Tag Archives: Euro

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

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

I Got the Power

The European Central Bank has got the power. It has got the power to supervise. EU finance ministers, in the early hours of this morning, agreed to appoint the ECB as Europe’s single, all-encompassing, banking supervisor. The new supervisory body is scheduled to become fully operational by early 2014 and will be responsible for the oversight of approximately two hundred of the biggest banks in Europe, as well as smaller institutions where necessary.

The rhetoric coming out of Europe following this agreement has been pretty positive, as German Chancellor Angela Merkel commented: “The importance of the deal cannot be assessed too highly”. Considering the relatively turbulent year the Euro zone has experienced, and the criticism European leaders have received over their perceived lack of action and inability to compromise, today’s agreement is quite a scalp for EU leaders and it is hoped this could be a pivotal turning point in dealing with the region’s economic woes.

However, we have seen seemingly positive decisions reached before, only for deals to fall through due to an inability of EU leaders to deliver. Cleary now, cementing the legal framework for this body and ensuring its implementation, after what could be described as a slightly rushed agreement, is vital. Following this agreement, the path has now been paved for Eurozone finance ministers to be provided with the option of using the European Stability Mechanism (Eurozone bailout fund) to recapitalise banks directly, rather than through individual countries lending institutions as is currently the case, provided a unanimous request is made to the ECB to assume direct oversight of the institution.

Across the pond yesterday, as we expected, the Fed decided to keep US interest rates at 0.25%, however what was not expected was the Feds decision to confirm that any future rate movement would now be linked to economic indicators. Current interest rates are now set to remain as they are until unemployment falls to 6.5%, provided that inflation is not projected to rise above 2.5%.

Markets are relatively flat this morning, with only a small amount of movement in the Euro following the key deal reached regarding the ECB’s new supervisory role. GBP/EUR continues to trade sideways as it has been doing for last 3 months or so now. Sterling is currently at 1.2341 against the Euro, with hour charts suggesting that we could see a potential rise back to a key level of resistance at 1.2375 today. However, as markets continue to digest the news regarding the ECB, should sentiment towards Europe turn positive and the Euro strengthen, we could see GBP/EUR drop back to 1.2273.

With little economic data out this morning, the key focus for market participants today will come this afternoon as key economic data is released in the US. US Retail Sales and Producer Price Index figures will be released at 13:30 GMT and could be a catalyst for some movement in the Greenback, however any major movement over the next few weeks is very likely to be linked to news regarding the progress of fiscal cliff talks. After pushing up to a high of 1.6171 yesterday, GBP/USD has fallen back to, and is currently trading at, the key level of resistance that we discussed yesterday of 1.6124. Another break above this level today would be significantly bullish for GBP/USD.

Mark Webster

Agree to Disagree

Offers and counter offers were exchanged yesterday as President Barack Obama and House Speaker John Boehner spoke at length regarding how to deal with the fiscal cliff. Accounts differ on exactly what was achieved/agreed during this discussion, but it would appear that markets are optimistic that a deal on the fiscal cliff will be reached on time, before the January 1st deadline.

The Dollar has weakened this morning against Sterling and the Euro, suggesting the talks regarding the fiscal cliff are progressing well, or at the very least they are being perceived to do so. GBP/USD has breached a key level of resistance this morning, breaking through 1.6124, and the next key area to be tested is likely to be 1.6182. A break above this level could see a rise back to the twelve month high of 1.63+ and given the fact the pair are currently trading in an upward trend, this is a distinct possibility. However, failure to continue this advance could see a reversal back to 1.60.

Similarly the Euro has broken out of a key downward trend this week, for the second time in a month, and this is a clear indication that the Euro could strengthen further. However, any movement in the Euro is heavily dependent on how the Eurozone situation progresses and how well European finance leaders are able to deal with the ever continuing debt problems facing Greece.

Attention this afternoon will turn to the US as the Fed is due to make a decision on whether or not to keep interest rates at 0.25%. The Fed is expected to maintain its current rate and any variation would be a major surprise to the markets, which could potentially destabilise the economy and damage the already fragile recovery. However, the main focus will be on the Feds decision regarding its monthly asset purchase program. Operation Twist as it is currently known is due to come to an end this month and markets are waiting to see whether this will be continued through the medium of another QE program.
Please find a summary of key economic events this week:

12.12.12
07:00 German Consumer Price Index
07:00 German Harmonised Index of Consumer Prices
09:30 UK ILO Unemployment Rate
09:30 UK Claimant Count Change
10:00 EU Industrial Production
17:30 US Fed Interest Rate Decision
19:00 US FOMC Economic Projections
19:00 US Monthly Budget Statement
19:15 US Fed’s Monetary Policy Statement

13.12.12
09:00 ECB Monthly Report
13:30 US Initial Jobless Claims
13:30 US Producer Price Index
13:30 US Retail Sales
13:30 US Business Inventories

14.12.12
European Council Meeting
08:28 German Markit Manufacturing PMI
08:28 German Markit Services PMI
08:58 EU Markit Manufacturing PMI
08:58 EU Markit Services PMI
10:00 EU Consumer Price Index
10:00 EU Employment Change
13:30 US Consumer Price Index
14:00 US Markit Manufacturing PMI
14:15 US Industrial Production

BoE and ECB

The Euro has retreated today after the European Central Bank kept rates unchanged at 0.75% and slashed its growth forecasts for 2013. Projected Eurozone growth is now expected to range between -0.9% and +0.3% suggesting that it is more than likely that the Eurozone economy will contract next year.

