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FX Day Trading - 29 December 2011
Bear raid on the pound and euro
Allegedly the result of a large order in a thin market
But what happens next?
The bean counters at Sussex police have come up with a wonderful idea to save some of the £50 million that it needs to cut from the budget over a four-year period. They are going to reduce the electricity bill.
Specifically, according to the Daily Telegraph, staff will no longer be allowed to charge their mobile phones at work. Assuming a running cost of 0.05p per hour for a charger, and with 5,783 staff all previously charging their phones for an hour a day, the annual saving would be £1,055.
In March alone Sussex police paid EDF Energy a shade over £50,000. Imagine the enthusiasm of police staff for this new economy.
There is better news from Italy though, where enthusiasm for government debt took an upward swing yesterday. An auction of €9bn six-month treasury bills went at 3.25%, exactly half the 6.5% the government had to pay for a similar round of refinancing a month ago.
Inspired by Wednesday's success, the Italian treasury will try its hand today with a rather more demanding issue of €8.5bn in longer-term bonds, some with a maturity of ten years.
On the other side of that coin, financial spread trading investors were less than enthused by news that the European Central Bank's balance sheet continues to grow. At last count it was up to €2.73tr.
It should not have come as a surprise; the ECB only last week doled out €489bn to 523 banks in its Longer Term Refinancing Operation. Although money does, for a central bank, grow on trees, the book-keeping necessitates its appearance on the balance sheet.
The more the ECB prints, the bigger its balance sheet. Conversely -– and this is the bit that worries investors -– the bigger its balance sheet, the more it is printing.
The ECB story was apparently not directly responsible for a sharp fall by the euro during afternoon but it will have been contributory.
In FX spread trading markets, Sterling went down at the same time, falling by two cents against the US dollar in less than two hours. It lost about quarter of a cent to the euro and one and a half yen. Against the Swiss franc it is about a cent lower.
The word from the financial newswires is that a large sell order forced the euro and the pound down through technical levels that triggered further selling. It is not unusual to see this sort of activity and movement in a seasonally thin market.
The economic data did not impinge on exchange rates. KOF's Swiss leading indicator is arcane enough not to trouble most spread betting investors and there was nothing else around.
Today has slightly more potential, nearly all in the United States, with weekly jobless claims, pending home sales and the Chicago purchasing managers' index. Lurking in the wings, but with no firm schedule, is the December figure for German inflation.
Yesterday's sterling dump was a reminder that when a market is running at 10% of normal capacity it is easy to provoke a stampede. The acid test of sentiment will be what happens next. There is every chance that the pound and the euro will have recovered to yesterday morning's levels by the end of Monday, if not before.
Currency Trading and Spread Betting carry a high level of risk to your capital and you can lose more than your initial investment, they may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
The above content does not constitute investment advice, it is provided purely for information purposes and is delivered as a personal view of the writer. Neither the contributing company (or writer) nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the content.
'Forex Spread Betting: ECB LTRO Causes Sterling to Fall Two Cents In Two Hours', Article by Moneycorp, last update: 29-Dec-11
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