US employment report is the news of the day EU interest rates announcement at 11.45 GMT
Thursday, 2 July 2009
Today's Highlights
US employment report is the news of the day EU interest rates announcement at 11.45 GMT
FX Market Overview
Yesterday’s main news veered away from financial matters and centred on U turns in government as contentious bills and plans are scrapped in the run up to an inevitable election.
Chameleons will be in great demand today because there are two focal points for traders. The European Central Bank will make its interest rate declaration today. No change is envisaged and it would be rather unwise for the ECB to change anything while its own members are privately voicing concerns over the exposure that the EU has to eastern European economic problems. However, their press conference is at 12.30 GMT and that will be far more interesting as we may get a feel for whether we are actually at the bottom of the interest rate cycle as far as the ECB is concerned.
But, and this is where the chameleons will come in handy, the US authorities release the June employment report at 12.30 GMT as well. This is probably more important as it is likely to reflect a slight improvement in the job prospects for US citizens and that may well create a flow of funds from US Treasury markets and into the likes of the Australian and New Zealand Dollars as Investors seek higher yielding but perhaps slightly more risky investments. Now all you need is a translator who speaks English and Chameleon and you are laughing.
The Dollar has started today in a stronger footing after China brushed off talk of moving away from the US Dollar as a reserve currency. That has been a topic of conversation for weeks but until a viable alternative is secured or perhaps when the Chinese Yuan becomes more freely tradable, this status quo will remain.
Sterling, ion the other hand is weaker this morning as it retreats from the highs seen earlier in the week. Poor economic growth numbers and fears over the levels of debt the government is having to service as well as the undoubted nervousness about an election that is coming soon are all weighing on the Pound.
And two reports hit the newswires this morning; official crime figures show Britain is more violent than South Africa, Europe or America and a report commissioned by the Howard league says we have too many people in jail. Maybe there is a link. What do you think?
And finally, speaking as a chap who was born and bred in Surrey, I was delighted to read that the best kissers come from my home county, as voted for in a poll on a dating site. I am not dating I hasten to add before my wife reads this.
Chameleons will be in great demand today because there are two focal points for traders. The European Central Bank will make its interest rate declaration today. No change is envisaged and it would be rather unwise for the ECB to change anything while its own members are privately voicing concerns over the exposure that the EU has to eastern European economic problems. However, their press conference is at 12.30 GMT and that will be far more interesting as we may get a feel for whether we are actually at the bottom of the interest rate cycle as far as the ECB is concerned.
But, and this is where the chameleons will come in handy, the US authorities release the June employment report at 12.30 GMT as well. This is probably more important as it is likely to reflect a slight improvement in the job prospects for US citizens and that may well create a flow of funds from US Treasury markets and into the likes of the Australian and New Zealand Dollars as Investors seek higher yielding but perhaps slightly more risky investments. Now all you need is a translator who speaks English and Chameleon and you are laughing.
The Dollar has started today in a stronger footing after China brushed off talk of moving away from the US Dollar as a reserve currency. That has been a topic of conversation for weeks but until a viable alternative is secured or perhaps when the Chinese Yuan becomes more freely tradable, this status quo will remain.
Sterling, ion the other hand is weaker this morning as it retreats from the highs seen earlier in the week. Poor economic growth numbers and fears over the levels of debt the government is having to service as well as the undoubted nervousness about an election that is coming soon are all weighing on the Pound.
And two reports hit the newswires this morning; official crime figures show Britain is more violent than South Africa, Europe or America and a report commissioned by the Howard league says we have too many people in jail. Maybe there is a link. What do you think?
And finally, speaking as a chap who was born and bred in Surrey, I was delighted to read that the best kissers come from my home county, as voted for in a poll on a dating site. I am not dating I hasten to add before my wife reads this.
Currency - GBP / Canadian Dollar
The Canadian Dollar weakened sharply over the month of June. This flattered the Pound which managed to push its way from CAD 1.76 to CAD 1.93 in less than a month. Sterling is a tad lower today but still 10 cents above the level it was at just one month ago. That 9.6% rally was in part attributable to the Pound’s new found ‘less bad investment’ status, partly a factor of the Canadian Dollar being dragged backwards by its US counterpart and partly as a result of a very volatile commodity market making life tricky for Canadian exporters. Having tested the highs, we should now see a correction back to the mid CAD 1.80s with clear support seen at CAD 1.8465.
Currency - GBP / Euro
Sterling has been rather well supported against the Euro in recent weeks. The upward trend is pretty much intact but the Pound slipped a bit from the highs after Tuesday’s poor GDP data. The Euro would certainly be in greater demand if the Eurozone wasn’t pumping out poor report after poor report and perhaps if there was a little more unity between the European Central Bank and the various National banks. And the recent comments from ECB members warning of major loses looming for EU banks due to the financial turmoil in eastern European nations haven’t helped the young currency. Consequently, whilst the picture in the UK is far from rosy, in comparison with Europe, Britain has an air of positivity about it. A range between EUR 1.14 and EUR 1.18 appears to be entrenched and I would use that range to make short term buying or selling plans.
Currency - GBP / New Zealand Dollar
The chart above is a pretty clear signal that a triangulation pattern is dominating the Sterling - New Zealand Dollar exchange rate. The dilemma that traders face is a clear one; like the Australian Dollar, the Kiwi Dollar is seen as an attractive high yielding destination for investment funds. But, Sterling is also recovering slightly as the oversold status it held at the start of the year is unwound. New Zealand’s; economy is no better off than anywhere else and perhaps slightly less well placed than some others but it is the 2.5% base interest rate that sets it apart at a time when getting interest on deposited funds in the US, UK, Japan, Switzerland or the EU is pretty much a lost cause. As you can surmise from the chart, sooner or later we have to see either the top or the bottom of this pattern break and I think a break to the downside is the most likely scenario in the near term.
Currency - GBP / US Dollar
All eyes are on today’s release of the US employment data for June. It has been brought forward to Thursday from the traditional slot of 1st Friday of the month owing to the US 4th July holiday break. That extra day of holiday will also make today a very lively one as US traders will only have the day to react to the employment report before scooting off for a long weekend. We are all hopeful that the data will show a slight improvement from last month and this will be significant as it will accompany a series of other positive US data releases. Ironically, if the numbers are good, the US Dollar will probably weaken. This is likely to happen as international investors take courage from the upturn in America and seek higher interest rate yields abroad. So much money is lodged in US Treasuries at the moment that, when they do this they sell those Treasury Certificates and subsequently sell US Dollars to move their funds overseas. So US Dollar sellers, be prepared or trade in advance just in case the forecasters are right and US Dollar buyers may want to place market orders to try to grab the highs in the almost inevitable volatility.
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