Halo Financial

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Wed, 30 May 2012 08:14:00 +0000

I will start with an apology. I apologise for droning on about Europe but I am sorry to say, there is little else to speak about in the current economic climate. Yesterday’s newswires were full of it; this is just a flavour of the total barrage. Spanish retail sales plunged by 9.8% last month; the worst drop on record and another one in a 22 month decline. Spanish government debt is getting ever more expensive to service, the European Central Bank says it wants nothing to do with Spain’s refinancing of Bankia or other debt stricken banks and after fierce criticism for inaction, the governor of the Bank of Spain, Miguel Ángel Fernández OrdóÃ±ez, is stepping down a month early. Had enough or pushed out? We are not sure. However, it is another step towards the abyss for the Spanish economy and yet another troubling development for Europe.

On a brighter note, Greeks who were offended by IMF chief Chritine Lagarde’s comments about them avoiding taxes will be interested to know that Lagarde pays no tax on her roughly £350,000 per annum income because she is an official in an international institution. That’s coded language for ‘Gravy train’.

By way of contrast with Europe, the Confederation of British Industry says the retail sector is holding up well and UK interest rates are expected to stay at record low levels for up to 5 more years. Obviously that decimates a lot of people’s savings return but it does keep the cost of servicing debt down for those who have some, and that is probably the majority. In the CBI’s distributive trends survey, the index shift from a minus 6 reading to plus 21 in May, the fastest advance in over a year. Sterling had a better day as a result and returned to the upper end of its trading ranges. This morning’s UK mortgage data will be the next hurdle; it seems that getting a mortgage still follows the old banking rule that you can have it if you don’t need it so it will be interesting to see if there is any life in the lending market or, as appears to be the case, banks and building societies are sitting on as much reserve cash as possible.

It’s not just European retail sales that are struggling; poor high street data from Australian has weakened the Australian Dollar a tad overnight. This is another in a series of poorer Aussie data releases and Australia is also being hit by a slowdown in China; Australia’s largest export market. So we may well see further weakness in the Aussie Dollar but the month end is looming and traders in the UK will be preparing for a very long bank holiday weekend so don’t be surprised if we see some profit taking ahead of that.

The US data diary is very light this week but the major data comes to us tomorrow in the guise of the 2nd estimate of economic growth for the 1st quarter of the year. Traders will clearly be keeping their powder dry for that but the USD is being bought for its safe haven status and that has propelled it to its strongest levels against the Euro in 22 months and towards the bottom end of its trading range against the Pound.

And Italian Prime Minister Mario Monti needs that book about making friends and influencing people. You know the one. What’s it called? Oh yes, ‘How to win friends and influence people’, that’s it. In a country where football is the 2nd most popular religion, Mr Monti suggests football should be banned for 5 years as a penalty for all the match fixing and betting scandals that have shocked the country over the last few years. As he was not elected as such, he is probably not well placed to say such things and he certainly won’t be getting re-elected if he persists with the plan. It would be like David Cameron banning tea or something equally British like... chicken tikka masala. Unthinkable.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Wed, 23 May 2012 08:28:00 +0000

I have been out of the office for a few days so when I read the headlines this morning that the International Monetary Fund and the OECD (the name's too long so I will leave it at the acronym) warned Britain to cut interest rates and boost growth, I assumed Sterling would have dived. It hasn't. If anything, the Pound has strengthened a tad since Monday and the reason lies mainly with the inflation data released yesterday and international investors' attitude to risk.

UK CPI inflation fell from 3.5% previously to just 3.0% last month. That is still the roof of the Bank of England's 1% to 3% target range but it brought a sigh of relief from the markets because it frees the BOE's hand a little to boost growth without such a great risk of inflation. We get the minutes from the last BOE meeting this morning so that may shed some light on their thinking and we also get the UK retail sales data and , what is forecast to be a poor CBI industrial trends report so Sterling may be in for a bumpy ride this morning. Obviously, as the IMF and OECD states, the Eurozone crisis is the largest threat to the UK economy and that cannot be underestimated but Sterling is still not the euro so it retains a degree of safe haven status.

We can't have a currency market report without mentioning the Eurozone can we and this one is no exception. EU leaders still appear to be at loggerheads over what to do to resolve the crisis. Greece received another tranche of emergency funding which may tide them over until the elections on 17th June. Greece are not alone though; Ireland took €41 billion and Cyprus grabbed €4 billion as well. Spain held a bond auction yesterday and the yields being demanded by investors surged again on the short term bonds. However, there was some relief that the 10 year notes didn't follow suit and credit default insurance premiums on Spanish bonds dropped a tad as well. That didn't stop the euro from weakening though.

The US Dollar made fresh highs yesterday. It is the safe haven to beat all safe havens so with so much confusion in Europe and elsewhere, it is natural for the US Dollar to strengthen. There is little on the USD data front today so investor appetite for risk or safety is the main USD driver for the next 24 hours.

The Australian and New Zealand Dollars took a hit overnight after the OECD cut its growth forecast for China to 8.2% in 2012. That dampens expectations for Aussie and Kiwi exporters and casts a shadow over the economies of both countries. It also weakens commodity prices and we saw that weaken the Canadian Dollar to some extent as well. However, Canada is one of the few countries which is still talking of interest rate hikes so that does add some support to the Canadian Dollar.

Oh and I bet you will be glad to hear that it has arrived. Yes IT. The story we get every year has arrived. It is like the first sound of a cuckoo call or seeing the first crocuses. The newspapers are reporting that swimmers were shocked when they sighted a massive shark off the coast of Cornwall but...and this is the best bit... don't worry everyone because it is just a harmless Basking Shark and they don't eat us. Maybe it's the same Basking Shark that arrives every year at about this time and causes the same flipping headline.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Tue, 08 May 2012 09:05:00 +0000

Voting voting voting. Welcome back after an extended UK weekend in which elections dominated the news. Changes in UK local government management were as nought compared to the changes in Greece and France. A switch from austerity to growth may force the agenda in Europe as Angela Merkel's main supporter, President Sarkozy is ousted and the Eurozone's main cause of concern, Greece looks to be on a collision course with its EU "partners". It is Victory Day in France today to celebrate the end of hostilities in Europe at the end of the 2nd World War. It doesn’t end hostilities in Europe over the debt crisis though. The euro shed more than a cent against Sterling but a surprisingly strong 2.2 percent rise in German factory orders (reported this morning) has steadied the ship a little for now. This will be a busy week for the euro without a shadow of doubt.

US payrolls rose at a disappointing pace on Friday and the US Dollar weakened as a result. The Dollar has been a little undone by a lack of encouraging data of late but we haven't seen a surge in safe haven USD buying yet. However, further Eurozone turmoil could produce that flow of investor funds into the USD, just as it appears to be happening in the Pound, so beware.

It’s interesting that Sterling has taken on something of a safe haven air amidst the EU trauma. This week’s Bank of England interest rate and QE decisions are centre stage as the dip into a 2nd recession has raised the prospects of another expansion of the money supply. I can't help thinking that if they could get banks to lend the existing QE, we would have the problem at least partially solved.

Canada's Dollar weakened last week after the US employment report disappointed the markets; suggesting a slowdown in demand for Canada’s exports. A rise in oil prices kind of stabilised matters though.

Australia's trade deficit widened to the largest gap in roughly two and a half years as imports outpaced shrinking exports. That plus the escalating EU drama saw the Australian and the New Zealand Dollars weaken across the board as the chances of further interest rate cuts in Australasia rose. As you may remember, the Reserve Bank of Australia cut its base interest rate by an aggressive 50 basis points last week so markets are braced for more but this trade data will heighten that expectation.

