All posts by mporter

Round and Round We Go

The Euro strengthened to a three week high against the Dollar and a month high against Sterling yesterday as optimism grows that a deal on Greece will be reached. Considering that a Greek default, bankruptcy and inescapable exit from the Euro would otherwise be inevitable, an agreement to extend financial aid to Greece seems to be guaranteed, as does a continuation of the Eurozone debt crisis merry-go-round.
After putting up substantial resistance to altering the current Greek target for a debt to GDP ratio of 120% by 2020, the International Monetary Fund has softened its stance and is said to be willing to lessen the target to 124%, a figure still considered viable. This will still leave a gap which is believed to be around 10 billion Euros, a hole that will need to be plugged and the mechanics of how this will be done are still to debated, but this is likely to be easily overcome.

Trading is relatively flat this morning following the release of German GDP and IFO Business Climate figures, as well as UK Mortgage Approvals. The data released so far has been positive across the board which has kept trading relatively flat, apart from a few minor spikes following the immediate release of the figures. The Pound is currently trading close to 1.2342 against the Euro and the rate is continuing to hover at this level where the Pound has found a reasonable amount of support. Should Sterling drop through this, the next level of stiff support for the pound is at 1.2248.

We could also see the Pound drop back off against the Dollar later today, potentially falling back to 1.5911 which is 38.2% retracement of 1.5267 and 1.6309, a level which was tested earlier in the week before the Pound eventually broke through. A break below 1.5911 would likely see support at 1.5882 being reached, with 50% retracement at 1.5788 being targeted after that should the decline continue.
With little more economic data due out for the rest of the week, attention is now likely to turn to the European finance ministers meeting on Monday. As this will be the last meeting before Greece is set to run out of money, it is now expected, and almost certain, that an agreement will be reached and the next tranche of financial aid granted to Greece. Therefore, we could see substantial price movements on Monday, with the Euro likely to be bullish should an agreement on Greece be reached without discord.

The Euro Strikes Back

The Euro is on the up. This morning it is trading higher against the Pound, Dollar, and Yen on the back of positive data coming out of China, where the HSBC Manufacturing PMI hit 50.4, a thirteen month high. Sentiment is now relatively optimistic within the markets as a result of this Chinese data, with many market participants believing this signals an end to China’s slowdown and potentially a return to China’s customary 8% plus growth.

A positive Chinese outlook is encouraging for the Euro and coupled with the anticipation that an agreement on Greece will soon be reached, these two factors have led to a slightly improved Euro this morning. European PMI data has also contributed to the Euros gains as figures released were slightly better than markets had originally feared. German Manufacturing PMI hit 46.8 surpassing expectations of 46.0 and EU Markit Manufacturing PMI also did better than expected, recording an improvement to 46.2, although EU Markit Services PMI did decline this month to 45.7.

Sterling has dropped from 1.2432 against the Euro this morning to its current low of 1.2385. The Euro is also up against the Dollar today hitting a high of 1.2883, after gradually increasing from 1.2831 last night. It is possible that we could see further movement in the Euro this afternoon as EU Consumer Confidence figures are due out at 15:00, however trading volumes are likely to be lower today given that it is Thanksgiving in the US.

Mark Webster

Surprise, Surprise

The Pound is only slightly higher against the Euro this morning after paring substantial gains made in the early hours following the conclusion of the European finance ministers meeting in Brussels. GBP/EUR hit 1.2489 this morning before dropping back down to its current level of 1.2438. Similar price movement was experienced by the EUR/USD which dropped off to 1.2735 before climbing back to its current level of 1.2790. Such movements shouldn’t come as much of a surprise as no concrete decision was made last night regarding Greece’s future. The only thing that is guaranteed now is that uncertainty within the Eurozone will continue.

As ministers failed to agree on a definitive rescue plan for Greece, again, any further aid payments will remain on hold until the next emergency ministers meeting scheduled for November 26th, hopefully Greece will manage to remain solvent until then. That said, no firm decision was ever going to be made yesterday on whether or not to release the final tranche of financial aid. Various European governments, including Germany, are yet to weigh in on the issue, and the Troika still needs to confirm that the Greek government has delivered on certain economic indicators, all of which is necessary before any final decision can actually made.

Looking ahead today, there is economic data due out in the US this afternoon. US Initial Jobless Claims and US Reuters Michigan Consumer Sentiment Index are both due to improve, with US Markit Manufacturing PMI expected to remain at 51. If such results meet, or even better, market expectations we could see the Dollar strengthen further against the Euro and also recover some of the losses it has suffered against Sterling over the past few days.

Tension in the Air

The atmosphere is tense in Europe this morning as European finance Ministers make final preparations before a key meeting tomorrow regarding the situation in Greece. To say that reaching an agreement tomorrow is crucial would be an understatement. Greece quite frankly is facing imminent collapse, if this were to materialise it would invariably cause severe problems for the rest of the already troubled Eurozone. The rhetoric coming out of Europe today and at the weekend seems to be one of unanimous determination to reach a final solution, Christine Lagarde commented:

“I am always trying to be constructive but I am driven by two objectives…to build and approve a program for Greece that is solid, that is convincing today, that will be sustainable tomorrow, that is rooted in reality and not in wishful thinking.”

