadian Dollar than for the US Dollar. Even a rise in oil prices failed to boost the Canadian Dollar which weakened across the board. However, as with most other currency pairs, that weakness was largely within recent ranges and profit taking corrected most of the gains the Pound made before the end of the day.
In amongst all this uncertainty, the obvious thing for many investors to do is put on their tin hats and hunker down somewhere safe until all the unpleasantness has passed. That safe place appears to be either Switzerland or Japan right now. The Swiss Franc continues to make fresh gains against most other currencies and that is a man sized thorn in the side of Swiss exporters. The Swiss national Bank though is hamstrung by a lack of available capital to use for CHF sales in order to weaken this currency. The Bank of Japan has no such constraints but has so far managed to at least slow the Yen’s advance through threats and intimation that it may throw money at the problem. It hasn’t yet resorted to doing so though.
And last but certainly not least, the Australasian currencies are also caught in the backwash from all this nervousness and safe haven buying. The Australian and New Zealand Dollars offer a fairly unique combination of relatively high interest rates, proximity to China (a great export market that most countries would give their right arms to break into) and comparatively buoyant economies. However, their currencies are historically very volatile and that volatility means investors tend to shirk the advantages of investment in the Australasian Dollars in favour of the dead set security of US Treasury bills or Swiss or Japanese Government bonds. Consequently, these currencies tend to weaken when times are tight. That is what we are seeing right now although against Sterling, the range of movement is akin to an arm in a cast; it can move so far and then it ....just....runs....out ....of .....movement...because...it...hurts..... and you have to stop.
As for today, well Eurozone money supply data and the Confederation of British Industry retail market report (the Distributive Trades Survey to give it is somewhat obscure title) are the two major releases. Neither is a biggie but either could move the market in an otherwise lacklustre data diary. This afternoon’s US weekly jobless claims report will also be significant. However, tomorrow’s US and UK economic growth data is more important and the looming long weekend in the UK is also likely to cause some reorganising of traders’ positions before the break. Monday is also likely to be very volatile in the EU and US markets without the bulk of the UK volume to smooth the flow. This is a prime opportunity to place market orders which are just outside the current ranges to take advantage of any unforeseen volatility.
And finally, it may sound more like a moral dilemma than a horse race but two horses called "Mywifenosevrything" (trained by a woman) and "Thewifedoesntknow" (trained by a man) met at Monmouth Park in Oceanport, New Jersey. Apart from giving the commentator jowl exhaustion as he tried to announce the two while they ran head to head throughout the race, we might read something into the fact that “Mywifenosevrything” won the race. The tongue twisting commentary has apparently become major hit on YouTube.
Tuesday, 24 August 2010
FX Market Overview
The pound starts the day on the back foot after comments this morning from Kate Barker’s replacement on the Bank of England Monetary Policy Committee. Dr Martin Weale sees “significant” risk of a double-dip recession in the UK. He feels the Bank’s GDP growth outlook for 2011 of +2.8% and 2012 of +3.2% may be too optimistic. The pound has now retraced 4% from the highs of 2-weeks ago against the USD and is now vulnerable given the emergence of negative sentiment hanging over the proud pound.
German final Q2 GDP growth this morning was unrevised from the flash estimate of +2.2%. This is the fastest rate of growth in 20-years and is good news alongside the significant decline in the household savings rate. German consumers have been criticised for their lack of spending, which is seen as holding back growth in other Eurozone countries. An improvement in consumer sentiment is encouraging German households to dust off their wallets and spend, spend, spend.
It looks like it will be several weeks before we get clarity in Australia over the election result. The parliament is “hung” and the 3 independents are in no hurry to form an alliance with Labour or the Liberal-National Coalition (LNP). Uncertainty is assured. Normally this sort of indecision would weigh on the Aussie dollar as it did on the pound back in May. LNP leader Tony Abbott (aka the budgie smuggler for his penchant for wearing Speedos) has warned not to expect a speedy process as counting has some way to go. The markets are however speculating that the recent “mining tax” which was AUD negative, may now be dropped by the incumbent government which would result in Aussie dollar strength - a cloudy picture at best.
UK July mortgage approvals fell to the lowest level in 6-months according to the British Bankers Association this morning. This is further indication that UK housing activity is slowing.
The focus this afternoon will be on US existing home sales at 15:00pm to see whether the significant deterioration in recent US housing data is abating. The expectation is for 4.67 million homes sold in July.
