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FX Day Trading - 19 August 2010
Sterling higher all round
MPC claims responsibility
Little to excite on today's agenda
The government's Spending Challenge encouraged suggestions from the public as to how their taxes could be spent more efficiently. It received 44k ideas, many of which it has published on its website.
A proposal that did not make it through the moderating process was the suggestion to outsource A-levels, handing the system over to the credit ratings agencies. With 8% of entrants in line for the 'gold-standard' A* and nearly a third expected to get As, the track record of the ratings agencies in sub-prime mortgages makes them admirably suited to step up the output of top grades. Who knows, within a couple of years, 99% of students could be achieving A*** grades.
To show how unfair the old meritocratic system was, involving success for some but failure for others, compare and contrast Sterling's performance on Tuesday with how it did yesterday.
Looking at its meaningless decline two days ago, when it fell against everything, the examiners would have written it off as a failure. After the last 24 hours, during which it achieved a 100% success against every other currency, there can be no reasonable argument against giving it an A*.
It helped, of course, that its coursework was up to scratch. Only one paper was submitted; the minutes of the Monetary Policy Committee's August meeting. There were ticks in all the right boxes, with one member voting for higher interest rates and none calling for a cut. The only close call came with the idle mention of further quantitative easing but the situation was saved by giving equal prominence to talk of cutting back on the existing stimulus.
Some will attribute all of Sterling's success to the minutes. It was certainly their publication that got the Pound up and running. But it will also have received help from the unwinding of short positions taken the previous day. There was no other UK data or news to muddy the waters on Wednesday, nor were there many more from anywhere else.
Eurozone construction output rose by 3.1% in the year to June but performance across the Eurozone was chequered and the vast majority of the growth, 2.7%, came in June alone.
Iceland's central bank lowered its policy interest rate from 8% to 7%. Overnight, New Zealand producer prices revealed a quarterly 1.4% increase in manufacturers' costs while factory gate prices rose by 1.1%. Manufacturers' margins in New Zealand are feeling the squeeze just they are elsewhere.
Australian wages rose more slowly than expected in the three months to May, by 0.8%, and the annual rise slowed from 5.8% to 5.6%. Japanese machine tool orders rose by 145% in the year to July but only from a very depressed base. Switzerland's trade surplus widened by more than a billion Francs in July to SFr2.9 billion but the news did not prevent the Franc falling slightly against the Euro.
Currency movements so far this week have been largely the result of sentiment, fad and seasonal illiquidity. There has been little evidence of cause-and-effect to connect the economic data to price action.
There is no reason why that should change today, in the middle of the northern hemisphere's favourite holiday month. The Pound might win some support from the public sector net borrowing figure if it falls as much as analysts expect but could be offset by continuing weakness in mortgage lending.
Swiss business expectations and US leading indicators will not do much. US weekly jobless claims have not had any appreciable effect in recent weeks. Canadian wholesale sales might have some impact on the Canadian Dollar FX spread betting market and the Philadelphia Fed's manufacturing index could do something to the US Dollar.
Otherwise, with only the Canadian inflation figures on tomorrow's agenda, the week could begin to fizzle out a day early.
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'FX Day Trading 19 Aug 2010', Article by Moneycorp, last update: 19-Aug-10
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