All posts by mporter

European Sentiment Continues to Rise

Sterling is having a relatively volatile morning today as Cable is currently trading at 1.5485, after having tested 1.55 earlier, and going on to reach a daily high of 1.5504 before dropping back down. Similarly Sterling has had a wide trading range against the Euro this morning, having dropped to 1.1583 following the release of positive EU economic data, however the pair then rebounded up to a high of 1.1626 before falling back.

German and EU ZEW Survey – Economic Sentiment figures both rose this month, reaching 48.2 and 42.4 respectively. This initially led to a Sterling sell off before the Pound recovered sharply against the Euro, however with these figures having now risen for the past three months we could see sentiment towards GBP/EUR turn back to the downside this afternoon.

Please find a summary of this week’s economic calendar below:
19.02.13
10:00 EU ZEW Survey – Economic Sentiment
10:00 EU ZEW Survey – Economic Sentiment

20.02.13
07:00 German Consumer Price Index
07:00 Producer Price Index
09:30 UK BoE Minutes
09:30 UK Claimant Count Rate
09:30 UK ILO Unemployment Rate
13:30 US Building Permits
13:30 US Producer Price Index
19:00 US FOMC Minutes

21.02.13
07:58 French Markit Manufacturing PMI
07:58 French Markit Services PMI
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 EU Markit Manufacturing PMI
08:58 EU Markit Services PMI
09:30 UK Public Sector Net Borrowing
13:30 US Consumer Price Index
13:30 US Initial Jobless Claims
13:58 US Markit Manufacturing PMI

22.02.13
07:00 German GDP
09:00 German IFO – Business Climate
09:00 German IFO – Current Assessment
09:00 German IFO – Expectations
10:00 European Commission Releases Economic Growth Forecast

On Your Marks, Get Set, Manipulate

The G20 followed a similar line over the weekend to the one that was adopted by the G7 earlier last week, as finance ministers of the world’s largest economies commented in a joint statement: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes”. The fact that the statement was of a rather generic nature, and importantly didn’t specifically refer to Japan, has effectively given Japan the green light to continue its unofficial policy of Yen depreciation, and has potentially opened the door for other countries to follow suit. This lead to the Yen dropping against the Dollar yet again this morning as USD/JPY hit 94.21, nearing the low it reached on February 11th of 94.46, its lowest level in over two and half years.

Some ministers have begun to comment on the potential for ‘currency wars’ in recent weeks as countries actively pursue a weaker currency. However, Japan has reaffirmed today that its monetary easing policies are specifically targeted at ending deflation rather than purposefully trying to devalue the Yen in order to improve the countries global competitiveness, though currency devaluation coincidentally will be an inevitable side effect of such policies. However leading economist, and Nobel Prize winner, Paul Krugman, notes that the currency war issue is “a misconception and it would be a very bad thing if policy makers take it seriously”, and that “the stuff that’s now being called “currency wars” is almost surely a net plus for the world economy”.

Sterling is not fairing any better this morning following the G20 meeting as GBP/EUR is currently trading at 1.1585, having slightly rebounded from a daily low of 1.1562. Similarly Cable has also rebounded from a seven month low of 1.5437 this morning and is currently trading at 1.5470. Whilst the Pounds decline has made imports more expensive over the last month, BoE Monetary Policy Committee member Martin Weale commented last week that the weakening Pound would help improve Britain’s export prospects.

It is Presidents day in the US today, a Public holiday which means trading volumes will be lower and the economic calendar if rather light. However, this afternoon ECB president Mario Draghi will be making a speech. Market participants will be keen to see whether Mr Draghi will make any reference to a potential future interest rate cut. Such a move, which could well happen within the next few months as looser monetary policies have now seemingly been tacitly warranted by the G20, would help Sterling recover some of its recent losses against the common currency.