A burglar who robbed a bank in Roettingen, Germany would have got away with it had he not emailed two newspapers taunting police for publishing an incorrect description of him. He sent the emails not realising that email addresses can be traced. He was subsequently arrested - bright chap.
German final Q2 GDP growth this morning was unrevised from the flash estimate of +2.2%. This is the fastest rate of growth in 20-years and is good news alongside the significant decline in the household savings rate. German consumers have been criticised for their lack of spending, which is seen as holding back growth in other Eurozone countries. An improvement in consumer sentiment is encouraging German households to dust off their wallets and spend, spend, spend.
It looks like it will be several weeks before we get clarity in Australia over the election result. The parliament is “hung” and the 3 independents are in no hurry to form an alliance with Labour or the Liberal-National Coalition (LNP). Uncertainty is assured. Normally this sort of indecision would weigh on the Aussie dollar as it did on the pound back in May. LNP leader Tony Abbott (aka the budgie smuggler for his penchant for wearing Speedos) has warned not to expect a speedy process as counting has some way to go. The markets are however speculating that the recent “mining tax” which was AUD negative, may now be dropped by the incumbent government which would result in Aussie dollar strength - a cloudy picture at best.
UK July mortgage approvals fell to the lowest level in 6-months according to the British Bankers Association this morning. This is further indication that UK housing activity is slowing.
The focus this afternoon will be on US existing home sales at 15:00pm to see whether the significant deterioration in recent US housing data is abating. The expectation is for 4.67 million homes sold in July.
A burglar who robbed a bank in Roettingen, Germany would have got away with it had he not emailed two newspapers taunting police for publishing an incorrect description of him. He sent the emails not realising that email addresses can be traced. He was subsequently arrested - bright chap.
Monday, 23 August 2010
Today's Highlights
Australian election limbo leaves Aussie Dollar in same state Stronger US Dollar could continue through the week Canadian Dollar in the spotlight
FX Market Overview
The main feature of Friday’s trade was US Dollar strength. Sterling and the Euro both suffered at the hands of the USD but Sterling fared a tad better than the Euro due to ongoing Eurozone debt concerns. The Dollar was held at bay though by the Japanese Yen which remains at uncomfortably strong levels as far as the Bank of Japan is concerned.
The Dollar may well continue in this strengthening path after it broke through and remained below very significant resistance against the Euro. Having closed the week below $1.27 against the Euro, technically speaking, the USD could well make a further three cents of gain without meeting further resistance. The move to more risk-averse trading patterns does tend to favour the USD as US treasuries remain the premier safe haven as far as international investors and institutions are concerned.
For its part, the Euro is still generally supported by the size and capacity of the economic group but Greece’s debt and problems elsewhere are tending to overshadow any good news coming from the likes of Germany and France. Traders were very concerned that ECB member Axel Weber, who is normally very hawkish, was calling for the economic stimulus provided by the ECB and IMF to be kept in place for at least another 9 months. If he is worried about the poor potential for growth and perhaps the even more worrying potential for another recession, then we should all be concerned. Today’s data brings purchasing managers indices from around the Eurozone and we get EU inflation later in the week so we may have a bit of an insight into what is troubling Mr Weber.
Sterling remains quite well supported but we have to wonder how long that will last. After several weeks of trying to make more significant gains above the existing ranges, the Pound is still trapped. That suggests the impetus is lacking and when a currency lacks momentum, traders will tend to take profit at the highs and lows of the existing trend pattern. If that is the case here, then Sterling is rising for a fall. This week’s data diary is light but Friday’s 2nd estimate of the Q2 economic growth data has the potential to cause a stir.
Elsewhere, the big news is the Australian election which produced no overall majority. The various parties are doing what is now familiar to everyone in the UK; scrabbling around trying to reach an agreement to form a coalition. Julie Gillard did what Gordon Brown threatened to do when he took over the job of PM from Tony Blair; call an election to gain a proper mandate. Sadly, as it appears it would have with G Brown, it backfired and she is left with the problem of having to water down or give up some policies in order to gain voted from other minority parties. The effect on the Australian Dollar has been muted so far but it does remain vulnerable to changes of policy brought about by political expediency.