And if you think the suggestive lyrics to modern songs don’t have an impact on children, a 6 year old boy in Denver, Colorado would agree. He has been suspended from school for sexual harassment for singing ‘I’m sexy and I know it’, a line from a popular song, in class. I can’t help thinking a 6 year old probably knew less about what constituted sexual harassment before he was suspended than afterwards.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Tue, 01 May 2012 08:51:00 +0000

It’s Mayday in more than one way. That is both a distress cry from Spain which fell back into recession over the last 3 months and the description of a Labour Day, Protest Day and public holiday in many parts of the world.

Monday was alive with trading opportunities and our dealers had a very busy day managing all the orders being triggered and trades being placed at some of the most attractive exchange rates in a long time ahead of a May Day holiday in most of Europe. European equities continued to fall due to Spain’s confirmation of recession, a decline in German retail sales and an afternoon of poor data from the other side of the Atlantic. Those investors bought into the safer option of bonds and that even brought the yield on Spanish debt down to some degree. There are rumours that the Spanish central bank is exploring ways and means to establish some kind of holding company in which to lodge the bad debts banks are holding in overpriced property assets/liabilities. Nonetheless, the lack of data and traders in Europe today should allow the Euro to trade sideways unless UK and US data markedly differs from expectations.

Later in the day, data was released showing a surprise contraction Canadian economic growth in Q1. A fall of 0.2% against expected growth of 0.2% came as a shock and the Canadian Dollar reacted as you might expect. Traders sold the loonie and we start today with the Canadian Dollar at weaker levels.

Yesterday’s US data wasn’t much better; personal income and spending data was mixed with income levels a tick up on estimates while expenditure was down a similar amount. Today’s manufacturing sector business sentiment report will be closely watched and the rest of the week is awash with US data so there will be plenty of opportunities for the markets to be wrong footed before the week is over.

Sterling had a day of gentle consolidation at the top end of its ranges. Sterling - Euro tested fresh 2012 highs and the Pound is doing likewise against the Australasian Dollars this morning after two pieces of overnight data. Australia’s reserve bank cut the base interest rate by 50 basis points rather than the expected 25BP. Their statement includes a lot of minimising comments; ‘somewhat’ lower growth and ‘tentative signs’ are mentioned. In essence, the slowdown on the global economy is worrying the RBA and they felt a pre-emptive strike would keep things on an even keel. The Chinese manufacturing sector purchasing managers index was up but not as much as expected and that was also a little unsettling for downunder traders who know that export led growth would answer the RBA’s concerns. So Sterling is pressing towards A$1.60 and NZ$2.00 this morning. We aren’t there yet though so if the UK manufacturing PMI is limp (after a bullish report last month) we could see the Pound give up some of its gains.

Aside from this, those of you on holiday today, have a great one, those who are working, never mind; we in the UK have got Monday off. And to everybody out there, pinch punch 1st day of the month and no returns. Oh and don’t give me any of your ‘White Rabbits’ nonsense; we both know you didn’t say it.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Thu, 26 Apr 2012 08:42:00 +0000

Those headlines you read in your paper this morning are out of date. Sterling did drop after the announcement that we are in a 2nd recession and there is no doubting it was a surprise but that’s old news. After weeks of positive data, the drop in UK GDP took traders by surprise. It was clearly a gift to the press, to the Murdochs who were forced off the front pages and to the opposition parties ahead of Prime Ministers Questions but Gross Domestic Product figure is a backward looking set of data. So after careful consideration, the markets chose to rely more upon the forward looking statistics like the very positive Purchasing Managers Indices and yesterday’s CBI report which was hugely upbeat. After all the volatility, Sterling ended the day pretty well where it started and is still strong this morning. I am convinced the 2nd calculation of the GDP figures, which includes much more of the completed data, will be revised upward when it is released in a few weeks time and that, having weathered this storm, Sterling has the legs to strengthen further. It seems many in the forex market share that view. Today brings the retail portion of the CBI report; if that’s as upbeat as the industrial one, Sterling should strengthen and we get the British Bankers Association mortgage data which will also be closely watched.

The story from the other side of the Atlantic was equally unexpected; Durable goods orders were much worse than expected; falling 4.2% on the month. Consumer confidence was also down and the housing data was mixed. The Federal Reserve did little to reassure the markets; they left their base rate on hold and did the same with the level of quantitative easing but they signalled that further QE was possible if needed. In a slightly contrary move, a number of members of the Open Market Committee brought forward their forecasts for the 1st interest rate hike. None though, thought it would be in 2013 so the markets felt justified in selling the US Dollar and that is where the day ended. There is a smattering of US data today. The weekly jobless claims numbers will be most influential but tomorrow’s economic growth figures are more pressing so the US Dollar could remain in a holding pattern ahead of that.

Overnight we head that the Reserve Bank of New Zealand followed suit and kept its base rate on hold. That was expected but Governor Alan Bollard made it clear that the continuing strength of the New Zealand Dollar in spite of a drop in commodity prices could force the RBNZ to maintain their base rate at this historically low level for an extended period. Traders are betting on no increase this year so the NZ Dollar could weaken further after that news and, given the influence that the Australian Dollar has on this currency, with next week’s inevitable interest rate cut from the RBA, that isn’t a particularly controversial forecast.

For once, the Euro was not the main talking point and Europe’s shared currency was pitched and rolled by events outside its borders and outside the Eurozone’s control. In the end the euro remained in relatively tight ranges and made a little headway against the weaker US Dollar and remained static overall against the Pound. We get Eurozone consumer and industrial confidence figures today which could cause some fuss and German inflation figures which are always worth a look but we may see a reasonably quiet trading day ahead of tomorrow’s release of the US growth data which is hugely influential.

And finally, if you got an invitation from the government to attend a formal dinner and presentation about the environment, you would feel flattered, get dressed up and go wouldn’t you. Well that’s what Margareta Winberg did when the Swedish Environment Minister invited her. Unfortunately there is another Margareta Winberg who isn’t a retired occupational therapist but who was in fact the former Deputy Prime Minister and it was that Margareta Winberg who should have received the invitation. Apparently the Margaret who did attend had a lovely day and was introduced to ministers and the great and good of Sweden. And why not.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Wed, 18 Apr 2012 11:07:00 +0000

We were not short of talking points yesterday and the volatility followed every word. It would take a much longer report than this to do it all justice but I will rattle through the headlines to give you a flavor of the interest and intrigue.

UK inflation ticked up to 3.5% on the annualized CPI reading. That’s the first rise since September and the wrong direction as far as the Bank of England is concerned. Slow growth and stubbornly high inflation is not what the doctor ordered for the Chancellor either but Sterling held its nerve and stayed at the top of its trading ranges. All eyes turn to this morning’s twin releases of unemployment and the Bank of England minutes. An improvement in the employment picture and less evidence that the BOE is ready to top up the QE levels would be Sterling’s best result and we may just see some more strength in the Pound.

On the euro front, Eurozone inflation was revised up from 2.6% t 2.7% in March and we saw a draft EU paper that revealed that the EU, IMF and ECB see no need for further cash injections into Greece but they see a very real need for Greece to step up the austerity measures in the next two years. If they are to achieve the deficit targets set by the EU. The German Finance Minister Schaeuble says he wants the G20 to approve a boost the International Monetary Fund’s resources by around $ 400 Billion when they next meet. He also said that Spain and Italy are both meeting debt reduction measures. The other, slightly surprising positive data was a 5th straight month of improvement in German business confidence as measured by the ZEW institute. The euro remained rather sanguine though. Spanish debt auctions were surprisingly well subscribed but the yields Spain is having to pay also rose and that is a very worrying sign. Overall the Euro weakened on the day but not dramatically so.

