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FX Day Trading - 21 July 2010
The euro takes its turn in the barrel
Hungary pays for its hubris
MPC minutes this morning
The president and the prime minister put on a jolly show at the White House yesterday. David and Barack went out of their way to show how chummy they were. Barry told Dave about watching the world cup with a beer. Davey told Baz he thought his kids' bedrooms were neat. The two leaders had obviously agreed on no tongues. Not yet. Not in public anyway.
There was rather less evidence of affection between the euro and the FX market. It was not that events conspired against the single currency, more a matter of investors carrying out a quick reality check.
On the credit side: Ireland, Spain and Greece conducted successful debt auctions and Italian industrial orders increase by a healthy 3.2% in May. French economy minister Christine Lagarde said she was 'confident' about the results of the stress tests on 91 Euroland banks; the results are due out on Friday.
On the debit side: Borrowing three-month money at over four percent because nobody will let them have it for any longer hardly qualifies as unmitigated triumph for Greece. Hungary was able to fill only three quarters of an already paltry (€120 million equivalent) three-month bill auction; it was the second such failure in two months. Four days ago the Hungarian government told the IMF and the EU to get knotted and yesterday the market gave the Hungarian government similar instructions. Never mind that Hungary is not a member of the euro; it is setting a bad example that could be picked up by the kids in Club Med.
With only two days to go before publication of the European bank stress tests, investors could see no compelling reason to increase their euro holdings. Nobody knows how the market will react to the results. They can be fairly sure that most, if not all of the banks will have passed. But they have no idea whether the consensus reaction will be one of joy that the banks are so strong or despair that the tests were obviously not tough enough. For many operators that uncertainty alone will have been enough to persuade them that a little position housekeeping was in order.
So it was that the euro had its first bad day for a while. The US dollar, the yen, the pound and the Swiss franc are almost unchanged against each other on the day; even the antipodean dollars have not gone far. The only movers were the falling yen and the rising Canadian dollar. The Loonie initially came under pressure after the Bank of Canada raised its overnight rate target from 0.5% to 0.75%. There was zero element of surprise in the decision and it was accompanied by a more cautious economic outlook. But after a couple of hours' due consideration investors came to the conclusion that Canada's 0.75% policy interest rate was considerably richer than the 0-0.25% US equivalent. Conservatively it is three times as high; practically the Loonie has a six-fold advantage over the Greenback.
If the euro is hoping to find support among today's ecostats it will be disappointed. There are no Euroland data releases whatsoever. Nor are there any from the UK. Swiss money supply and house prices are only vaguely interesting, even to the franc. Canadian wholesale sales will have to be awful if they are to spoil the high-yielding Canadian dollar's party. (A spot of profit-taking after yesterday's rally is not impossible to imagine but we should see it higher first.)
Sterling's bit of excitement comes at half past nine with the minutes of the Monetary Policy Committee's July meeting. As long as Andrew Sentance voted for a rate increase and nobody mentioned quantitative easing the pound should be unharmed by the minutes. In that lucky event, the Pound/Euro would find itself set up to take advantage of an inverted head-and-shoulders formation on the chart which, if it were to work, would be worth the cent and a half between here and the mid-July highs.
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'FX Day Trading 21 Jul 2010', Article by Moneycorp, last update: 21-Jul-10
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