In the UK, the Bank of England as expected kept interest rates at 0.50% and the Bank’s Quantitative Easing Asset Purchase Programme was also maintained at £375bn.

As a result the Pound is up against the Euro by nearly 1 cent and currently trades at 1.2395 (0.8068) and the Euro is down 1 cent against the US Dollar at 1.2980. The Pound trades relatively flat against the US Dollar currently at 1.6090 on the interbank market.

Matthew Porter 15:15 06/12/12

Go Euro, Go

Today we will see European Finance ministers meet once again to further sure up the current deal regarding Greece. Discussion is likely to focus on the proposed supervisory role for the European Central Bank. Whilst in theory the majority of European finance ministers would be in favour of such a position, it is when it comes to the ironing out of the fine details that there is the potential for disagreement. Notably, leaders of countries outside of the Eurozone have expressed concern that they could be treated as second tier members of the new supervisor, a situation that would clearly be untenable.

Despite the meetings taking place in Europe today and across the pond regarding the fiscal cliff, the Euro has continued to strengthen against Sterling and the Dollar on the back of the Greek debt agreement reached last week. The Euro has risen against both the Pound and Dollar today, with EUR/GBP hitting 0.8128 (GBP/EUR 1.23) and EUR/USD rising to 1.3107. Sterling has also risen against the Dollar today, hitting the key level of resistance at 1.6124 that was mentioned in yesterday’s blog. Cable is continuing to test this level and should it breakthrough, we could well see 1.63 targeted next, however substantial movement will be dependent on the progress of talks regarding the fiscal cliff.

Elsewhere the Reserve Bank of Australia has cut interest rates for the second time in three months. Interest rates have been cut to 3%, equal to the half century low set in 2009, as the Australian economy continues to battle with falling commodity prices and a strong currency. Despite the interest rate drop early this morning, the Aussie Dollar has fared well, buoyed by the positive Chinese data released yesterday and also potentially because of the fact that some market participants felt the rate could have been cut even further. GBP/AUD is currently trading at a daily low of 1.5373.

Mark Webster

Increased Optimism

The Dollar has weakened against the majority of its counterparts this morning following increased optimism regarding the Eurozone after a debt agreement concerning Greece was reached in Europe last week. Whilst some market analysts argue that the current deal is insufficient, this agreement has at the very least sent a message to global markets that Europe will not let Greece fail, and it will remain in the Eurozone. This has led to rising indices across Europe, most notably the Athens Composite, which is up 9% over the last two months. Additionally, this morning Angela Merkel has, for the first time ever, indicated that Germany may accept a write off of Greek debt. This could be a very significant step in creating the first truly viable path for Greece to escape the black hole that it is currently in, however the key word here is; ‘may’.

Furthermore, China has posted positive manufacturing figures this morning. The Chinese HSBC Manufacturing PMI hit 50.5 this month, increasing ever so slightly from 50.4 last month. This has consequently, along with the European factors above, increased risk appetite among investors and has resulted in market participants selling off their ‘safe haven’ Dollar holdings in search of riskier assets.

This afternoon we have manufacturing data and PMI figures coming out of the US, should they be positive we could see the Dollar strengthen slightly, however the main focus for Dollar movement this month will be the ever approaching the fiscal cliff. Should little progress be made on this issue and the January 1st deadline look increasingly doubtful, we could see the Dollar strengthen substantially.

Sterling is up today against both the Euro and the Dollar following positive UK manufacturing data. The UK Markit Manufacturing PMI hit 49.1 this morning, not only increasing from last month but also beating market expectations of 48.0. Following the release of the figures at 09:28 this morning, Sterling has risen to a daily high of 1.2325 against the Euro and GBP/USD has broken through a downward trend hitting an interbank high of 1.6086 before falling back a little. The current rate is hovering around 1.6067, should the rate push above this we could see 1.6124 targeted. Should the dollar not break through this level, the rate may well fall back towards 1.60.