And the IMF were in the news again with their Chief Economist suggesting the world economy is in an “uneasy calm” and that there is a feeling that things could get bad again. However, the IMF also raised global growth forecasts. They upgraded their forecasts for America, the Eurozone and Britain. Their global growth forecast for 2012 was raised to 3.5%, while in the US it was upgraded to 2.1% and the UK was upgraded to 0.8%. Let’s hope their optimism proves correct.

The Bank of Canada kept their interest rates unchanged at 1 percent. This was widely expected but the fact that the BOC also upgraded their growth forecast for the year to 2.4% was not. They cited improving growth and that ties in with improving US data.

On that front, the data diary throws a few curveballs into the mix on US data; US housing starts were weak at 645,000 compared to the forecast of 705,000. That is in fact the weakest reading since last October but that may be a short term issue because building permits were the highest they've been since 2008. It all serves to keep us on our toes though. Just as confusing is the fact that US industrial production was weaker than expected; offering zero growth in March compared to a 0.3% forecast. Factors such as nervousness in other investments kept the US Dollar strong though through safe haven buying.

Overnight tonight we will get New Zealand inflation figures. A bounce back is expected which will reduce the expectations of interest rate cuts in NZ and should strengthen the New Zealand Dollar to some degree. Those who need to buy Kiwi Dollars may want to do so today to avoid the risk of weaker rates tomorrow.

And China has loosened the money supply buy reducing the percentage than banks have to hold in reserve slightly. That will lead to further growth and that is positive for the region and the Australasian dollars because Australia and New Zealand are heavily reliant on Chinese demand.

*****STOP PRESS***** Bank of England monetary policy committee voted 8-1 in favour of maintaining the quantitative easing level and that is a move of one member away from further stimulus. Sterling is benefiting from this and from a drop in the unemployment level to 8.3% from 8.4% last month. *****STOP PRESS*****

Sorry gotta dash; it’s all kicking off as they say and we are set fair for a lively day. Sterling sellers may be getting their prayers answered at last. Have a great day.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Mon, 16 Apr 2012 09:07:00 +0000

Having survived Friday 13th I think we should all start our own water companies. Having declared parts of the country as drought zones and after having imposed a hose pipe ban elsewhere, they can carry on charging the same annual fee. I can’t think of any other industry where you can - by law - force people to use less but don’t have to cut their subscriptions. Imagine; “sorry sir, you can only have a 9” pizza but I have to charge you for a 14” one. It’s the law”. Perhaps if the water companies had to take an income reduction when they implement hose pipe bans, they would start to fix the burst pipes before paying bonuses.

China had a proper Friday 13th, after economic growth statistics showed China is still slowing down. At 8.1%, China’s Q1 GDP figure was below expectations and the lowest in 3 years. That sent jitters through the foreign exchange market but not perhaps the shock wave that many would have expected. Shares did slip on the news and there is a fear that the slide will extend into this week.

Te impact of Chinese data is normally very evident in the Australian Dollar but there has been only a small strengthening of the Aussie Dollar in the last few days. Traders are awaiting the minutes from the last Reserve Bank of Australia meeting and next week’s release of the Australian inflation report (due on 24th) to determine what to do with the Aussie Dollar. If the RBA keep to their previous tone, we can expect an interest rate cut at their next meeting and China’s falling demand would certainly suggest that is the most likely scenario.

Nearer home, the Eurozone continues to cause dramas. The Euro is 13 years old this year and any parent of a teenager will recognize the signs; won’t do what you say, won’t save any money, spends every penny it can get its hands on, never says thank you and stays out late without explanation. (Well perhaps not that one but you get my point). At the moment we are awaiting the next Spanish debt auction to determine whether Spain is asked to pay more than 6% again. That would be yet another sign that investors are unconvinced by the plans to stabilize debt in the Eurozone and perhaps further evidence that they don’t believe the EU speakers who claim there is no need for a Greece style bailout for Spain. We get Eurozone inflation this week as well as a number of German statistics on trade and business confidence. We also get a number of speeches from EU and ECB personnel so the euro is in for another bouncy week. That’s a technical term by the way. Oh and this weekend brings the 1st round of French Presidential elections. Will Sarkozy be the 1st casualty of the Euro debt crisis?

Sterling is still looking poised to strengthen in spite of all the drama going n around its ears. We remain at the top of the Sterling - Euro and Sterling - Australasian Dollar ranges and even the political fallout from the budget is not moving it lower. By the way, I can’t help thinking that someone who says ‘I won’t give to charity unless I get a tax break’ is clearly not as charitable as they would like us to believe. Nevertheless, the Pound is probably punching above its weight at the moment. That is not to say it won’t continue to do so and cannot strengthen further but we are waiting for a catalyst to make that happen. I doubt this week’s release of the minutes from the last Bank of England meeting are enough to make that happen but we shall see. We do also get inflation data and a number of other indices this week from the UK so we will see whether the Pound summons up enough fortitude to break to higher levels.

And finally, the Chinese Grand Prix was one of the most interesting and exciting F1 races I have seen in years. I may even start watching it regularly. Have a good week.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Wed, 11 Apr 2012 10:01:00 +0000

Tuesday’s foreign exchange market activity revolved around the repercussions of Friday’s poor US employment data. Traders are on permanent tenterhooks these days so something as potentially damaging as slow growth in US employment is bound to have far reaching consequences. Share markets around the globe slipped and nervous investors stayed with the tried and tested safe havens of treasury certificates in countries like America, Japan and Switzerland. The effect on the currencies of these countries is pretty obvious; they strengthened.

That nervous feeling wasn’t helped by poor French industrial production and the lack of data elsewhere meant there was little to calm nerves. There was a lot of focus on a speech by the head of the US Federal Reserve in which Chairman Bernanke suggested financial markets need tighter regulation but all anyone in the press seems to have gleaned from his speech is that the Federal Reserve is not planning further quantitative easing in the months ahead. That is another reason for US Dollar strength.

The other major influence and concern is the rising cost that European governments are facing for their borrowing. Spain, Portugal and - well the usual suspects - are finding the gap is expanding between the interest rates they have to pay and those that the likes of France and Germany face when issuing new bonds. That is a cost and a drag on recovery but it is also a clear sign that the markets are not yet convinced that Europe is on top of its debt problems and that must be a huge worry for the European Central Bank and the EU. It must also be worrying the likes of the International Monetary Fund and its contributors because their cash is on the line and the IMF has a track record of always returning loaned funds to its contributors; a record it will not want to spoil.

Sterling continues to trade at the upper end of its recent ranges. A positive report from the British Retail Consortium helped that but; as is always the case with retail data, the search for a reason for the improvement - in this case, sunnier weather - tends to dampen the influence of such data. Nevertheless, Sterling is trying - but so far failing - to break through the top of those ranges. The optimists amongst you may want to target higher levels just in case we see a breakout whilst the realists, pessimists and pragmatists may want to cover some of your requirements now just in case we see a fall back in the Pound. The arch-nemesis of Sterling strength is Bank of England Governor Mervyn King. Mr King tends to pop up on each occasion when Sterling is strengthening and cause a slump but he has been notable by his absence on this occasion. How long he can stay quiet is probably something we should have an office sweepstake on.

