A daily look at the FX markets from Moneycorp.com.
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FX Day Trading - 29 July 2010
NZ interest rates move higher again
But RBNZ dampens expectations
BoE governor less downbeat on economy
Health minister Anne Milton has encouraged the health industry not to describe fat people as obese, but to call them fat. If the minister's push for plain speaking were to catch on, a bonfire of public sector euphemisms would burn brightly. 'Members of the public' would become 'people', 'health and safety' would translate as 'fun prevention' and 'minority ethnic inclusion outreach coordination officer' would be 'jobsworth'.
And 'stable' forex rates could be described as 'tedious'. That has been the case for most currencies over the last 24 hours.
Cable has moved by less than the bid-offer spread. The Pound/Euro spread is within a dozen ticks of Wednesday's opening. There was no help from the economic data; they did nothing. Nobody cared that German inflation accelerated from 0.9% to a provisional 1.1%. When US durable goods orders fell by -1.0% in June, instead of rising by the 1.0% that economists had predicted, the market did not bat an eyelid.
The only bit of excitement came overnight, again from the antipodes. As expected, the Reserve Bank of New Zealand raised its official cash rate from 2.75% to 3% but Governor Alan Bollard spoiled the party.
The NZ dollar fell against everything when he said the 'pace and extent' of future rate increases would be more moderate than he had outlined last month. Investors had not been prepared for the change of tone so they sold the Kiwi, taking it two cents lower against the pound. Against the Australian dollar it almost precisely reversed the one-cent gain it had achieved 24 hours earlier as a result of lower than expected Australian inflation.
Bank of England Governor Mervyn King's attendance at the Treasury Select Committee went off without event. His comments were in line with recent Monetary Policy Committee minutes and elicited no reaction from sterling.
The governor was evasive at times: Answering a question about the impact of the emergency budget, and the risk of it derailing the recovery, he said 'I don't think it made a significant difference to whether we would get what is technically called a double-dip recession.' But a difference to what, Dr King?
Sterling did wobble briefly this morning after Nationwide announced a -0.5% fall for house prices in July and a slowdown to 6.6% in the annual rate of increase. The only other figures it has to contend with today are those for money supply and mortgage lending this morning.
From Euroland come a bunch of personal and corporate confidence measures as well as German unemployment. Canada entertains with its industrial product and raw material price indices while the United States chips in with the weekly jobless numbers. Due out overnight are UK consumer confidence, New Zealand building permits, Japanese inflation and Australian private sector lending.
With the best will in the world it is hard to find anything on that list likely to get the market off its collective backside.
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. Neither Online-Spread-Betting.com nor Moneycorp accepts any responsibility for any use that may be made of the above.
FX Day Trading - 28 July 2010
Sterling received another boost this morning after a leading think-tank announced that Britain will avoid a double-dip recession and its economy will expand at trend growth rates as early as 2012.
In the latest forecast from the National Institute for Economic and Social Research (NIESR), it predicts GDP growth of 1.3% this year, 1.7% next year and 2.2% in 2012.
The news follows recent strong economic data over the past week where GDP and retail sales figures shocked the market on the upside.
The pound has surged to 5 month highs against the dollar and the general consensus is Sterling will continue on a long term rise against the Greenback.
Merv “the swerve” King will be speaking today and as usual, I’d expect “doom and gloom” comments from the BoE chief. Most likely on his radar will be the GDP figures from Q2 which showed a rise of 1.1% QoQ (0.6% forecast).
The euro has risen against both the dollar and the yen once more this morning as improving demand for riskier assets continues to push European shares higher. The single currency remains near its strongest level against the dollar in more than two months after European stocks climbed. Eurozone M3 money supply rose by 0.2% Y/Y versus expectations for a 0.1% decline.
The Australian dollar dropped overnight as a government report showed consumer prices increased at a slower pace than economists had forecast, giving the central bank scope to keep rates unchanged in August.
The Aussie slid against all 16 of its most- traded counterparts as traders cut to zero the likelihood that Australia's central bank will increase its key rate when policy makers meet on August 3rd.
New Zealand's currency also ended a four-day winning streak versus the yen as a report showed business confidence declined in July.
Today, the economic calendar contains the US durable goods orders and German CPI inflation data. The Reserve Bank of New Zealand will also decide on rates whilst the ECB publishes its Bank Lending Survey and the Fed will publish its Beige Book.
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. Neither Online-Spread-Betting.com nor Moneycorp accepts any responsibility for any use that may be made of the above.