One would like to think that all European finance ministers share such positive intentions, however if previous meetings in Europe are anything to go by, it is going to take a lot more than a simple desire to create a sustainable program for Greece, to fix the problem.

In the US concerns over the looming fiscal cliff have eased following a Speech by US President Barack Obama, in which the President expressed confidence in his governments’ ability to reach an agreement on how to deal with the cliff. This has led to the Dollar weakening against the majority of its counterparts this morning. Notably the Pound has risen for the third straight day against the Greenback following positive UK housing data that came out this morning.

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

19.11.12
00:01 UK Rightmove House Price Index
05:00 Japanese Leading Economic Index
15:00 US Existing Home Sales Change

20.11.12
Bank of Japan Interest Rate Decision
European Finance Ministers Meeting
00:30 Australian RBA Meeting’s Minutes
07:00 German Producer Index
13:30 US Housing Starts MoM
17:15 US Fed Governor Bernanke Speech

21.11.12
UK Bank of England Minutes
09:30 UK Public Sector Net Borrowing
13:30 US Initial Jobless Claims
13:58 US Markit Manufacturing PMI
14:55 US Reuters/Michigan Consumer Sentiment Index

22.11.12
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 European Markit Manufacturing PMI
08:58 European Markit Services PMI
08:58 European Markit PMI Composite
15:00 European Consumer Confidence

23.11.12
European Council Meeting
07:00 German GDP
09:00 German IFO Business Climate
09:00 German IFO Current Assessment
09:30 UK BBA Mortgage Approvals
13:30 Canadian Consumer Price Index

Mark Webster

Is That a Fat Lady Singing?

Christine Lagarde, the Managing Director of the International Monetary Fund confirmed last night that European Finance Ministers remain committed to ensuring Greece gets ‘back on its feet’. Lagarde remarked that the fight to save Greece was ‘not over until the fat lady sings’. If such strong rhetoric actually translated into affirmative action then possibly, just possibly, Greece would now be in some sort of situation comparable to that of a recovery. However this has not been the case, as we have become accustomed to over the last four years, and as I mentioned in my blog earlier this week, European leaders, Commissions, and Central Banks are all guilty of persistently dodging and delaying key decisions that could have proved incisive in providing Greece, and in turn the Eurozone, some sort of path to recovery. Crunch time must surely come next week as European finance ministers will meet once again to discuss the situation in Greece, and as the debt ridden country nears the brink of collapse as bankruptcy looms and public protest intensifies, the time for action has never been more pressing.

From one debt problem to another. On the other side of the Atlantic today, talks regarding another monumental debt problem will begin as congressional leaders meet at the White House with President Obama for the first time since the election. How well both sides can negotiate the US away from its current collision course with the infamous fiscal cliff will be vital. Markets are currently on tenterhooks as the ever approaching $600 billion cliff looms ever closer, threatening the current Wall Street bull.

Other than the meeting at the White House today there is very little economic data due for release. Therefore markets are likely to be somewhat subdued today, especially as they wait to see how the talks in the US today, and Europe next week, progress. That said, the Pound is up against the Euro this morning after recovering some of the losses it suffered yesterday, hitting 1.2465 at 09:45. The Euro also lost some of the gains that it had recouped against the Dollar earlier this week as it fell to 1.2722 this morning after finding strong resistance around 1.28 yesterday afternoon.

Mark Webster

The Wait Goes On

Last night European Finance Ministers prolonged the inevitable yet again and ensured that unnecessary uncertainty would remain within the markets for at least a further week. Greece could well go bankrupt this week; however this is not going to happen. European leaders won’t allow it to happen, and it is this very reason why markets are becoming frustrated. Frustrated with European finance ministers and their inability to reach a compromise over exactly how Greece’s ever increasing black hole should be plugged.

Ministers did however manage to push back to 2022 the goal of getting Greece’s debt down to a sustainable level, although there was still disagreement amongst ministers over this issue, most notably from IMF Managing Director Christine Lagarde. This miniscule achievement has done little to help reassure the markets this morning as the Euro is down against Sterling and has hit a two month low against the Dollar. Such movements coincided timely with the release of EU and German confidence surveys, for both of which the results were appropriately down.

The Pound’s strength this morning is likely down to the positive Consumer and Producer price index figures released at 9:30. The UK Consumer Price index (YoY) figure hit 2.7%, surpassing market expectations of 2.3%, whilst the UK Producer Price Index – Output (YoY) remained flat at 2.5%. This led to a sharp spike in GBP/EUR as it hit 1.2546 and GBP/USD reached 1.5904 before leveling out. With little more economic data due out for the rest of the day other than the US Monthly Budget Statement at 19:00, the driving force behind any rate movements today will be the ever worsening situation in Greece.