Further afield, New Zealand business confidence rose in the 1st quarter of the year. That plus mixed signals coming from Japan and China have caused a fair amount of volatility in the New Zealand Dollar over the last week or so. This business confidence survey does go some way to confirming the resilience of the Kiwi economy and that may be the factor that stops Sterling from rallying against the Kiwi Dollar. However, a fall in commodity prices and jitters over the strength of the European economy are weighing on investor confidence. Nervous investors do tend to steer clear of the high yielding Australasian Dollars which are evidently lucrative places to lodge your money but are also perceived as carrying a higher exchange rate risk.

Today’s diary includes consumer inflation data from Sweden, France, Portugal and Ireland, producer price indices form America and the US trade balance. All of these have the potential to change perceptions but we are also going to hear speeches from several European Central Bank members and a number of US Federal Reserve Chairmen. These have the potential to be every bit as influential as the hard data so we are certain of some volatility if nothing else.

And finally, I am not quite sure I understand the morbid fascination with the Titanic but the loss of so many lives and loss of an “unsinkable” ship clearly hold the rapt attention of many. I certainly can’t imagine wanting to go on a recreation cruise but that is what 1,300 odd people have done aboard the _________. It is very authentic. Heavy seas have slowed their progress and a passenger has had to be airlifted to hospital after a heart problem. As they haven’t yet cleared the Irish Sea, no icebergs have been encountered. Let’s hope it stays that way for all their sakes.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Tue, 10 Apr 2012 10:23:00 +0000

I hope your Easter break was a restful one because this could be a very busy week. Even as the UK relaxed on Good Friday, the data continued to arrive. The major news was that US employment numbers failed to meet expectations in March. Just 120,000 fresh jobs were created; well below the expected 200,000 and that raised concerns that the US economic recovery may be running out of steam. Shares dipped and equities rose just to reinforce the slight change of sentiment. We will get all manner of views on that from a host of Federal Reserve speakers in the next few days so the rumour and speculation mills will be whirring away at full speed. Volatile conditions will follow.

Asian data was also in the spotlight; the Bank of Japan left its base interest rate at a paltry 0/1 percent and rejected calls to pump more money into the economy. That strengthened the Yen and weakened the currencies of some of Japan’s major trading partners. And China announced an unexpected trade surplus of some $5.35 billion as imports were reduced. That puts pressure on the currencies of the countries that export most to China. Those countries include Australia and New Zealand, Japan and many smaller Asian countries.

Nearer home, the gap between the interest being demanded from Spain on its government bonds and the equivalent from Germany is causing major concerns. The gap means Spain is paying a full 4 percentage points more for its borrowing than Germany as investors seek a ‘risk premium’ on loans to the troubled Mediterranean country. Portugal, Italy and Greece are all in the same boat in terms of borrowing costs and that makes these debts unsustainable in the long term. If that were not enough to worry euro investors, Germany’s poor industrial production figures, released last week, have really given them the jitters. If Germany, the principle lender to these countries (by proxy via the ECB, EU and IMF) is struggling, where is the cheap funding going to come from and will the status quo be maintainable after the upcoming German and French elections where these bailout funds are very unpopular. This week brings Eurozone-wide industrial production data and German inflation numbers, just to keep tongues wagging.

In the UK, traders will return from their chocolate egg binge to find the pound doing rather well overall. Whilst you could certainly argue that recent UK data is too mixed to support a strong pound, these things are all relative. The comparative position of the Eurozone and the effects of the far eastern slowdown do have the effect of making the UK look kind of well-placed and that is benefitting the Pound. Be careful of expecting a lot more Sterling strength though. Whenever the Pound shows signs of life, the Governor of the Bank of England can be relied upon to whip the rug out from beneath the Pound and we should expect that kind of talk this week. Data wise, this is a very quiet week for the UK so GBP will be wafted hither and thither by external influences but the overnight release of a pretty upbeat RICS housing market survey didn’t do the Pound any harm. Whilst most surveyors still reported a drop in house prices, the falls are smaller and the demand is picking up. Perhaps Sterling has a chance of pushing up through some of these tough resistance levels in the days ahead - as long as Mervyn King keeps schtum.

That Chinese trade surplus has weakened the Australian and New Zealand Dollars marginally as analysts try to assess the impact on these countries’ export output but, against the Pound, both currencies remain just within recent ranges. As I mentioned earlier, if the Pound can avoid a negative, we may just see a push to higher levels in these exchange rates in the next few days but I am concerned that those may be little more than spikes, so rather than waiting and missing the opportunity, an automated market order will be the best tool for the job in this environment.

Away from the markets, after a bizarre incident packed boat race, the self-styled, anti-elitism protester was largely unharmed and lucky not to have been forever known as the headless anti-elitism protester. And Alex Woods, the Oxford Bowman who collapsed has apologised to victors Cambridge for spoiling their celebrations which were cancelled while he was taken to hospital. You see, Mr Balotelli that is known as sportsmanship and good manners. You could do with an extended course.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Wed, 28 Mar 2012 09:04:00 +0000

According to the Confederation of British Industry, UK high street sales improved again in March all the way back to an index reading of 0. That might look a bit pathetic but it was minus 2 in February and the markets were expecting the index to weaken rather than strengthen. However, the failure of the Game group is sobering evidence that retailers are not out of the woods yet and the sales environment is challenging to say the least. Nonetheless, in the absence of any other UK data, traders took the CBI report as a positive sign and Sterling had rather a good day. Hopefully, that optimism will remain after this morning’s release of the UK economic growth data. This is the final calculation of the quarter 4 growth figures and we expect the -0.2% quarterly figure and the annualised +0.7% will be confirmed.
Sterling was also flattered by the weakness of the US Dollar. The Federal Reserve Chairman has been talking about further expansion of the US money supply through quantitative easing measures and in true supply and demand style that has had a negative effect on the value of the USD. The slight dip in US consumer confidence shown in yesterday’s report didn’t do anything to improve that situation. Perhaps this afternoon’s US durable goods data will improve the mood a little. We are expecting a rebound from last month’s minus 3.7% reading to perhaps 3% growth so that would boost confidence a tad.
European news remains worrisome; Spain is in recession and is announcing plans to slash spending but expected the economy to shrink by 1.5% this year. And Germany has announced that the German parliament will have a far greater say over any further EU bailout funds. That is not what Chancellor Merkel wants to hear because her grip on power over this subject is tenuous at best; even her coalition partners are cautious. And while this is going on, the Greek parliament is embroiled in serious in-fighting over the austerity measures forced upon them by Brussels in return for rescue funds. They are playing the problem down but it is yet another example of the politically created and supported euro causing serious political problems for its supporters. Whether that leads to a weakening of the support for the euro is a moot point at this stage but traders are cautious.
Meanwhile, nervousness over news and data coming from China has weakened the Australian and New Zealand Dollars and also the Canadian Dollar and South African Rand. China is such an enormous importer of commodities and is Australia’s chief export market so it is understandable that any hint of weakness in China’s economy will weaken the currencies of the providing nations. In fact, for those needing to buy Aussie Dollars, the current Sterling - Australian Dollar exchange rate is the most attractive it has been since 29th December 2011. That has put a smile on the faces of those moving to or importing from Australia; a smile that has been absent for quite a while. It is hard to know whether this is the start of a largest scale recovery but it is certainly an opportune moment to be grabbing some Aussie Dollars.
And as Britain agonises over who we might offend if we deport Abu Qatada and how the poor mite could be treated in Jordan, Italy ignores a court order and deports a convicted terrorist. And now the European Court of Human Rights has said they can’t make Italy reverse the deportation. Who is right and wrong? Only you can decide but should Italy and Britain be allowed to decide who lives in their country and who does not? You betcha.