FX Day Trading - 27 July 2010
Majority approves the stress tests
But no flag-waving
US new home sales rebound in June
Research by the PDSA reveals that 35% of British dogs are overweight. Four years ago, when the previous such tests were carried out, only 21% were overweight. President Obama has blamed BP, saying its petrol sales have made it too easy for pet owners to drive around instead of taking their dogs for a walk.
The CEO of BP has accepted responsibility for the epidemic of corpulent canines and has volunteered to retire. Mr Obama is outraged that he will be allowed to get away with anything less than public dismemberment. And even that would be too good for him.
There has been considerably less outrage over the stress tests carried out by European banks, despite surprisingly generous hypotheses for some respondents.
Apparently the 'worst case' scenario for Greek banks was a 2% fall in house prices. Austrian banks did not even have to consider a property slump; their doomsday scenario involved a 2.7% price rise.
The most stringent tests seem to have been those for Spanish banks, who had to model a 28% fall in house prices and a 61% decline in land valuations. Interesting, then, that it was the regional Spanish banks who came off worst and that the Austrians all passed.
It is interesting also that Deutsche Bank has not yet come clean about the size of its exposure to sovereign risk. Only the government bonds on its trading book have been stress-tested; anything intended to be held to maturity was not included. Presumably it believes it can only lose money on a creditor default if the asset is revalued on a daily basis.
Nevertheless, as observed, the test results have done the euro more good than harm. It has not strengthened a great deal since the announcement on Friday evening but it is about a cent and a half better against the US dollar, a cent higher against the Swiss franc and half a cent firmer against the pound. No cigar, then, but nor has it any reason for embarrassment.
The only economic data on Monday were those for new home sales in the United States. After a -36.7% monthly fall in May, caused by the expiry of a tax break for buyers, sales jumped by 23.6% in June. Anyone online spread betting had been expecting an improvement but had in mind something more like 5%.
Perhaps surprisingly there was no reaction whatsoever by the dollar. Poor figures in the past have tended to send it lower but good ones clearly have less effect.
There is only slightly more going on today.
Gfk's index of German consumer confidence has improved from 3.5 to 3.9 and Switzerland's consumption indicator has edged up from 1.74 to 1.81. The Confederation of British Industry's reported sales figure is due out at eleven o'clock; it is the only UK statistic.
Case/Shiller's US house price index comes out after lunch, shortly followed by the Conference Board's consumer confidence index and the Richmond Fed's manufacturing index.
There is not much to go on there so it will probably be a case of steady as she goes, with the commodity currencies leading the way, the US dollar and the yen bringing up the rear and everything else swanning around in between.
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. Neither Online-Spread-Betting.com nor Moneycorp accepts any responsibility for any use that may be made of the above.
FX Day Trading - 26 July 2010
UK economy speeds up in Q2
No surprises from the EU stress tests
ITEM Club sees three more years of low rates
The Business Secretary, Vince Cable, has come up with a brilliant idea to get the economy going. If bank employees do not lend money to companies in desperate need they will not get bonuses. To put that another way, if bank employees do lend money even - if they don't expect to get it back - they will be richly rewarded. What goes around comes around.
The Pound/Dollar rate had a good day on Friday though. It went up by a cent and a half after the figures for UK economic growth in the second quarter of the year. According to the initial estimate, gross domestic product (GDP) went up by 1.1% between the end of March and the end of June. There will be two revisions to the figure before it is finalised but, assuming it was not just an egregious typo by the Office for National Statistics, provisional GDP growth was way ahead of the 0.6% that analysts had been looking for and nearly four times as strong as the previous quarter.
Sterling reacted positively (it could hardly have done otherwise) adding two yen, one euro cent and nearly three cents against the Swiss franc.
There will inevitably be suspicion about the figure; accusations that it was too good to be true. That was certainly the case after the EU published the results of its long-awaited stress tests on 91 European banks. One German, one Greek and five Spanish banks will have to raise €3.5 billion between them in order to bring their capital ratios up to a satisfactory level. The other 86 banks are bomb-proof.
At least, they would be bomb-proof in the gentle scenarios postulated by the tests, such as if a small piece of dirt were to hit the fan. There is a degree of disappointment - though not surprise - that the tests did not involve anything more stressful than market risk. Sovereign risk was not a consideration, presumably because a default by, say, Greece or Spain would cripple every bank in Greece or Spain. Everybody knows that already.
The market's initial reaction to the tests was one of confusion. Yes, almost everyone passed; no, the stresses were not testing enough, yes, the only grade Ds were among the small fry that play no part in the wholesale market, no, the EU was doing a whitewash job.
