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FX Day Trading - 1 September 2011
Swiss authorities persevere with franc strength
They seriously want it lower
Manufacturing PMIs today
Spot the flaw in this business plan: manufacture a product for $300 per unit; attach a retail price of $450; struggle to sell a tenth of production; call it a day and hold a clearance sale at $99; watch the product fly off the shelves; restart "one last run" of production at $300 "to meet unfulfilled demand", and ship it out for the shops to sell at $99.
Brilliant. These guys should be running a bank. Aside from the apparent inanity of setting out to make a $201 loss per unit, what Hewlett Packard's experiment with the TouchPad does prove is that buyers will be there for anything if the price is right.
Folk will pay $600 for an Apple iPad because it is hip, cool and trendy. They will pay $99 for an HP TouchPad because it works.
In today's currency world the Swiss franc is the iPad of the moment while the pound, the euro and the US dollar seem to be stuck with sharing the lowly TouchPad's supporting role.
The Swiss National Bank and Swiss politicians have repeatedly expressed their displeasure with the situation. They have encouraged and cajoled investors to see the franc not as the great safe-haven but as a chronically overvalued currency. The SNB has intervened to sell the franc and has lowered its benchmark interest rate to near-zero.
Now the Swiss government has upped the ante with an SFr 870 million stimulus programme which will, according to Economy Minister Johann Schneider-Ammann, "support the Swiss economy in an extraordinary situation".
In a special brief published yesterday, Nick Parsons at National Australia Bank said the likely euro/Swiss exchange rate target of 1.25 was achievable and that the Swiss government "is very likely to get its way". It will not be a swift move but look for progressively more draconian measures if the franc does not begin to head lower.
Brazil, another country with an uncomfortably overvalued currency, took a step to depress the real yesterday when the Banco Central lowered its benchmark interest rate by 50 basis points to 12%. After two years of progressive rate increases the move came because Banco Central now sees growth as a bigger risk than inflation.
The first of the month heralds the opening salvo of purchasing managers' indices, first up being those for the manufacturing sector.
Australia's manufacturing PMI, announced earlier, ticked lower to 43.3 while the two competing Chinese measurers edged higher, one to 50.9, the other to 49.9.
The European numbers are forecast to be in the same zone as China, with Germany leading the way at 52.0 and Switzerland not far behind at 51.3. Euroland and Britain should hover just below the break-even point at 49.7 and 49.6, while the US figure is likely to be softer at 48.5.
Today's other UK release, Nationwide's house price index, is already out, down by 0.6% on the month and by 0.4% on the year. Nationwide believes "the downside risks have increased". FX spread betting investors seem to have taken the news in their stride so the negative implications for sterling today should be negligible.
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The above content does not constitute investment advice, it is provided purely for information purposes and is delivered as a personal view of the writer. Neither the contributing company (or writer) nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the content.
'FX Spreads: Sterling Unaffected by Weak Housing Stats', Article by Moneycorp, last update: 1-Sep-11
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