Currency - GBP / US Dollar

noreply@blogger.com (Halo Financial Ltd) — Tue, 20 Mar 2012 09:02:00 +0000

As mentioned above, Sterling is contending with inflation data and the eagerly anticipated budget statement. The US Dollar is contending with investor confidence fuelled by improving economic data balanced against the nervousness over what Europe and China are doing to the pace of global economic recovery. We will await the budget with interest but no real expectation of substantive change and we approach this week’s plethora of US housing market data with the expectation that the figures will reflect a slight improvement in sentiment. If all of those expectations are accurate, not a lot will change in the Sterling - US Dollar exchange rate. The current range of $1.5580 to $1.5850 is intact. If the top of that range gives way, we will see a sharp advance to the February high (just below $1.60). If Sterling capitulates, a drop to $1.5460 is the most likely scenario.

Currency - GBP / New Zealand Dollar

noreply@blogger.com (Halo Financial Ltd) — Tue, 20 Mar 2012 09:01:00 +0000

As mentioned above, the big news for the New Zealand Dollar comes later in the week. The Quarter 4 GDP figures are eagerly awaited after Australia’s equivalent data showed a slowdown linked to slower exports. That mostly stems from China’s much vaunted plan to slow growth but you could certainly argue that, with Europe and the UK barely chugging along, China’s sluggish export markets are driving down production. We get a measure of that this week with the release of the Chinese Purchasing Managers Index. The last reading was below the 50 pivot point between expected growth and decline so traders are nervous ahead of this data. If that data is poor and NZ growth has slowed, as many have suggested, we are likely to see a short term bounce in the Sterling - NZ Dollar exchange rate but I wouldn’t pin my hat on any forecasts for a more sustained rally in the Sterling - Kiwi Dollar exchange rate.

Currency - GBP / Euro

noreply@blogger.com (Halo Financial Ltd) — Tue, 20 Mar 2012 09:01:00 +0000

Greece has got its bailout so all is right with the world then...or is it? New reporters have spent the last few months looking for good procrastination metaphors. We keep hearing about the EU ‘kicking the can down’ the road or ‘parking things in the long grass’. The approval of an effective consolidation loan for Greece and the default on up to 70% of Greece’s private sector debts haven’t solved the problem; just delayed things; at least until after the German and French elections. (There I go being cynical again). What this means for the Euro is that no one is quite at the trusting stage yet. Hence, the Euro is a tad stronger against the US Dollar but is at the weaker end of its range against the Pound and many other currencies. Sadly sterling doesn’t have the oomph (it’s a technical term) to bust out of its range against the Euro and it remains capped at just above €1.2000. Events this week may change that position but, until I see it, I won’t rely on the Pound making any headway. And I certainly don’t see that happening until the budget statement is out of the way on Wednesday.

Currency - GBP / Canadian Dollar

noreply@blogger.com (Halo Financial Ltd) — Tue, 20 Mar 2012 09:00:00 +0000

This week’s release of Canadian inflation and retail sales data could herald a significant change in the pattern of the Sterling - Canadian Dollar exchange rate. Having been in an accelerated downward trend since early November, as you can see from the chart above, this pair is trapped below C$ 1.5750 and perhaps a little lower than that where this exchange rate meets a 60 day moving average line and the 38% Fibonacci retracement level. A break of C$ 1.5750 gives us the chance of a rally to C$1.5810 and perhaps a full breakout taking us to C$ 1.59. That would tie in with the highest levels seen in the February rally. The flipside of this is that, if we see further positive US Data and perhaps higher commodity prices, and especially if the UK budget disappoints, there is a chance the loonie (as the Canadian Dollar is affectionately known) will strengthen markedly against the Pound. If this happens, the target is initially C$ 1.54 and perhaps we ought to look at longer term graphs to see the support line that stopped the rot in January and July 2011 at C$ 1.5250

Currency - GBP / Australian Dollar

noreply@blogger.com (Halo Financial Ltd) — Tue, 20 Mar 2012 09:00:00 +0000

Chinese purchasing managers are forecast to be rather less upbeat when their sentiment index is published this week. That might seem an odd opening line for an Australian Dollar report but China’s performance has a direct bearing on Australia’s exports and, therefore, on Australia’s economic growth. We saw the pace of growth in Australia slip when they last released GDP figures and there is a distinct chance that a poor Chinese PMI release will cause further weakness. Those moving to Australia would undoubtedly welcome a bounce in the Sterling - Australian Dollar exchange rate and they may just get their chance in the days ahead. However, (here comes the caveat) not since late January has the Pound been above A$1.50 and we are seeing that reluctance amongst traders to sell the Aussie Dollar above A$1.50. That caps the market for now but a break of that level would open the opportunity for a proper rally to A$1.50 and perhaps as high as A$1.5250 in the short term.

Currency - Euro / US Dollar

noreply@blogger.com (Halo Financial Ltd) — Tue, 20 Mar 2012 09:00:00 +0000

The on - off expectation that Europe has sorted its problems out is causing plenty of volatility in the Euro - US Dollar exchange rate. So too is the growing feeling that America’s economy is on the up. In fact, the US Dollar is no longer being bought as a safe haven in response to poor US data but is being bought for the feel-good factor of the US economy being one of the few positive news stories in the financial markets. You can see from the chart though that it isn’t all one way traffic. The Euro - US Dollar exchange rate is fidgeting between $1.30 and $1.35 but is still in an upward trend channel that looks set to press ahead to hit the yearlong downtrend at $1.35 again. That won’t be plain sailing though; we have had a few shocks with the US Data of late and this week brings a number of data releases which could easily cause a few upsets. The big crowd pleasers include plenty of housing market data and several Federal Reserve speakers. It should be enough to give both buyers and sellers a chance to do well with well-placed market orders.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Tue, 20 Mar 2012 08:59:00 +0000

As mentioned yesterday, the data diary was a light one and the markets were forced to focus on the words rather than the actions of politicians and central bankers. The US Federal Reserve member, Mr Dudley was quite upbeat about recent data and expressed his confidence that the pace of recovery may be increasing. Mr Fisher, also from the Fed, expressed his view that there is enough liquidity in the financial markets and no more quantitative easing is necessary. Sadly US data wasn’t as upbeat as the bankers; the NAHB House Price Index dropped to 28 against a market expectation of 30 and the previous figure was also revised down to 28 from the originally announced 29; evidence that the US housing market is not yet on the same recovery page as some other sectors of the economy. We get housing starts data today so it will be interesting to see whether those figures concur. Today also brings a speech from the Chairman of the Federal Reserve in Washington so that’ll be watched rather closely. And further signs have emerged that the US economy is still on the turn rather than ii being in full recovery mode. Goldman Sachs is laying off 2,400 staff across the business. After recent ‘revelations’ do Goldman Sachs staff now get the title ‘Muppeteers’ or is that too crass?
The minutes from the last Reserve Bank of Australia meeting were released overnight. You may recall that the RBA left their base interest rate on hold at that meeting and their minutes spoke of more optimism that the economy would improve than they did of downside risk. However, they did suggest interest rates could fall further if things deteriorated. Nothing we didn’t know but it is nice to get it from the horse’s mouth so to speak. The Aussie Dollar weakened on this news and on the belief that chins is likely to lower its demand for commodities. BHP Billiton Ltd is the world’s largest mining company so their views are worthy of note and they say steel production is slowing in China, reducing demand for iron ore and that will certainly hold true for other commodities.