Mark Webster

Currency Update

Positive UK data released this morning fuelled a moderate rally in the Pound, albeit a very short lived one. UK Markit Services PMI showed a substantial rise to 51.5 in January and caused Cable to spike upwards immediately following the release before dropping back off to where it is now, trading flat for the day at 1.5750. Similarly GBP/EUR rose slightly following the UK PMI figures, however the pair has now weakened and Sterling’s decline has seemingly resumed, with the pair now trading at 1.1630.

The Euro has strengthened against both the Pound and the Dollar this morning following the release of PMI figures. Whilst UK PMI data showed a positive increase, Markit Services PMI results for Spain, Germany and the Euro Zone were also positive. However, this data was soon contradicted by EU Retail Sales figures which showed sales were down -3.4% in December. As market participants digest the figures, it would appear that they have not yet decided that Sterling is oversold or the Euro has appreciated too far. However, one must recall the comments made several weeks ago by Luxembourg Prime Minister Jean-Claude Juncker, who stated that the Euro is ‘dangerously high’ – if that observation was correct then, the Euro must now be in an extremely precarious situation.

Elsewhere this morning we saw the Reserve Bank of Australia commit to keeping interest rates at 3.0%. The Aussie Dollar dropped off against Sterling and the Greenback following the data release as RBA Governor Glenn Stevens gave an explicit indication that rates could well go lower in the future. Despite these comments, the outlook for the Australian economy would appear to be consistently improving as China’s rebounding growth continues to be confirmed. This morning the HSBC China Services PMI hit 54.0, up from 51.7 the previous month. GBPAUD currently trades at 1.5140.

Politics Stifles Euro Advance

The Euro has been slightly reined in this morning following several weeks of strengthening against both Sterling and the Dollar. There was no end in sight to Sterling’s weakening against the Euro last week after a combination of poor UK data and strong EU sentiment lead to the most substantial losses for GBP/EUR in over a year. However, this morning the Euro has weakened right across the board and it’s all thanks to politics.

Despite the number of positive data releases that have came out of the Eurozone over the last couple of weeks, there will have been few people who disagreed with German Finance Minister Wolfgang Schaeuble last Friday who commented that “the euro crisis is not over”. The first suggestions of this in the markets were seen this morning as borrowing costs rose across the region on the back of growing political uncertainty in Europe. Spanish Prime Minister Mariano Rajoy faces allegations of corruption, whilst Silvio Berlusconi has closed in on Italian front runner Pier Luigi Bersani.

This increased uncertainty within the Eurozone has seen Sterling strengthen against the Euro for the first time in weeks, hitting 1.1578 this morning, though the pair is still some way off the next key level of resistance at 1.1722. The Euro has also dropped off against the Dollar today, falling to 1.3560 at present and potentially targeting the next key level of support at 1.3487.

Please find a summary of this week’s economic calendar below:

04.02.13
Mariano Rajoy and Angela Merkel meeting
09:30 UK PMI Construction
09:30 EU Sentix Investor Confidence
10:00 EU Producer Price Index
15:00 US Factory Orders

05.02.13
00:30 Australian Trade Balance
01:45 Chinese HSBC Services PMI
03:30 Australian RBA Interest Rate Decision
08:53 German Markit Services PMI
08:58 EU Markit Services PMI
09:28 UK Markit Services PMI
10:00 EU Retail Sales
15:00 ISM Non-Manufacturing PMI

06.02.13
11:00 German Factory Orders
15:00 Canadian Ivey PMI

07.02.13
00:30 Australian Unemployment Rate
09:30 UK Goods Trade Balance
09:30 UK Industrial Production
09:30 UK Manufacturing Production
10:00 European Commission Growth Forecasts
11:00 German Industrial Production
12:00 UK Interest Rate Decision
12:45 ECB Interest Rate Decision
15:00 UK NIESR GDP Estimate

08.02.13
EU Council Meeting
01:00 Chinese Trade Balance
05:30 Chinese Consumer Price Index
05:30 Chinese Producer Price Index
07:00 German Trade Balance
13:30 US Trade Balance

