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FX Day Trading - 20 August 2010
Recovery worries favour safe-haven currencies
Unexpectedly good data help Sterling
Canadian inflation figures today, that's all
The burghers of Bognor in Sussex have mounted a campaign pressing for the use of the town's full title; Bognor Regis. Councillor Eldridge told journalists that 'To not call us by our full name dishonours the town.'
The 'Regis' suffix appeared in 1929, courtesy of King George V after his convalescence there, but there is little evidence that the monarch held the place in high regard. On his deathbed seven years later a solicitous aide made the optimistic suggestion that he would soon be well enough to revisit the town. The king's blunt, but unfortunately apocryphal, response was that, in the unlikely event that he were to, he would not make a conventional entrance.
Nor was there anything ordinary about Sterling's gyrations on Thursday. Although Cable opens in London unchanged on the day its two-cent range was almost identical to that of the Wednesday and the pattern of the two days' movement was spookily similar.
On Wednesday it was the Monetary Policy Committee minutes that set the ball rolling for Sterling. Yesterday it was a combination of lower than expected public sector borrowing and better than expected retail sales growth that did the job.
Public sector net borrowing in July was £3.2 billion, two billion lower than forecast and less than a quarter of the previous months shortfall. Retail sales rose by 1.1% in the month instead of the 0.4% analysts had predicted. The Pound shot a cent and a half higher against the US Dollar in less than an hour as well as adding one Yen to its value and rising by nearly a full Euro cent.
Data which emerged at the same time showed further falls in mortgage and business lending and the weakest annual money supply growth in 27 years. Investors initially ignored those figures but they weighed on the Pound later in the day.
As well as being unchanged against the US Dollar, Sterling has gone a net nowhere against the Euro and is lower against the Yen and the Swiss Franc.
As that performance might suggest, the tone yesterday was of risk-aversion. Equity prices fell, as did the commodity currencies. The Pound has added a cent and a half against the Canadian and Australian Dollars and two and a half against the New Zealand Dollar.
The dash for safety, well it was more of a stroll really, was encouraged by disappointing statistics from North America. US weekly initial jobless claims unexpectedly hit the psychologically important half-million point.
The Philadelphia Federal Reserve's manufacturing index dropped more than a dozen points to -7.1, indicating that activity is falling again, rather than just not going up very quickly.
Across the border, Canadian wholesale sales fell by -0.3% in June where they should have risen by at least that much. The combination of weaker than expected data renewed concerns about double-dip recession.
It took investors more than an hour to decide what to do about it but their decision, when it did come, was that the safety offered by the Dollar was more important than the risk of investing in a currency linked to a slowing economy. The Yen led the field and the commodity colonies brought up the rear.
There will be no get out of jail free cards for Sterling today. With New Zealand credit card spending out of the way, down by -1.2% in July, the only data set remaining on the week's agenda is Canadian consumer price index inflation, which comes out at midday.
Headline CPI inflation in Canada is less important than the Bank of Canada's 'core' index, upon which it bases its interest rate decisions. Core CPI is expected to have risen by 0.1% in July, having fallen by exactly that much in June. If that lifts the annual figure from 1.7% to 1.8% as expected there ought to be no effect on the Canadian Dollar.
The uncertainty surrounding tomorrow's general election will probably keep the Australian Dollar on the sidelines while Sterling frets about the durability of important technical support against the US Dollar just to the south.
It has held firm twice this week but so has the technical resistance just to the north. One of them will have to crack sooner or later, but which one? And how soon? Have a good weekend.
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'FX Day Trading 20 Aug 2010', Article by Moneycorp, last update: 20-Aug-10
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