FX Market Overview

Well that was a thoroughly enjoyable long weekend in the UK. I hope yours was relaxing; maybe not so if you are Welsh or Scottish and you follow the rugby and perhaps not so if you are a Lewis Hamilton fan but Andy Murray is back to his winning  ways and England’s cricketers bounced back to lead the series against India 2-1. And we had some success in the Athletics with Kelly Sotherton taking the heptathlon bronze.

I am sure plenty of ‘it’s only a bit pink in the middle, It’ll be fine” chicken was scoffed and plenty of lager and Pimms was quaffed in the sunshine and while we are all hard at play, the markets carried on regardless. Sterling slipped against the Euro after comments from the European Central Bank which left everyone arguing over whether another EU interest rate  hike is still on the cards or not. It would look like they will leave the base rate alone for at least a couple of months and perhaps, if it’s warranted, we will see another hike at the end of the year.

Sterling is a tad stronger against the US Dollar as more housing woes befell the Dollar. Existing home sales disappointed and that created further nervousness over the levels of defaults amongst US mortgage payers (or non-payers to be more accurate).

And the knock-on effect from the US data lead to weaker New Zealand, Australian and Canadian Dollars although the South African Rand remained in a shallow range against Sterling as the future path of SA interest rates remained unclear but there is an air of strength about the Rand and I wouldn’t be surprised if it strengthened throughout the rest of the week.

This will be a busy week for data with heaps of Eurozone business and consumer confidence indicators as well as employment and inflation data. We also get enough from the UK and US to keep traders on their toes and countless separate data releases from Japan just to keep things edgy.

Have a great week, make the most of the quiet roads because the kids go back to school soon and that will all change and let’s hope the fine weather holds for a few days more - because we’re worth it.


Currency - GBP / Euro

After a flurry of activity last week brought the Sterling - Euro exchange rate to a high of €1.48 as we forecast, the market is correcting today and a target to €1.4670 is an almost certainty. Whether the market will break below here and test the €1.4650 low seen last week or even make it to the €1.4584 low seen in May is all open to question. There is ample data available this week to help traders make up their minds; it starts with today’s German IFO business sentiment indices and ends with a wave of Eurozone inflation, consumer and business confidence and unemployment data on Friday. There is a general mood that the Eurozone interest rates will remain on hold for longer than had been previous thought and the expectation is that this week’s data should reinforce this view. That, on the face4 of it should weaken the Euro but, the fact that it isn’t happening at the moment, would suggest that there are greater forces at work. And the greatest of these is the weight of the carry trade investor. Sterling, it seems, was a larger recipient of carry trade funds than the Euro and as these trades are unwound, sterling will suffer to a greater degree. Hence the slide we are seeing and hence the. 
 

Currency - GBP / US Dollar

Sterling is still looking vulnerable against the US Dollar in spite of the market staying above the magic $2.00 figure for most of the morning. Friday brought a spike near to $2.02 and yesterday saw all of that gain unwound. All the indicators showed the Friday move to be overdone and another drop through $2.00 and maybe even as low as $1.9750 to match last week’s lows would make sense. If US mortgage concerns remain as high profile as they have been, it will be the USD that benefits in an ironic quirk of fate. The reason is that it is the US Treasury market which offers the best perception of safety and security in these troubled times and so, those selling out of their riskier trades, even if that risk emanates from the US of A, will dive into the US Treasury Certificates for that all important safe haven status.

It is also fair to say that most analysts are expecting this week’s UK mortgage and lending data to be weaker and that should continue the Pound’s slide.


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Politics: “Poli” a Latin word meaning “many”; and "tics" meaning “bloodsucking creatures”.


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