Mark Webster

EU Summit 18-19th October

EU leaders will meet today for a two-day summit over plans for a single supervision mechanism and banking union and the wider issues surrounding the Eurozone crisis. In the days leading up to the summit the Euro has appreciated in a climate of calmer European stock markets and lower borrowing costs for Greece and Spain. There has also been a significant effort from Germany to argue for greater European economic and fiscal integration. EURUSD currently trades at 1.31 and EURGBP is currently trading above 0.81p (1.23). GBPUSD has also tracked EURUSD higher and trades above 1.61 on the interbank market.

Despite the relative increase in positive sentiment surrounding the Euro, it must be remembered that the summit is being held against a very dark backdrop. Greece today is braced for its twentieth general strike in two years and Spanish premier Rajoy continues to drag his feet on Spain’s bailout request. Any bailout request is now anticipated in November after the Galician and Basque parliamentary elections held on October 21st. Whilst it should be noted Catalonian parliamentary elections are due to be held on November 25th. Full Catalonian independence is unlikely to happen soon, if at all, but any Catalan struggle for greater autonomy would damage confidence, at a time when Spain needs to reassure the bond markets and fellow EU members , that the central Spanish government has its problems in hand.

No formal announcements are expected on Greece or Spain but any leaked comments could cause volatility in the Euro.

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10:00 18.10.12

This Week 08.10.12 – 12.10.12

Uncertainty remains within the Euro zone this week as Spain prolongs the inevitable; having failed to formally request financial assistance thus far. After a week of positive sentiment for the Euro following the release of Spain’s 2013 budget and encouraging bank stress test results, optimism towards Spain could now begin to wane and make the likelihood of terms being attached to a bailout far less favourable for the debt ridden country.

Elsewhere in the Eurozone this week, German Chancellor Angela Merkel will meet Greece Prime Minister Antonis Samaras in Athens. Likely to be top of the agenda will be the next tranche of bailout loans Greece is hoping to secure amid concerns the country could be bankrupt as early as November.

North America starts this week with a public holiday meaning we are likely to see little movement in the Dollar until later in the week, giving markets more time to digest the surprising improvement in employment figures that came out of the US late last week.

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

08.10.12
Public Holiday USA and Canada
EU Finance ministers meeting
03:30 HSBC China Services PMI
07:00 German Trade Balance
09:30 EU Sentix Investor Confidence
11:00 German Industrial Production

09.10.12
German Chancellor Angela Merkel will meet European Greece Prime Minister Antonis Samaras
01:30 National Australia Bank’s Business Confidence
08:30 ECB President Draghi Speech
09:30 UK Industrial Production
09:30 UK Manufacturing Production
09:30 UK Total Trade Balance
15:00 UK NIESR GDP Estimate (3M)

10.10.12
19:00 US Fed’s Beige Book
23:30 Business NZ PMI

11.10.12
Chinese New Loans
02:30 Australian Unemployment Rate
07:00 German Consumer Price Index
07:00 German Harmonised Index of Consumer Prices
09:00 ECB Monthly Report
13:30 US Initial Jobless Claims
13:30 US Trade Balance
19:00 US Monthly Budget Statement

12.10.12
IMF meeting in Tokyo
10:00 EU Industrial Production
13:30 US Producer Price Index
13:30 US Producer Price Index ex Food & Energy
14:55 US Reuters Consumer Sentiment Index

ECB & BoE

The Euro has appreciated today following the European Central Bank’s decision to hold rates at 0.75%, pushing the Euro through the psychological level of 1.30 against the US Dollar and consolidating above 0.80p, currently at 0.8045, against the Pound.

Elsewhere, as expected the Bank of England voted to keep interest rates on hold at 0.50% and to continue with its programme of asset purchases known as Quantitative Easing (QE) at current levels totalling £375bn. Following the move in EUR/USD the Pound has ended the day up against the US Dollar at 1.6170 but down against the Euro at 1.2428.

Regarding the future direction of Bank of England rates and QE, and therefore the Pound’s value, focus will now turn to UK inflation data due to be released on 16th October and the minutes of today’s Bank of England meeting due to be published at 09:30 on Wednesday 17th October.

17:00 04.10.12

Economic Calendar

This week sees the release of a number of important pieces of economic data including the much anticipated UK GDP figures on Thursday 27th September. We also have a key meeting between German Chancellor Angela Merkel and European Central Bank President Mario Draghi.

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

24.09.12
09:00 German IFO data
20:30 FOMC Member Williams Speech

25.09.12
German Chancellor Angela Merkel will meet European Central Bank (ECB) President Mario Draghi in Berlin
07:00 German Gfk Consumer Confidence Survey
09:30 British Bankers’ Association Mortgage Approvals
14:00 ECB President Draghi’s speech
15:00 US Consumer Confidence
18:30 Timothy Geithner US Secretary of the US Department of Treasury Speech

26.09.12
German 10 year Bond Auction
00:00 German Consumer Price Index
09:30 UK Bank of England Credit Conditions Survey
15:00 US New Home Sales

27.09.12
07:00 UK Nationwide Housing Prices
08:55 German Unemployment rate and change
09:30 UK 2nd quarter GDP
13:30 US 2nd quarter GDP

28.09.12
13:30 US Core Personal Consumption Expenditure
13:30 Canadian GDP data