20141231 – GOODBYE 2014 HELLO 2015

Good morning



The WINNER of the prize for the best performing currency of 2014 is: The MIGHT UNITED STATES DOLLAR or as we know it USD.

The USD will end 2014 with a gain of 12% against a basket of major currencies. The much anticipated US interest rate hikes will only strengthen its appeal in 2015. 2014’s gains will be the USD’s largest since 2005, when it climbed nearly 13%. But hey let’s not be picky over 1%.
The divergence between the FED’s path toward rate hikes and stimulative monetary policies in the EU and Japan has helped the $ index (90.325) hit an eight-year high this year, and is likely to remain a key theme in 2015 as we at ParityFX have written about in just about EVERY comment since July this year. Back then the EURUSD was trading at 1.3650 and PARITYFX put out a recommendation that the EURUSD will reach 1.2000 by 31 December 2014. I did alter that slightly in November to 1.2200 and I am glad to say that was reached a couple weeks ago. Not that I am trying to give myself a pat on the back (ok I will) we are VERY PROUD of the trade recommendation and once again proves why WORKING WITH PARITYFX WILL ULTIMATELY SAVE YOU MONEY.

Recent solid data from the US has reinforced the view that the economy is improving enough for the FED to begin raising interest rates in MAY/JUNE 2015. Most commentators have gone for AUGUST/SEPTEMBER. I am of the opinion that the data will only get stronger and this will be the catalyst for FED Pres. Yellen to SURPRISE the market and hike EARLIER than widely expected. This rate hike cycle will reinforce our view that the USD is heading towards PARITY(FX) or 1.00:1.00 against the EUR. While other commentators have agreed with this synopsis they are looking at this happening in 2016 or beyond. I am of the opinion that the race to PARITY will happen SOONER than we think given the HUGE disparity between the US and EU. The Greek situation could very well be the catalyst we need to ignite the break through 1.2000 which then opens the door for a move to 1.1000 followed by 1.00:1.00. So far we have hit the nail squarely on the head!!! I cannot stress HOW STRONGLY I FEEL ABOUT THIS. Then again this is MY OPINION only.

Peter Praet, the ECB’s Chief Economist signalled in a recent interview with a German publication that the ECB policymakers may soon consider large-scale asset purchases, including sovereign bonds, at their next meeting on January, 22. Praet warned that EU inflation is expected to drop below zero “for a longer period” in 2015 against the backdrop of falling oil prices, and the Governing Council “cannot simply look through” that.  Praet added the ECB must “not be paralyzed” by the problems a quantitative easing (QE) programme might bring. Sovereign bonds are “the only kind of asset for which there is a significant market volume.” Praet also made reference to the Greek snap elections, saying “the rise of political parties opposed to structural adjustments is a warning signal. Populists in some countries promise fast and simple solutions but their proposals would be a complete disaster.” AMEN to that!! As we wrote earlier this week, a hard-line left wing Syriza party win will in all likelihood cause insurmountable problems for the EU/ECB and potentially create a CRISIS, one which will make the Lehman Brothers (a Bank I worked for and loved) collapse seems like child’s play. I find it almost unbelievable that given the enormous complexities and problems the EU is facing there are people out there that seem to live in a bubble and deny the need for help. They should all hop on a ferry and go live on one of Greece’s beautiful islands and leave the real work to the professionals.

So quick opinion on 2015. (1) The USD continues to rally strongly vs the basket (EUR, GBP, JPY, CAD, AUD, NZD, SEK, NOK). Emerging Market currencies (ZAR, ILS, TRY, MXN, KRW, INR) will inevitably all trade weaker as the USD continues its march. (2) Oil will find a bottom once the realisation sets in that the market is bigger than the sum of its parts. (3) Inflation will be the “winner” as we have seen over the course of the year, (4) GBP will power ahead vs the EUR breaking through 1.3000 (0.7700), (5) PARITYFX WILL CONTINUE TO OFFER OUR CLIENTS THE BEST RATES AND ADVICE. SIMPLE!!

AS we approach the last hours of 2014 the FX markets have gone into hibernation. Our ticker is barely changing. So it appears we are now done for the year. My hope is you had a good year all round.




