Category Archives: Currency News

Watch and Wait

Markets are relatively flat this morning as economic data coming out of Europe has thrown up no real surprises. The German Consumer Price Index for December was bang on expectations at 2.1%, as was the UK CPI at 2.7%. There were only a few marginal variations today as the UK Producer Price Index – Output fell short of market expectations recording a figure of 2.2%, whilst UK Retail Sales improved by 0.1% to 3.1% in December.

The data released so far today has caused very little movement in Sterling or the Euro. The pair is currently trading at 1.2030, having found support at 1.2010 late last night following a dismal day for the Pound. GBP/EUR broke below a key level of support at 1.2170 on Friday and continued its slide yesterday. Should the psychological level of 1.20 break, the next area of support for the pair is 1.1946. A break below this would be a strong indication that we could return to sub 1.17 levels, a level not seen since December 2011.

Cable is currently trading at 1.6067. This price level is a key trading area and is currently sitting on a six month upward trend line. The pair has been oscillating between Fibonacci levels at 1.6120 and 1.6003 for the past ten days with only minor breaks either side. A break below 1.6010 would have to break the six the month upward trend line and would indicate a potentially significant drop off and it is likely the four month low of 1.5825 would be tested once again.

Mark Webster

Euro Appreciates

The Euro has continued to appreciate following Thursday’s European Central Bank press conference where ECB President Mario Draghi failed to meet market expectations by not hinting at a rate cut in the coming months.

GBP/EUR is currently trading at 1.2070, a key level of support, after having broken through 1.2168 on Friday, a level which had held for the previous nine months. Todays’ weakening continues a seven day trend for Sterling, as Britain’s position within Europe becomes more and more ambiguous. David Cameron’s attempt to tread a fine line between Conservative Eurosceptic’s and pro-European business leaders is proving difficult and his bid to negotiate a reduction in powers held by Brussels over Britain, whilst maintaining the UKs membership, would appear impossible. Any concrete signs of a full withdrawal of the UK from the EU could prove very negative for Britain and would likely stifle economic growth for the country. Leaders from across Europe and even the US have warned Britain of the damaging effects such a move could have, and the markets would appear to be making their feelings clear too as the Pound continues to weaken.

Elsewhere in the world today, the Yen has continued to weaken as newly elected Japanese Prime Minister Shinzo Abe, looks set to elect a central bank chief who will continue to expand monetary easing in the country. In a further attempt to increase the countries competitiveness internationally, it is hoped that weakening the country’s currency will help drag Japan out of decades of economic stagnation.

EUR/USD broke above a key Fibonacci level of on Thursday and has continued its appreciation since. The pair is currently trading at 1.3368 and should the Euro continue to strengthen the next price level we are likely to see will be at 1.3487, however should momentum dissipate the pair may well fall back to 1.3143.

Cable is currently trading at 1.6124, a significant price level that has been mentioned in previous blogs. We are likely to see the pair trade between 1.6010 and 1.6309 until a consistent break is made either side of this channel. We may have to wait until next month until we actually see this though, when the effects of the delayed fiscal cliff remerge in Washington and US politicians once again commence battle, this time over government spending.

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

14.01.13
10:00 EU Industrial Production
15:30 Bank of Canada Business Outlook Survey
21:00 US Fed’s Bernanke Speech

15.01.13
01:00 UK RICS Housing Price Balance
07:00 German Consumer Price Index
08:00 German Gross Domestic Product
09:30 UK Consumer Price Index
09:30 UK Producer Price Index
09:30 UK Retail Price Index
13:30 US Producer Price Index
13:30 US Retail Sales

16.01.13
10:00 EU Consumer Price Index
13:30 US Producer Price Index
14:15 US Industrial Production
19:00 US Fed’s Beige Book

17.01.13
00:30 Australian Unemployment Rate
09:00 ECB Monthly Report
13:30 US Housing Starts
13:30 Building Permits
13:30 US Initial Jobless Claims

18.01.13
02:00 Chinese GDP
02:00 Chinese Industrial Production
02:00 Chinese Retail Sales
09:30 UK Retail Sales
14:55 Reuters/Michigan Consumer Sentiment

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

Caught Between a Rock and a Hard Place

Cable is trapped. GBP/USD has been trading pretty much sideways for the last couple of days and appears trapped in a clearly defined channel, a break either side of which could be very significant. Fibonacci levels show clear support at 1.6010 and substantial resistance at 1.6124, with a further key level found in between at 1.6067, which is where the pair is currently trading. A break above the upper price level would suggest a move back towards 1.6309 and potentially a test of the recent sixteen month high of 1.6381. Conversely, should the lower end of the current price channel give way, the pair is expected to fall back to the next area of key support at 1.5909 and below this the four month low of 1.5825 could be tested once again.

