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FX Day Trading - 17 August 2011
No breakthrough from Franco-German summit
Possible euro/franc peg
MPC minutes today
"Disappointment [n]: the feeling of dissatisfaction that results when expectations are not realised”.
The departure of Cesc Fabregas to Barcelona was a disappointment. Germany's 0.1% economic growth in Q2 was a disappointment. Twelfth place in Saturday's 3.20pm at Newmarket for 13/2 favourite Blanche Dubawi was a disappointment. All of those events could reasonably have been expected to have had better outcomes; yesterday's meeting between Angela Merkel and Nicolas Sarkozy could not.
That has not prevented the media from describing it as such. The Wall Street Journal's "Disappointment on Germany-France Summit" headline is typical. The attitude is slightly unfair.
After all, they did agree on a need for "true economic governance" and promised "a new quality of cooperation". They also proposed a transaction tax on banks, sure to be a hit with voters.
However, the two glaring – and predictable – omissions were jointly-issued euro bonds and a boost for the European Financial Stability Facility. Remove those, spread betting investors asked themselves why the two leaders had wasted a day of their holidays. The long-term aims are laudable enough but the euro needs action today, not eventually.
Investors' lack of disappointment was evident in the way the euro failed to go down. Compared with yesterday morning it is steady against the yen and the US dollar and only a touch lower against the pound.
The euro – as well as everything else – is another couple of cents higher against the Swiss franc, which is 11% off its peak a week ago. FX spread betting investors have been reducing long-franc positions in anticipation of a serious move to hold down the currency, possibly involving a peg to the euro.
As the Merkel/Sarkozy meeting did not wind up until later in the day, investors had time to ponder the economic statistics. After figures of zero for France and 0.1% for Germany it was no great surprise that Euroland gross domestic product grew by just 0.2% in the second quarter.
It was not good news though, and put downward pressure on equity markets. The UK inflation report blamed clothing and shoes for an uptick in the CPI inflation rate from 4.2% to 4.4%; RPI inflation was steady at 5%.
The US dollar came under selling pressure as a result of weaker numbers for housing starts and building permits. The robust 0.9% monthly increase in US industrial production, announced 45 minutes later, ought to have helped the dollar but didn't.
A comment from Texas governor and presidential hopeful Rick Perry that a further round of quantitative easing by the Fed would be "almost... treasonous" had no effect on the dollar but was highly amusing.
Together with debate about the safer-euro strategy and anticipation of a possible euro/Swiss franc peg it will be sterling that shares the headlines today.
This morning's UK employment numbers are perhaps the month's most important economic indicators and the MPC minutes could possibly show a stronger tilt towards further asset purchases by the Bank (but probably won't).
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'FX Spread Betting: Swiss Franc Falls on Speculation Over SNB Intervention', Article by Moneycorp, last update: 17-Aug-11
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