How Low Can You Go

Sterling hasn’t seen a week as bad as last week for a long, long time and the outlook doesn’t look any rosier either. Cable (GBP/USD) recorded a new six month low on Monday after dropping to 1.5674, and GBP/EUR has continued to fall, hitting a new twelve month low yesterday at 1.1618. Sterling is continuing to suffer following a number of negative data releases last week. All in the same week we saw substantially weaker than expected UK GDP figures of -0.3%, fears of a triple dip recession, and David Cameron confirming his commitment to a referendum on Britain’s membership within the EU, all of which contributed to increasing uncertainty surrounding the UK economy and therefore a weaker pound.

Sterling has suffered right across the board recently, weakening against all major currencies last week. However, the pound has suffered the most against the Euro as weak UK data combined with the ever improving sentiment regarding the condition of the Eurozone and Europe as a whole (mainly because of data confirming that Germany is still an economic powerhouse) has sent GBP/EUR into free-fall. The pair fell to, and held at, a key level of support of 1.1722 on Friday before breaking this level on Monday. The pairs decline has continued throughout this week and a new twelve month low was reached on Thursday, before the pair recovered slightly to its current level of 1.1650.

Cable has fared slightly better in the past few days after a similarly horrific drop last week and early this week. The pair is currently trading at 1.5790 after hitting a key level of support, and a six month low, of 1.5674 on Monday before bouncing back up. GBP/USD is likely to target the next key level of resistance at 1.5911, however should momentum turn back to the downside, we could well see the pair drop back off to below 1.5675.

We could see significant movement in the markets tomorrow as economic data will be released in China in the early hours of tomorrow morning. Chinese Manufacturing PMI figures could increase volatility due to the emphasis that is placed on the Chinese economy’s role in the global recovery. Tomorrow is also everybody’s favourite Friday of the month – Nonfarm Friday. US Nonfarm Payrolls will take on greater importance tomorrow after US GDP figures released yesterday surprised markets by showing that the world’s largest economy had contracted 0.1% in the final quarter of 2012.

Currency War

It would appear that the world is on the brink of war. Currency war that is. According to the Russian central bank we are anyway. The comments come following Japans recent commitment to devalue its currency by increasing monetary easing within the country, in an effort to increase the country’s global competitiveness. Whilst at first sight the comments from Russia may seem alarmist, they raise a good point. If Japan is going to commit themselves to a policy of currency devaluation, it would appear inevitable that other countries will follow suit.

This follows comments made yesterday by Luxembourg Prime Minister Jean-Claude Juncker, who described the Euro as “Dangerously High”. This sparked a Euro sell off which led to EUR/USD dropping off to 1.3261 this morning after reaching a high of 1.3403 on Monday, its highest point since February 2012. Similarly the Euro weakened against Sterling as GBP/EUR reached 1.2097 this morning. This followed the pairs fall to 1.2011 yesterday, which was its lowest point in nine months, as the Euro had continued to strengthen on the back of ECB President Mario Draghi’s press conference last Thursday.

Cable finally broke below 1.6030 this morning after having been held at that level for the previous two days. The pair went on to hit 1.6003, testing a key Fibonacci level at 1.6010, before rebounding back to 1.6030+. The pair is again currently trading on the six month upward trend line after having briefly broken through this late last week. Continued downward pressure on Sterling following the World Bank growth rate downgrade and David Cameron’s persistent attempt to renegotiate Britain’s EU membership could see Cable fall back to 1.5911.

EU economic data released this morning showed Consumer Price Index figures for the region remained constant at 2.2% for December, as had been expected. We may well see further movement in the Dollar this afternoon as CPI figures are released at 13:30 in the US, along with US Industrial Production at 14:15 and the Fed’s Beige book at 14:15.