The key question is obviously; which way will the pair break? Cable is currently in a six month upward trend and what could make or break this trend could well be economic data released later this week. Tomorrow we will see the Bank of England release their interest rate decision at 12:00 GMT. Whilst rates are expected to remain at their current levels, any increase, or even a suggestion of an increase, would be very bullish for Sterling. As we saw last week in the US where the FOMC minutes suggested there could be an earlier than expected end to monetary easing policies and interest rate increases – the Greenback immediately strengthened right across the board. Whilst we will also see various figures released in both the UK and US on Friday, the crucial variable could come from outside both of these countries. On Thursday and Friday this week we will see crucial data coming out of China, including Chinese; Trade Balance, Consumer Price Index and Producer Price Index. Should these results prove favourable, this would be extremely positive for the global economy and invariably lead to increased optimism globally and consequently a weakening Dollar.

This Morning we saw the release of UK Goods Trade Balance figures that showed there is now a £-9.164B deficit, worse than what markets had been expecting. GBP/EUR did drop off slightly immediately following the release, however the Pound has recovered and is currently trading up for the day at GBP/EUR 1.2282. EU GDP figures for Q4 were released at 10:00 GMT and had little bearing on the markets as they showed that GDP for the region remained at -0.1%. EUR/USD is currently trading flat at 1.3067, only marginally above a key level of support at 1.3064.

Mark Webster

Dip, Dip, Recession…

The BRC (British Retail Consortium) released data early this morning that showed British retail sales suffered a lacklustre performance last month as sales rose by only 0.3%. The total value of goods sold was up 1.5% from December 2011 but given that inflation is currently 2.7%, this suggests that UK stores actually sold less in real terms.

These figures will have done nothing to allay fears that Britain could well be sliding into a dreaded triple dip recession. However, the British Chamber of Commerce rejected such inferences this morning, stating that economic conditions were becoming more favourable within the UK and the economy would grow steadily over the next few years. Such judgments are based on the back of marked improvements that have been seen in business confidence figures towards the tail end of 2012.

In Europe this morning, data coming out of Germany showed that the German Trade Balance worsened in November. Figures showed a drop in exports from the European powerhouse to €14.6B, down from €14.9B for the month before. This has been followed by mixed EU data that showed whilst EU retail Sales for the end of 2012 fell short of market expectations, EU Retail Sales (YoY) figures improved marginally to -2.6% and EU Consumer Confidence rose to -26.5.

Immediately following the data releases earlier this morning, the Euro dropped off slightly against Sterling and the Dollar. However the currency pairs are now trading relatively flat at GBP/EUR 1.2265 and EUR/USD 1.3115. Cable is also trading flat at present at 1.6084, after hitting a key level of resistance at 1.6124 earlier this morning the pair dropped back down to its current level and looks to be heading for the next level of substantial support at 1.6067.

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

The Clock is Ticking

After recovering some of its losses from the previous week yesterday, Cable (GBPUSD) has dropped off once again after hitting its 16 month high last week as an agreement regarding the fiscal cliff remains nowhere in sight.

After returning early from his Christmas holiday in Hawaii, President Obama has summoned Congressional leaders to a meeting at the White House in a last ditch attempt to salvage negotiations regarding the necessary tax hikes and spending cuts if the fiscal cliff is to be avoided. With the January 1st deadline literally now just days away, it would appear inevitable that the compulsory tax hikes and spending cuts enacted under George Bush, due to take effect in 2013, will now come into force early next year. These measures are expected to lead to increases in US household taxes by an average of $3,446, substantially cut defence spending, and according to the Congressional Budget Office, send the US economy back into recession in early 2013.

It is precisely these fears, that the fragile US recovery at present is nowhere near strong enough to cope with these shocks without avoiding falling back into recession, that are causing concern in the markets. Inevitably, such a scenario would negatively impact the world economy, especially Europe which had seemed to be very slowly pulling itself away from the abyss recently – all of these factors are helping create a rather toxic outlook for the global economy. This has therefore led to a substantial decrease in risk appetite and an increase in safe-haven demand over the last few days.

Today the Dollar has strengthened against the majority of its counterparts and GBPUSD is currently trading at 1.6078. Having fallen close to a key level of support at 1.6067 this morning, this could create a safety net for the pair, preventing further losses.

Pound Resumes March

After hitting a 16 month high of 1.6306 against the Dollar last Wednesday, Cable has proceeded to fall each following day – until now that is. GBP/USD is up this morning and currently trading at 1.6170 following the release of UK BBA Mortgage Approval data which showed a rise to 33.6K for November, up from 33.1K last month.

As expected, other than the UK Mortgage figures this morning, there is very little economic data due out today, with only US Consumer Confidence and US New Home Sales figures set to be released this afternoon. That said, despite the relatively slow day expected in the markets, meetings are due to take place in Washington that are gaining greater significance by the minute. President Obama cut short his Christmas vacation in Hawaii last night to fly home early in an attempt to add impetus to the negotiations regarding the on-going fiscal cliff dilemma.

It now appears unlikely that a comprehensive agreement will be reached regarding the fiscal cliff before the January 1st deadline. Time is now very much of the essence and what is looking a more plausible outcome at the moment is that Congress could agree upon a narrower agreement, rather than an all-encompassing arrangement that had originally been hoped for. This would at the very least least stave off any immediate shock to the US economy following the fiscal cliff actually being hit.

Mark Webster