Euro/Dollar thrashed about across a cent-and-a-half range before coming to no conclusion whatsoever. By the end of the New York session the euro was slightly higher against the US dollar and half a cent better against the franc. It has not lost any ground in the Far East this morning so it looks as though investors are satisfied with the outcome. Not delighted but satisfied.
The European market will have spent the weekend pondering the results of the tests, as well as pinching itself to be sure that Britain's economy really did grow (provisionally) by 1.1% in Q2.
There is next to nothing on today's agenda likely to advance that thought process.
Hometrack's survey showed UK house prices falling by -0.1% in July having risen by a similarly unstonking percentage the previous month. Nationwide's house price index comes out at some point during the week but there is no set timing.
US new home sales in June are almost bound to have been better than the previous month; they could hardly be worse after falling by a third in May.
And that's the lot really, unless investors want to get excited about the ITEM (Independent Treasury Economic Model) Club's findings. It believes the economy will gain long term benefits from the chancellor's austerity budget at the cost of short term growth. It also reckons the Bank of England will keep interest rates down at 0.5% for another three years. In theory that analysis should be bad for sterling but even the most suspicious investor cannot entirely ignore that GDP figure. It was good.
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. Neither Online-Spread-Betting.com nor Moneycorp accepts any responsibility for any use that may be made of the above.
FX Day Trading - 23 July 2010
EU bank stress test results due out
But will they explain the criteria?
Watch for Britain's GDP figures this morning
There has been no abatement of President Obama's War On British Petroleum. Britain's former prime minister, the former home secretary and BP's CEO have all been 'invited' to appear before a senate inquiry. Will it turn into an invitation they cannot refuse? It would be richly ironic if Tony Blair and his team were to fall foul of the lopsided Extradition Act they signed into law in 2003. Maybe there will be a trade-off, with George W Bush and Donald Rumsfeld giving the Chilcot Inquiry the benefit of their recollections.
And maybe there won't, but if the rumours are correct there does seem to have been a trade-off in the presentation of the EU's bank stress tests.
Two days ago there was a story that German mortgage lender Hypo Real Estate would need new capital. Now it seems that some of the 27 Spanish banks - small, local-government-owned ones - will have failed as well. To see some banks fail should, in theory, enhance the credibility of the test (as long as the failing banks are little ones that nobody deals with).
But there is another bone of contention. In principle, when the CEBS publishes the results at teatime today it will include details of the tests' criteria. Some investors worry that those details will be too sketchy. In particular, they worry that there will be no test of banks' exposure to sovereign debt.
But let's look on the bright side as well: When the US authorities ran similar tests last year they published the metrics they had used. During the following six months US bank stocks went up by a third. If the EU results are just as comprehensively reported they might have equally as positive an effect.
In the meantime there is the whole of Friday to get through. The picture yesterday was generally positive for risk and negative for the US dollar and yen.
Provisional euro zone and German purchasing managers' indices all came in better than expected, as did the 3.8% monthly rise in Euroland industrial orders and the three-point improvement in consumer confidence. UK retail sales beat the forecast with 0.7% increase in June. Even US existing home sales exceeded expectations.
Admittedly they were very pessimistic expectations; instead of falling by -10% in June, sales were down by only -5.1%. The only truly disappointing figure came from Canada, where retail sales fell by -0.2% in May instead of rising by more the 0.5% that analysts had predicted.
Germany leads off this morning with the IFO survey of business confidence. Half an hour later the UK serves up BBA mortgage approvals and the first estimate of gross domestic product growth in the second quarter. The market expects to see a pick-up in the pace of expansion with quarter-on-quarter growth doubling to 0.6% from Q1's 0.3%. Canadian inflation figures wrap up the day early: a slight acceleration is expected, from 1.8% to 1.9%.
The will be considerable interest in Britain's GDP numbers. For the last three quarters analysts have been overoptimistic in their predictions. On each occasion the pound has come under pressure as a result of investor disappointment.
There is also bound to be talk today that Q2 is likely to mark a high point for growth; it will not be so easy to come by when the austerity budget begins to bite.
Similarly, the market will take a great interest in the results of the EU bank stress tests. Will a few, obscure banks' failure reassure the world that European banks are solid enough to withstand a financial crisis?
Or will there be deep suspicion that most of them were not considered solid enough to be tested for the effect of a sovereign default?
Bear in mind that, although the FTSE and DAX will be closed when the results are published, Wall Street will still be open. If the results do raise any eyebrows, things might become choppy.
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. Neither Online-Spread-Betting.com nor Moneycorp accepts any responsibility for any use that may be made of the above.
Note - Spread Betting carries a high level of risk to your capital and you can lose more than your initial investment, it 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.
'FX Day Trader', Article by Moneycorp, last update: 29-Jul-10
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