Mark Webster

Decisions, Decisions, Decisions

Markets are relatively flat this morning as participants wait and see what will be the outcome of two major pieces of economic data due out this afternoon. First we will see the Bank of England release its decision at 12:00 GMT on whether or not to alter interest rates or their asset purchase program. Whilst both of these are expected to remain as they are, market participants look keen to wait until these decisions are confirmed before taking a position within the markets.

A little later this afternoon we will see an ECB Monetary Policy Statement and press conference at 13:30 GMT. As in the UK, the ECB are expected to keep interest rates on hold at their record low of 0.75%. Whilst the Eurozone appears to have been stabilizing recently, there has however been no spectacular data release to suggest that a rate change at present would be warranted.

Elsewhere today we have seen commodity currencies react favourably to the positive data released in China this morning. Figures show that the Chinese Trade Balance rose substantially in December, reaching 31.6B for the month, well above market expectations of 19.7B. The Australian Dollar rose to its highest point against the Japanese Yen in four years following the data release, and is currently trading at AUD/JPY 93.23. The Aussie Dollar was also aided by Japanese Prime Minister Shinzo Abe, who has called for the Bank of Japan to raise inflation targets to 2%, weakening the Yen right across the board.

Mark Webster

Bungee Jumping Cable

Bungee Jumping Cable

Cable dropped off a cliff last week. Whilst it had climbed
in the week leading up to the New Year as the US edged ever closer to the fiscal cliff, it was actually the FOMC
minutes, released last week that hinted of a potential reduction in monetary
easing and interest rate rise, which pushed the pair over the edge. As the
bungee cord held late last week, today we will see whether the Pound can
actually catapult itself back up towards the 16 month highs that the pair had
experienced ‘pre-jump’.

With the Christmas period now over and the fiscal cliff
disaster averted, or at least slightly postponed, economic data releases should
now begin to take on more of a key role in influencing market movements this
week. With little data due out of the US, key figures from Europe and notably
China could add to market volatility this week. The Bank of England will make
an interest rate decision on Thursday and whilst rates are expected to remain
at their current levels, any increase would substantially strengthen the Pound
and could help Cable rebound after paring its gains last week following the
FOMC minutes. Furthermore Chinas dominance in the global economy means that any
positive data released from the country this week would also help strengthen
Cable as confidence around the world would be increased, stocks would
inevitably be buoyed and demand for safe havens such as the Greenback and Yen
would fall.

Please find
a summary of this week’s economic calendar below:

 

07.01.13

08:00 UK
Halifax House Prices

09:30 EU
Sentix Investor Confidence

10:00 EU
Producer Price Index

 

08.01.13

07:00 German
Trade Balance

10:00 EU
Consumer Confidence

10:00 EU
Retail Sales

10:00 EU
Unemployment Rate

11:00 German
Factory Orders

20:00 US
Consumer Credit Change

 

09.01.13

Chinese
Industrial Production

Chinese
Retail Sales

09:30 UK
Goods Trade Balance

10:00 EU GDP
Q4

11:00 German
Industrial Production

 

10.01.13

Chinese
Trade Balance

12:00 UK BoE
Interest Rate Decision

12:00 UK BoE
Asset Purchase Facility

13:30 ECB
Monetary Policy Statement

 

11.01.13

01:30
Chinese Consumer Price Index

09:30 UK
Manufacturing Production

09:30 UK
Industrial Production

13:30 US
Trade Balance

13:30 US
Import Price

15:00 UK
NIESR GDP Estimate

19:00 US
Monthly Budget Statement

 

Mark Webster

Bye Bye Stimulus

There was little movement in the markets yesterday afternoon following the mixed employment data that came out of the US. That was until the FOMC dropped a bombshell yesterday evening. At 19:00 GMT yesterday the Federal Reserve released their FOMC minutes which suggested there could be an earlier than expected end to the current quantitative easing program. The Dollar strengthened right across the board following the release and both the Euro and Pound pared gains they had made earlier in the week against the Greenback following the fiscal cliff deal.