The UK government get their 1st test of the week today with the release of the consumer inflation data. Another step back towards the Bank of England’s 2% target is expected but we are likely to remain above the top end of their target range. 3.2% is the expected level and the Chancellor will be chuffed to bits with that (if that isn’t too much of an American expression these days) because he can stand up in the House of Commons tomorrow to make his budget statement against a backdrop of falling inflation. Unfortunately, it looks like this morning’s other release; the CBI industrial trends survey will be much more negative so we won’t hear a lot about that in government briefings.
And finally, the British government is readying plans to publish a breakdown of how our taxes are spent. I quite like the idea but I just know I will be depressed when I see the line covering government costs. I wonder if the £370,000 paid for trees in the MP’s cafe will be included and the cost of funding the subsidised bar in the Palace of Westminster. Probably not; transparency is great but not that much transparency perhaps.
And as a post script, we are seeing unsubstantiated rumours of unrest in Beijing. According to a number of reports, state controlled news channels are off the air and some bloggers are suggesting opposing sides of the army are mobilising. This could of course all be tosh but the Australasian currencies have weakened a tad as traders scrabble around to try to determine the truth and depth of the situation. If this news is substantiated, expect significant US Dollar and Japanese Yen strength and weakness in the Aussie, Kiwi and Canadian Dollars.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Mon, 19 Mar 2012 09:30:00 +0000

Well done Wales for securing the 6 Nations Grand Slam and well done England for starting the tournament as a bunch of inexperienced lads and, after only losing marginally to the eventual winners, ending with a thoroughly mature performance against Ireland. Surely that makes the job of choosing the permanent manager an easy one.
Welcome to UK budget week. If you read that with an optimistic tone in your head, then well done because it looks like the Chancellor of the Exchequer has very little wriggle-room in his budget to make us all feel good about the future. The budget, due on Wednesday, comes against a backdrop of Eurozone strife, flat-lining UK growth, mixed data from the Far East and oddly reassuring news from America.
Last week ended with German Chancellor, Angela Merkel reiterating her opposition to increasing the €500bn ceiling of the ESM; Europe’s short term euro support fund. However, there has been a lot of talk over the weekend that EU officials are considering conjoining the ESM and the longer term EFSF budgets to create a so called firewall to protect euro member states and the euro against further decline. Interestingly, the International Monetary Fund was at pains to point out that the Greece rescue plan would not solve all of Europe’s problems; a blindingly effective piece of stating the obvious. This isn’t a big week for hard data in the Eurozone so more speculation on this subject is likely to be the major trading feature.
Across the Pond, the week finished with US Industrial Production data which was as expected on the month but saw an upward revision to the previous month’s data and that boosted confidence in the US recovery. The perception of reduced risk from Europe is also helping confidence in the US recovery but that may be a flakey basis upon which to base decisions because Eurozone growth remains patchy and generally weak. And, on the basis that the likelihood of further US quantitative easing appears to have diminished we look to the various speakers from the US Federal Reserve this week for clues to the next direction of the strengthening US Dollar.
As for the Pound, well the Chancellor’s budget is likely to have a fairly neutral effect on spending and income from a government perspective but there is a strong chance Mr Osborne will confirm that coalition remains on track to meet its borrowing targets. That ought to placate the credit ratings agencies and will therefore probably be positive for the Pound. We will also get high street inflation and public sector debt figures; all of which are expected to confirm movement in the right direction. Lower inflation and lower borrowing would improve confidence levels. Whilst the Pound is unlikely to make any great headway against the US Dollar, it is likely to have another crack at breaking above the €1.20 level.
Downunder, it is the release of New Zealand's Quarter 4 economic growth data that holds centre stage. The data, due on Thursday morning UK time is expected to reflect 0.6% quarter on quarter growth but there is a chance that, given Australia’s recent data and the attempts by China to slow their economy, we may see this figure undershoot the estimates and that would cause a selloff in the NZ Dollar.
Thursday also brings UK and Canadian retail sales data so there is room for volatility here and Friday brings UK mortgage lending data plus Canadian inflation. It is a fairly full on week of news so be prepared.
Away from the markets, surely no one can be surprised that 12 drivers who all work for a bus company in Corby failed to turn up for work after they won £38 million between them on the Euromillions lottery. I am more surprised by the multimillionaire winners who stay in their jobs. That clichéd phrase, ‘It’s a lot of money but it won’t change our way of life’ always begs the question ‘Why bother doing the lottery then?’

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Fri, 16 Mar 2012 10:22:00 +0000

The Euro had a bouncy Thursday as EU unemployment improved marginally and the newswires were awash with comment and rhetoric. Lorenzo Bini Smaghi, a former member of the European Central Bank, made possibly the most interesting comment. He feels that Ireland and Portugal are both likely to need more financial support if they are to avoid a Greek-style restructuring. I don’t think he was saying anything we weren’t already aware of but his position makes his comments of interest. And the fact that Ireland is seeking to renegotiate its promissory notes to reduce the current €17 billion interest burden, kind of reaffirms the concern. Yesterday also brought agreement from the International Monetary Fund to inject €28 billion into Greece in addition to the funds already pledged by the EU and the IMF themselves. That should calm the Euro waters a little but no one is expecting that to be the last storm the Eurozone aces before this debt crisis is over. Interestingly, the Brazilian member of the IMF abstained from the vote in protest.
US data was rather upbeat: the Philadelphia Fed manufacturing index rose to 12.5 in March from 10.2 in February. That was above the consensus market forecast of 12.0. That, plus the Empire State index which was also quite positive and a healthy improvement in the weekly jobless claims in addition to slightly inflationary producer price indices, helped the US dollar to have a positive day. Today’s tests for the US Dollar come thick and fast. We get consumer inflation, industrial production, capacity utilisation and the well respected University of Michigan consumer sentiment index. All have the potential to change the market mood so all are significant for anyone with a US Dollar exposure.
Elsewhere, the markets were rather calm. The lack of data from Australasia meant traders in these currencies took their lead from China and commodity prices and the lack of Canadian data meant US news was the only source of volatility here.
We also had a lot of activity from the credit ratings agencies. S&P warned that America would struggle to regain its AAA rating unless it deals with its deficits and Fitch changed its outlook on the Bank of England to negative but reaffirmed the bank’s AAA rating.
Today’s data diary is; other than the Eurozone trade balance, all wrapped in the star spangled banner. That doesn’t mean we won’t see volatile trading patterns, it just means that unless any of the US data is utterly out of step with the forecasts, we will be focussed on the IMF comments as they hand over the cash to Greece and focussed on the rumour, speculation and rhetoric that streams from the newswires throughout the day. If we get a big move in a currency that matters to you, as long as we know you have a clear and present requirement, we will update you.
I will leave you with a sad story of the short but sweet life of Til the bunny. Til had a rare genetic disorder which meant he was born without ears. He was due to be unveiled to a world audience through a TV interview at the Limbach-Oberfrohna zoo in Saxony but his 15 minutes of fame never happened (during his life anyway) because, at the press conference, a cameraman accidentally stepped on the 17 day old bunny, killing him instantly. Til had been rummaging in some hay and wasn’t seen by the distraught cameraman. All together...Aaaaah. Oh and can we have a collective pout as well. Thank you; that was lovely bottom lip action.
And on that very sad note, may I wish you a happy and safe weekend. It might be a good idea to avoid clumsy cameramen and stay away from piles of hay.Just a thought.
Oh and it's Mother's Day on Sunday. Nearly forgot. Not really mum.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Tue, 13 Mar 2012 09:41:00 +0000

Monday was all but devoid of market influencing data. As a consequence, traders focussed on the words rather than the deeds and, more specifically, on the words of EU ministers as they announced that they had approved the additional €130 billion of bailout funds for Greece with only the caveat of a contribution from the International Monetary Fund standing in the way of the release of funds. That isn’t the end of the Eurozone crisis by any means but it is a step towards consolidation of the debt position ahead of a much longer term recovery. Today is also a little light on data but we will be hearing a lot from Eurozone speakers throughout the day so stand by your beds.
So after a lacklustre Monday, the markets get a chance to be a little more volatile today. We heard over the weekend that China’s trade balance fell into deficit, due in part to the understandable fall in demand from Europe and in part to the rise in imports into China. This latter effect is something that Europe and America have been pressing for over the last three decades at least. There has been a lot of talk about how excessively high inflation in China is pushing up wages and making China less competitive overseas but the other effect is that a well p-aid workforce will want more ‘stuff’ from overseas and that is an effect that China will perhaps be able to change through trade restrictions. They won’t admit to doing it you understand but it will probably happen.