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

03.12.12
Eurogroup Meeting
01:45 Chinese HSBC Manufacturing PMI
08:53 German Markit Manufacturing PMI
09:28 UK Markit Manufacturing PMI
13:58 US Markit Manufacturing PMI
15:00 US Construction Spending
15:00 US ISM Manufacturing PMI

04.12.12
European Finance Ministers Meeting
03:30 Australian RBA Interest Rate Decision
09:30 UK PMI Construction
10:00 EU Producer Price Index
14:00 Bank of Canada Interest Rate Dec ision

05.12.12
08:53 German Markit Services PMI
08:58 EU Markit Services PMI
09:28UK Markit Services PMI
10:00 EU Retail Sales
13:15 US ADP Employment Change
15:00 US Factory Orders
15:00 US ISM Non-Manufacturing PMI

06.11.12
09:30 UK Total Trade Balance
10:00 EU GDP
11:00 German Factory Orders
12:00 UK BOE Interest Rate Decision
12:45 EU ECB Interest Rate Decision

07.12.12
00:01 RICS Housing Price Balance
09:30 UK Industrial Production
09:30 UK Manufacturing Production
11:00 German Industrial Production
13:30 US Average Hourly Earnings
13:30 US Nonfarm Payrolls
13:30 US Unemployment Rate

Mark Webster

Deal or No Deal?

Deal. A deal has definitely been done, but was it a good one? Let alone good, was there even any point to it? These are the questions that market experts are starting to ask as doubts grow as to whether this deal will actually do anything to solve Greece’s long term national debt problem.

European finance ministers last night, as expected, agreed to release the next tranche of financial aid to Greece. The meagre sum of €43.7 billion Euros worth of loans starts to be paid to the debt ridden country from December. It is believed that this will help plug the gap in the country’s finances until the end of 2014, however for any true progress to be made many market analysts are calling for at least some of Greece’s outstanding debt to be written down. It is becoming ever more apparent that simply applying increasingly stringent austerity is not having the desired effect, in fact it could even be exacerbating the problem.

Closer to home, yesterday George Osborne announced who is set to succeed Sir Mervyn King as Governor of the Bank of England next year. The decision to name Mark Carney, currently the governor of the Canadian central bank, seems to have taken most people by surprise. However, whilst some of the decisions that Mr Osborne has made whilst Chancellor of the Exchequer have come under scrutiny, this one seems to have been well received and was even deserving of approval from his opposite number, shadow Chancellor Ed Balls. Mr Carney has been widely commended during his time at the Canadian central bank, where he has successfully navigated Canada through some of the toughest global economic conditions in living memory, with Canada fairing much better than many other countries during this time.

This morning Sterling improved to a morning high of 1.2384 against the Euro, whilst the Dollar has also risen against the Euro, with EUR/USD hitting 1.2935. The weakening Euro comes on the back of the agreement made last night between European finance meetings, as markets, whilst relieved a deal was made, are concerned that it will do little to stabilise Greece’s finances in the long term. We could see further movements this afternoon as figures for US Durable Goods Orders are released. Positive results could see the Dollar appreciate further and potentially compound the weakening Euro.

Mark Webster

Once, Twice, Three times… an Agreement

It is no surprise what the focus of the markets will be today. With little economic data due out and nothing of any importance in comparison, attention will remain concentrated on the European finance ministers meeting. Greece is going to go bankrupt. Greece is going to go bankrupt. There are only so many times that you can say this before it actually happens and we are getting ever closer to the point when it will be said for the last time, and Greece actually does run out of money. With this in mind, it is almost certain that some sort of an agreement will be reached today and the next tranche of financial aid released to Greece. Following this, we could actually see a marked improvement in European stocks and a strengthening of the Euro, as such an agreement would remove a substantial amount of uncertainty from the markets, at least for the time being.

Should the current Eurozone crisis be averted today, attention is likely to shift to the next global financial obstacle causing discomfort for the markets – the US fiscal cliff. The problem facing President Obama is a ticking time bomb in the form of $607 billion worth of tax increases and spending cuts due to come into effect in January. Unless some sort of an agreement can be reached in Congress, the recession inducing cliff will be hit imminently and the ability of government officials in Washington to compromise will be key to reducing the uncertainty within the markets.

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

26.11.12
08:15 CHF Employment Level
11:30 EU Finance Ministers Meeting
12:00 German Consumer Confidence Survey

27.11.12
07:00 UK Nationwide Housing Prices
09:30 UK GDP
09:30 UK Total Business Investment
13:30 US Durable Goods Orders
13:30 US Fed’s Bernanke Speech
15:00 US Consumer Confidence
15:00 US Housing Price Index

28.11.12
13:00 German Consumer Price Index
13:00 German Harmonised Index of Consumer Prices
15:00 US New Home Sales

29.11.12
06:45 CHF GDP
08:55 German Unemployment Change
10:00 EU Business Climate
10:30 BoE’s Governor King Speech
13:30 US GDP
13:30 US Personal Consumption Expenditures Prices
15:00 US Pending Home Sales

30.11.12
UK Inflation Report Hearings
German Bundestag Vote on Greek Aid
07:00 German Retail Sales
10:00 EU Consumer Price Index
10:00 EU Unemployment Rate
13:30 US Core Personal Consumption Expenditure
13:30 US Personal Income

Mark Webster

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.