The announcement slightly panicked equity markets as concerns grew over potential interest rate increases and whether the US economy is actually capable of continuing its recovery without the steroid like effect that the QE program has had. However the comments represent a vote of confidence in the US economy by the Fed and the potential decrease in money supply and rise in interest rates are clearly bullish for the dollar. This was evidenced by the Greenbacks rise against the majority of its counterparts following the FOMC minutes release.

Earlier this morning we saw the release of UK economic data that showed the Markit Services PMI for last month fell to 48.9 and Net Lending to Individuals has dropped to £-0.1B. This caused a momentary spike lower in GBP/EUR as the Pound dropped off 20pips before recovering slightly, however the pair have continued to fall since and is currently trading at 1.2315.

Today is also Non-Farm Friday! We all know what this means – there could once again be some potentially market moving data coming out of the US. At 13:30 GMT the US Nonfarm Payrolls and Unemployment Rate will be released and both could trigger further movement in the Dollar. Cable is currently trading at a key price level having fallen through several areas of support this morning, before breaking beneath a six month upward trend line, as can be seen in the chart below. The next key level of support is at 1.6010 and should this price level be tested, and give way, this would be a strong indication that the rate will continue to drop below 1.60.

Hallelujah!

US politicians have finally managed to achieve the achievable. Yesterday, at long last, a deal was finally reached and passed in both houses that has prevented the fiscal cliff from being hit head on. After weeks of negotiations and impasse, a deal was finally reached that will raise taxes on the wealthy whilst maintaining lower tax levels for over 99% of Americans (those earning under $400,000) and delay government spending cuts for a further two months.

As the January 1st deadline came and went, fears began to grow that a deal might not actually be done. However, only a short time later, US politicians had managed to reach an agreement, and the importance of which was reflected nowhere more clearly than in the markets themselves. The global economy, as well as the US, would have been hit hard had the dangers of the fiscal cliff not been averted and the relief was clear to see across the world this morning as first Asian stocks, then European stocks, opened up.

The deal regarding the fiscal cliff has also resulted in a decrease in risk aversion and consequently a fall in safe haven demand. This has led to the Dollar weakening against the majority of its counterparts today as EUR/USD hit 1.3299 in the early hours of this morning and is currently trading at 1.3263. However, the most significant move was seen in GBP/USD which reached a high 1.6381 this morning and is currently trading at 1.6315. After hitting a key level of support at 1.6309 for the second time in two weeks, Cable has now broken above this level and could look to push onto the next level of key resistance at 1.64, the real test though will be whether the pair can consistently trade above 1.63.

GBP/EUR saw a sharp spike up to 1.2318 this morning following the release of Markit Manufacturing PMI figures. The UK substantially beat market expectations of 49.1, recording a figure of 51.4, compared to an EU Markit Manufacturing PMI figure of 46.1 which was down from last month and also short of market expectations. There is little more economic data due out this morning with the next significant releases coming this afternoon when we will see German Consumer Price Index and US PMI figures being released.

Please find a summary of this week’s economic calendar below:

02.01.13
08:53 German Markit Manufacturing PMI
08:58 EU Markit Manufacturing PMI
09:28 UK Markit Manufacturing PMI
13:00 German Consumer Price Index
13:00 German Harmonised Index of Consumer Prices
15:00 US Construction Spending
15:00 US ISM Manufacturing PMI

03.01.13
07:00 UK Nationwide Housing Prices
08:55 German Unemployment Change
09:30 UK PMI Construction
13:30 US Initial Jobless Claim
13:30 US FOMC Minutes

04.01.13
07:00 German Retail Sales
08:58 EU Markit Services PMI
09:28 UK Markit Services PMI
09:30 UK Consumer Credit
09:30 UK Mortgage Approvals
10:00 EU Consumer Price Index
13:30 US Average Hourly Earnings
13:30 US Nonfarm Payrolls
13:30 US Unemployment Rate
15:00 US Factory Orders
15:00 US ISM Non-Manufacturing PMI