We heard overnight that the decline in the UK housing market is slowing. That will come as a relief to the government and to estate agents everywhere but, as far as UK data goes that is it for today. Sterling is bumping along the bottom of its ranges against the euro and US Dollar after the Eurozone bailout news and as a result of US Dollar buying either as a safe haven or due to investors buying into the US equities markets. The fact that the ultimate safe haven - gold - is also hitting record highs would suggest the former rationale but there had to come a time when positive US data resulted in a positive move in the US Dollar and maybe we are at that tipping point. US Dollar buyers may want to take note and hedge some of their forward requirements to cut risk.
The US Dollar will be the most widely watched currency today though as we await the release of retail sales data and the announcement from the Federal Reserve on interest rates and quantitative easing plans. We are expecting a strong rise in retail sales activity as confidence starts to return to the US economy but the Fed is inevitably going to leave both the assets repurchase budget and the base interest rate on hold. It will be interesting to hear their press conference though. We may get some insight into their thinking on the strength of the US economy and on the strength of the Dollar.
Elsewhere, China’s news will have worried Australian and New Zealand exporters. A slowdown in exports of finished goods would likely lead to a slowdown in the demand for raw material imports and China is a major customer for Australia and New Zealand. Neither currency moved significantly overnight but they are worth watching. And that Chinese story will also have a bearing on the value of the Canadian Dollar; another large scale commodity exporter. Even though the vast majority of Canada’s exports head south to America, the pricing of those goods will be heavily influenced by the strength of Chinese demand.
So that is about it for Tuesday’s news. I leave you with news that the leaning tower of Pisa, Niagara Falls, the London Eye, Burj al Arab in Dubai and Table Mountain in Cape Town are all to be illuminated in green for St Patrick’s Day this Saturday. I don’t know who is in charge of the marketing campaign for St Paddy but he or she is unbelievably good. I can’t help thinking that if we wanted to turn these all into red crosses on white backgrounds for St Georges Day next month, we would be accused of all manner of colonialism. England needs a better PR.

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Wed, 07 Mar 2012 09:38:00 +0000

The sparseness of the data diary didn’t stop the world’s stock markets having a relay rough day. By the end of the day the map of world equities markets looked as red as the ‘sport section’ in a Liverpool department store. The flight from risk began with the International Institute of Finance (IIF) report detailing the knock on effects that would result from a disorderly default by Greece but the news got worse later in the day when we heard that the Greek government is expected to use the Collect Action Clauses (CACs) to force through a credit swap deal that would even affect the dissenters and rumours were circulating that some holders of Greek Swiss Franc bonds have formed a group that are unwilling to participate voluntarily in the debt swap in which holders are expected to write of nearly 70% of the value of their bonds. I love the euphemisms they use for these things. If in business, someone who owed you money, refused to pay any more than 30% of the debt, you would call them a defaulter; it is a bad debt; they are in breach. But we are supposed to see Greece’s ‘default’ as an orderly agreement of some description; a haircut or a write down. Any name that doesn’t frighten the horses.
We also read a report yesterday, showing that, following the massive debt sales of recent months, the European Central Bank's balance sheet has expanded to € 3 Trillion. Any thoughts that the Eurozone was getting on top of its problems went out the window and investors sought the safety of US Dollar bonds, Japanese Yen bonds and the likes of gold. The unchanged estimate of Eurozone economic growth (+0.7% on the year) wasn’t enough to allay investor fears.
Understandably, in these circumstances, the US Dollar strengthened through the day and that had the effect of pushing Euro-US Dollar and Sterling - US Dollar rates lower. The Dollar was also boosted by geo-political concerns over the escalating war of words with Iran over their nuclear ambitions and the inflationary effect that is having on the price of oil. There was some sabre rattling from the US Side when Defence Secretary Leon Panetta warned that military action will be taken against Iran if all else fails.
Sterling is, to some degree, tarred with the Eurozone brush due to Britain’s close trading ties with Europe but Sterling remained near the top of its trading range with the Euro. There is a total absence of UK and EU data today so the markets will writhe and squirm on rumour and gossip. That should make for some interesting moves. By the way, well done to those who caught the top of the Sterling - Euro spike yesterday; those automated orders work a treat in a volatile market like this. Traders will also be gearing up for tomorrow’s twin UK and EU interest rate decisions and all the baggage that comes with those. No change is forecast from either central bank but that doesn’t mean people will not set out their stall with a cautionary bent.
From Canada, we had the Ivey Purchasing Managers Index, which produced a strong 66.5 reading against a forecast level of just 62.0. With the US Dollar strengthening as well, that helped the Canadian Dollar gain against most other currencies; particularly the Euro for all the reasons mentioned above.
We heard overnight that Australia’s economy grew more slowly than forecast in Q4 of 2011 and that Australia’s unemployment level ticked up to 5.2% from 5.1% previously. Those stats pit the possibility of an interest rate cut back on the agenda and the Australian Dollar slipped. The drop in commodity demand (see previous reports on China) was cited as the main reason for the slowdown in economic growth. If China is going to continue in attempts to slow the economy, we could see more of this kind of report.
Today’s main data comes from America from whence we get consumer credit data, a somewhat inconsistent private payroll indicator from ADP and productivity and labour costs data. As is the way, when tensions are high, a positive set of data may well weaken the US Dollar.
Away from the markets, the ‘advice’ emanating from Olympics organisers is becoming a tad oppressive. The handbook for unpaid volunteers is patronising to the extreme in explaining how to deal with race and gender matters and the advice to athletes is not to shake hands with foreign visitors in case you catch a bug of some sort that could hamper your performance. I think full length disposable bio-chemical suits and regular steam cleaning is the best option. And crikey, we don’t want to be shaking hands and making all these visitors feel welcome do we!

