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FX Day Trading - 16 July 2010
Everyone nervous again about growth
FOMC minutes warn of five or six lean years
Canadian dollar falls sharply
Yesterday's British Crime Survey was an embarrassment to all concerned. The number of crimes committed in 2009/10 was 9.6 million. It was embarrassing to the government that Labour managed to reduce crime by 43% during their 13 years in office while the Tories moaned about it going up.
It was embarrassing to the police that, with record numbers of constables and fewer crimes, the detection rate has fallen; three quarters of crimes remain unsolved. It was embarrassing to motorists that the 25% of crimes successfully detected were nearly all down to them. Most of all it was embarrassing to the nation's citizens:
Statistically, with an adult population of under 50 million, one in five of us is a crim. Take a surreptitious glance around your team and see if you can guess who they are.
The crime figures were one of several statistics to have a negligible effect on currency spreads yesterday. A slight fall in the scale of mortgage equity repayments, from £3.4 billion to £3.2 billion in the first quarter, was unremarkable.
Although the Swiss franc did ease against the euro during the day the move seemed to have no connection with a sharp fall in ZEW's survey of Swiss business expectations, from 17.5 to 2.2.
An on-target increase in Canadian manufacturing shipments and far better than expected new vehicle sales were no justification for the Loonie's two and a half cent plunge against the Greenback. US producer prices fell more quickly that predicted in June, down by -0.5% on the month and halving the annual rate of increase to 2.8%, but producer price inflation's main importance is to the future course of interest rates.
The Fed had already made abundantly clear that rates are going to remain exceedingly low for a very long time and the PPI data will have made no difference to that outlook.
The figures which might have made a difference - and the timing of the Canadian dollar's move suggests this is the case - were two Federal Reserve District surveys of manufacturing activity and a feeble 0.1% monthly rise for industrial production. The New York Fed's index fell by 74% from 19.6 to 5.1 while the Philadelphia equivalent performed rather less badly with a 36% fall to 5.1. Given the market's usual lack of keen interest in the Fed indices it seems likely that Thursday's coincidence of timing came when the data acted as a catalyst for trading decisions that investors already had in mind.
There had already been nervousness about the strength of the US recovery and analysts had spent the previous afternoon poring over the minutes of the June Federal Open Market Committee meeting. What they found, tucked away at in the middle of the wordy 21-page report, was the following caveat;
'Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants' interpretation of the Federal Reserve's dual objectives; most expected the convergence process to take no more than five to six years.'
The epic sentence started with a fairly neutral tone and finished with a bombshell. The Fed thinks it is going to take the American economy five or six years to get back onto a normal footing.
It was not what the market wanted to hear, especially in the light of a slowdown in China, announced earlier in the day.
Share spreads took a hit and the commodity currencies came under pressure. The Canadian dollar was first obvious target because its economy is linked so closely with that of the United States.
The safe-haven yen did as well as any of them but the maybe-it-isn't-quite-such-a-safe-haven US dollar lost ground. Sterling lost ground to the euro, as it usually does when there is a rush into the single European currency, but it collected two cents against the US, Canadian and Australian dollars. It is almost unchanged against the Swiss franc.
Looking down today's schedule there seems to be nothing there guaranteed to get things moving.
Euroland's balance of trade will be looking less healthy for May but still in surplus. The impact of the theoretically important US inflation figures will be muted by the Fed's determination to press ahead with near-zero interest rates come what may. Foreign capital inflows to the States, as measured by the Treasury's TIC report, have not been particularly influential in recent months.
The only one with real potential is the University of Michigan's provisional consumer confidence survey for July. Analysts are predicting it to be two points lower on the month at 74.0. A stronger figure than that could easily spark a correction for the dollar after its losses of three euro cents and four cable cents this week.
Taking that leap of faith a stage further, any such dollar rally could result in a jump for the Pound/Euro spreads as cable falls more sluggishly than euro/dollar.
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.
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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 Trading 16 Jul 2010', Article by Moneycorp, last update: 16-Jul-10
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