The Canadian Dollar is also in the news by proxy really as the bid from BHP Billiton for Canadian fertiliser producer, Potash remains a major talking point. Other bidders may be emerging though so this is not necessarily a straightforward negotiation but if anyone outside Canada buys Potash, the Canadian Dollar has the capacity to strengthen sharply. Beware if you need to buy CAD because this could happen at any time if a deal is announced.
In other news, we have all laughed about the notice on packets of peanuts which says “May contain nuts” but a chap who bought a card for his granddaughter’s 2nd birthday which said “2 Today” on the front in big yellow letters was amazed to find a sticker attached which said “Not suitable for children under Three”. I do hope they don’t sort all this health and safety stuff out; we’d have nothing to laugh at.
The Dollar may well continue in this strengthening path after it broke through and remained below very significant resistance against the Euro. Having closed the week below $1.27 against the Euro, technically speaking, the USD could well make a further three cents of gain without meeting further resistance. The move to more risk-averse trading patterns does tend to favour the USD as US treasuries remain the premier safe haven as far as international investors and institutions are concerned.
For its part, the Euro is still generally supported by the size and capacity of the economic group but Greece’s debt and problems elsewhere are tending to overshadow any good news coming from the likes of Germany and France. Traders were very concerned that ECB member Axel Weber, who is normally very hawkish, was calling for the economic stimulus provided by the ECB and IMF to be kept in place for at least another 9 months. If he is worried about the poor potential for growth and perhaps the even more worrying potential for another recession, then we should all be concerned. Today’s data brings purchasing managers indices from around the Eurozone and we get EU inflation later in the week so we may have a bit of an insight into what is troubling Mr Weber.
Sterling remains quite well supported but we have to wonder how long that will last. After several weeks of trying to make more significant gains above the existing ranges, the Pound is still trapped. That suggests the impetus is lacking and when a currency lacks momentum, traders will tend to take profit at the highs and lows of the existing trend pattern. If that is the case here, then Sterling is rising for a fall. This week’s data diary is light but Friday’s 2nd estimate of the Q2 economic growth data has the potential to cause a stir.
Elsewhere, the big news is the Australian election which produced no overall majority. The various parties are doing what is now familiar to everyone in the UK; scrabbling around trying to reach an agreement to form a coalition. Julie Gillard did what Gordon Brown threatened to do when he took over the job of PM from Tony Blair; call an election to gain a proper mandate. Sadly, as it appears it would have with G Brown, it backfired and she is left with the problem of having to water down or give up some policies in order to gain voted from other minority parties. The effect on the Australian Dollar has been muted so far but it does remain vulnerable to changes of policy brought about by political expediency.
The Canadian Dollar is also in the news by proxy really as the bid from BHP Billiton for Canadian fertiliser producer, Potash remains a major talking point. Other bidders may be emerging though so this is not necessarily a straightforward negotiation but if anyone outside Canada buys Potash, the Canadian Dollar has the capacity to strengthen sharply. Beware if you need to buy CAD because this could happen at any time if a deal is announced.
In other news, we have all laughed about the notice on packets of peanuts which says “May contain nuts” but a chap who bought a card for his granddaughter’s 2nd birthday which said “2 Today” on the front in big yellow letters was amazed to find a sticker attached which said “Not suitable for children under Three”. I do hope they don’t sort all this health and safety stuff out; we’d have nothing to laugh at.
Euro - US Dollar
I don’t normally cover this pair specifically because all the details are generally covered in the Sterling - Euro and Sterling - US Dollar sections but this currency pair is the centre of the universe at the moment. What happens in America has a direct impact on the rest of the global economy because America is the world’s consumption engine. And what happens in Euro has a direct impact on the Pound because Britain does such a lot of its overseas trade with European countries. What you can see in the chart above is a recovery in the Euro as the US Dollar started to weaken. The Euro strength was a long overdue reaction to 18 months of decline and what has happened to the US Dollar is weakness derived from improving confidence amongst investors; leading to them moving money away from the US safe havens and into more lucrative assets. However, August has been a month of correction as nervousness over the state of the US economic recovery has sucked funds back into the US treasury market and as fears re-emerged over the state of the Greek and Spanish economies. The upward trend was still intact until Friday but we are seeing a test below the bottom of that channel. $1.2750 was crucial; as long as this pair stayed above this level in the short term, we remained in a medium term uptrend but the break below that line could bring a sharp fall to $1.22 or thereabouts.
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