FX Market Overview

noreply@blogger.com (Halo Financial Ltd) — Mon, 05 Mar 2012 09:36:00 +0000

Sterling had a boost on Friday from a very healthy improvement in the Purchasing Managers Index (PMI) for the UK construction industry. At 54.3 the index was well above the median 50 level signifying the division between expected growth and contraction and comfortably above the 51.3 reading that the markets were expecting. Sadly, that was short lived and the news that banks and building societies are pushing mortgage costs higher and the increase in fuel costs signal brakes being applied to the UK economy that will help to stifle growth. There is a chance that today’s release of the service sector PMI will reinvigorate the Pound but the housing market has a massive effect on the growth potential for UK plc so that is probably the story that will dominate. The debate rages over why banks are being allowed to borrow from central banks so very cheaply but are not required to do anything with that money other than shore up their own reserves.
This is a big week for central banks. The Bank of England, European Central Bank, Bank of Canada and both Australia’s and New Zealand’s central banks will all be making their interest rate announcements; plus there a heaps of speeches from central bankers throughout the week. None of these central banks is expected to change its base rate or the levels of quantitative easing measures but the statements and press conferences are often a source for gossip and speculation so volatility around the decisions is almost inevitable.
In addition to the central bankers, this is a big week for big data releases. Before Thursday is over, we will have seen a variety of business and consumer sentiment indices from around the world, retail sales data from the UK and EU, factory and industrial output figures from the US and UK and a final estimate of Eurozone economic growth for the 4th quarter of last year which is expected to reflect a downward revision. Australia is facing a week including and interest rate decision, the announcement of 4th quarter economic growth and unemployment figures. The Aussie Dollar will be volatile; of that there is little doubt. It’s a good week to place automated orders on the AUD.
Friday brings Chinese inflation data; a very important statistic for China’s suppliers like Australia and New Zealand. Friday also brings the US employment report for February. It is thought that this will show an acceleration of job creating in America.
This is another example of the disparity between the US, which looks like it is recovering and the UK, which is - at best - in the turnaround stage of the economic cycle. Europe, as we know only too well, is in all sorts of stages of decline and recovery dependent on which Nation you look at. This disparity is still causing a lot of consternation; not least amongst analysts and investors who are unsure whether to be encouraged by the immense sums of money being pumped into the Eurozone by the European Central Bank or concerned that the money isn’t getting to the business and consumer level where it is desperately needed.
And here is a sign of the times, researchers have identified that 45% of children aged between 5 and 13 can’t tie their own shoe laces but 67% can operate a DVD player. That is a bit shock8ing until you see how many kids don’t do their shoes up at all and until you consider how much Velcro there is in use in the shoe and trainer world. Rather than being concerned, perhaps some enterprising techie will produce shoes that load feet through some sliding contraption and walk for you when you press play. It could happen.

Currency - GBP / Australian Dollar

noreply@blogger.com (Halo Financial Ltd) — Mon, 05 Mar 2012 09:35:00 +0000

It was a bit of a rocky February for Australian domestic politics. Oz pulled itself together however when Australian Prime Minister Gillard survived the leadership vote 71-31 at the start of the week. The market generally viewed Gillard and Kevin Rudd’s policies as interchangeable so the Aussie Dollar sold off slightly but pulled back the losses quickly before the end of the week.
The focus for the Australian Dollar is still Reserve Bank of Australia (RBA) interest rate policy which now looks set to deliver an unchanged 4.25% when they meet next week. That isn’t the only influence though; the US Federal Reserve policy and US economic growth indicators, plus the continuing improvement in US data is encouraging investors to sink money into Australian Dollars.
On the other side of the coin, Europe’s ongoing dramas are weighing on investors sentiment and acting as a dragging anchor on investment flows and the ever present potential for a slowdown in China’s economy is offering similar concern.
So coming up next Tuesday we’ve got the Australian interest rate meeting. RBA Governor Glenn Stevens, testifying in front of the House of Representatives Standing Committee on Economics, stated the benchmark interest rate was “about right for the moment”. Read into that what you will - market seems to be expecting no change this coming Tuesday - so you would expect the Aussie Dollar to remain well bid and GBPAUD to remain below $1.5000. If there’s a surprise rate cut the Australian Dollar will sell off so if you do want to leave speculative buy order at $1.49-$1.5000 Monday is the day to get it placed.
The Sterling - Australian Dollar exchange rate has been consolidating for almost 2 months now - market eventually gave up support at $1.4700 and made a new all time low mid Feb at $1.4558 and since then has again been trapped in a narrow sideways range $1.46-$1.49. This lack of momentum won’t last forever and the break back above the downward trend is a signal that we may see further gains for the Pound but it is very hard to determine whether that will happen from here or wehether we will get another drop before the next proper advance. If we can see a break above A$ 1.50, that would set the tone for a substantial rise but while we remain below there, further losses are still a concern.

Currency - GBP / Canadian Dollar

noreply@blogger.com (Halo Financial Ltd) — Mon, 05 Mar 2012 09:35:00 +0000

The Canadian Dollar has continued to outperform other majors, as a commodity currency and exporter of oil to the United States, it benefitted recently from a surge in oil prices brought about by rising tensions in the Middle East. This week it climbed to a five month high against the US Dollar boosted in part by the European Central Bank’s (ECB) extension to the Long Term Refinancing Operation (LTRO) which awarded a record amount of loans to Eurozone banks to avert a credit crunch. These banks in turn invest in a wide range of vehicles, not just European equities or Euro-sovereign debt - they spread their risk and some of the money goes to US equities and the Canadian Dollar by association.
The Canadian Dollar held up well even after Bernanke’s testimony to Congress dampened expectations of a further round of quantitative easing because of the recent improvement in US economic data (particularly the quicker drop in unemployment and rise in inflation). Next week the Bank of Canada will be meeting for the next interest rate decision and it’s a given that they WILL keep the rates at 1.0%.
The Canadian economy has stalled this year - similar to the UK - with Gross Domestic Product (GDP) growth showing the economy contracting in November and showing unemployment widen from 7.5 to 7.6 per cent in January. The housing market has slowed as well and with household debt reaching record levels, there’s no real appetite for monetary policy tightening by the Bank of Canada.
It is not difficult to spot the downtrend on this chart is it? We’re trading a 5 cent range with the market consolidating around $1.5700 - we’ve seen a bounce from $1.5547 mid January and it’s crucial that GBPCAD doesn’t go any lower now than $1.5600 if we are going to get a proper rally.

In the medium term, CAD Buyers should be targeting the recent high at $1.58-$1.5950 for a portion of their requirements and CAD sellers should be looking no lower than $1.56-$1.5700 because ther is a risk of a return to $1.6350.

Currency - GBP / Euro

noreply@blogger.com (Halo Financial Ltd) — Mon, 05 Mar 2012 09:34:00 +0000

The Sterling - Euro exchange rate reached a high of 1.2163 in 2012 due to a flight to quality from investors seeking safe havens while the Euro crisis intensified. After countless summits the market almost lost faith in policy makers attempts to find a solution to the debt crisis and bond yields rose to unsustainable levels. Currently Greece is back in centre stage as government officials try to hammer out a deal with private investors (PSI)in order to reduce their debt burden, as they inch ever closer to a deal risk appetite has improved markedly. The data from the Eurozone has been slightly improved of late with Q4 GDP in the Euro area as a whole contracting but not as severely as first thought. The business surveys showing signs of stabilising, in fact the ZEW survey from Germany posted a record gain in January rising from -53.8 in December to -21.6!
Unfortunately it is not all good news and the outlook remains uncertain with significant downside risks. France has been downgraded, Fiscal tightening will be ongoing in 2012 and as earlier Greece is yet to announce a deal with PSI outlining exactly how much of a haircut they will be asked to swallow. At some point the ECB will be asked to take a hit on their holdings on Greek debt which could cause further instability.

Technically we have seen a correction lower through the initial Fibonacci support of 1.1965 and having seen a drop through to the bottom of the channel, we are now seeing a rally that could take us back to test that high again. Sadly, as we have seen on a number of previous occasions, there is a good chance we will fail there and the Pound will slide again. If a miracle does happen and €1.2160 goves way, we have to set our sights on a sprint to 1.25 or thereabouts.