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FX Day Trading - 19 July 2010
Cable rally takes a break
Commodity dollars hardest hit by sentiment
No useful figures today
England football manager Fabio Capello is in hot water again. The complaint against him this time is about his involvement with the 'Capello Index' which rates players' relative performance in the world cup.
It seems the Football Association is worried that Mr Capello might have caused emotional distress to members of his squad by giving low marks to those who performed badly. One is forced to wonder why, if they are all so rubbish, he sent them out onto the field. Perhaps it was habit. That surely must be the reason Wayne Rooney appeared so frequently. The coach had to play him because he was expected to do so, even if he didn't know why.
Investors have a similar attitude to the Japanese yen. When things become difficult in shares markets and data looks flaky they buy the yen. They are not sure why they do it but it's what they have always done. They were doing it again on Friday. At the same time they were selling the commodity dollars and the pound. Sterling managed to stay ahead of the Canadian and New Zealand dollars and to keep up with the Aussie and the rand. It edged lower against the Swiss franc and lost two yen.
Against the US dollar it was down by a cent and a half and against the euro by just under a cent. It is not entirely clear what sterling did to deserve its harsh treatment but a contributory factor will have been cable's proximity to its April highs after an eight-week rally that has taken sterling/dollar a dozen cents higher.
Nor did the Michigan index of consumer sentiment do sterling any favours. The octopus described on Friday how a strong figure could be good for the dollar, pushing the euro down and allowing sterling/euro to stage a recovery. In the event, consumer confidence was much weaker than expected, falling by nearly ten points to 66.5. The dollar went down, the euro went up and sterling/euro failed to benefit.
There is nothing on the table today that offers any encouragement to the pound. Rightmove's house price index, released at midnight, showed a -0.6% fall in July that leaves prices just 3.7% higher over the last year. It was a reminder that there is a considerable degree of gloom out there about the possibility of a renewed setback for the UK residential property market.
Euroland current account and construction output data this morning are the only other figures from this side of the pond. Canadian investment flows will probably be immaterial to the Loonie. The US NAHB housing market index could well be horrid again (it was 17 a month ago and is likely to be even lower today) but it does not come out until most of us will be on the way home.
The story to watch today is the one about the decision by the IMF and the EU to pull the plug on a €20 billion credit line for Hungary because the government is not being sufficiently austere.
Although Hungary is not a member of the euro it is eligible for support from the gigabuck safety net announced by the EU two months ago. It is possible that investors could begin to doubt the viability of that safety net if its draconian conditions make it too difficult for member states to use it.
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'FX Day Trading 19 Jul 2010', Article by Moneycorp, last update: 19-Jul-10
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