20141230 – GREEK FALL OUT PART 2

Good morning

Just when you thought it was safe to go back into the water, SNAP SNAP.

Here we go again. The Greeks (I have many Greek friends) I’m afraid have hit the brakes and set in motion another Eurozone crisis. It is ironic that the last Greek crisis took place 5 years ago almost to the day!! As Greece’s finance minister warned, the ECB could “strangle the Greek economy in a split second” if it cuts off life-support for banks. What this all means in a nut shell is the EU’s ongoing crisis has returned with a vengeance as snap elections open the door to the left-wing Syriza party (Anti-Austerity) coming into power and setting up a showdown with the ECB over the terms of Euro membership, not to mention the threat of leaving the EU and the EUR common currency.

Greece’s stock market fell 10% (recovered somewhat) while the 3-year bond yield rose an eye-watering 185 points to 11.90%. The hard liners from the Syriza party have vowed to tear up Greece’s hated ‘Memorandum’ with EU-IMF Troika creditors “on its first day in office”, and threatened to default on up to €245bn of rescue loans unless the EU grants debt relief. Leading by 29.90% to 23.4% in the polls, the prospects of the above happening grow by the day. If the worst case scenario does happen it will be the first time a truly “radical hard-line” group has led a Govt. since the monetary union was created. German finance minister Wolfgang Schauble warned the Greeks not to play with fire by pressing for impossible demands. “Fresh elections won’t change Greece’s debt. Each new government must fulfill the contractual obligations of its predecessors. If Greece chooses another way, it’s going to be tough,” he said. The IMF said Greece faces “no immediate financing needs” yet the issue will turn serious once Greece runs out of Troika money in February. “We could have a problem at the beginning of March,” said finance minister Gikas Hardouvelis. It will be even more serious in July and August when Greece must repay €6.7bn to the ECB. Capital markets are effectively closed. Joschka Fischer,the former German foreign minister, said northern Europe cannot give ground to Syriza without causing EMU discipline to break down. “Any renegotiation would unleash a political avalanche in the southern EU that would sweep away austerity and reignite the eurozone crisis,” he said.

While Greece’s economy has stabilized after contracting by 25.7% in a six-year depression, the damage has been enormous and caused pervasive cynicism over EU claims. Investment has fallen by 63.5%. Unemployment is still 25.9%. Troika loans have left the country with a public debt 177% of GDP, even after two “haircuts” for private creditors. Everything now hinges on the ECB. They HAVE to come out with all guns blazing and launch a MEANINGFUL QE programme. The half hearted measures to date are simply “not good enough”. Simply put, unless they pull out all the stops the market will hammer the EUR and Greek (Italian/Spanish/French) bonds. We are entering a CRISIS except this time the ECB could very well be sitting around a table with uncooperative and hard line partners. My comments yesterday about EURUSD moving towards PARITY and the prospects of €/$1.00:1.00, become more and more realistic!!!!

Looking at today’s economic calendar, investors will be focusing on December’s US Consumer Confidence reading. Expectations point to a print at 93.7, putting the index within a hair of the seven-year high at 94.1 recorded in October. US economic data has improved over recent weeks/months, hinting that the FED will hike rates BEFORE the anticipated dates hinted by Economists. We have said the 1st hikes could come around the end of Q2 (May-June) while the observers have said more like Sept. 2015. As the data proves the US economy is strengthening by the day, the FED might well be forced to hike and put us all out our misery. EURUSD fell from 1.2225 (pre-Greek announcement) to 1.2150 currently (1.2123 lows). If all goes well over the next 36 hours MAYBE JUST MAYBE MY (ORIGINAL)  CALL (IN JULY 2014) FOR €/$1.2000 BY 31 DECEMBER 2014 WILL BE REACHED!!!

GBPUSD remains on a 1.55 handle though the prospects of the USD breaking towards 1.2000 (EUR) opens the door to further loses though potentially not as bad. Given the state of the UK economy while the USD should rally vs the GBP it will be a trickle rather than a burst. The GBP vs the EUR though is fairing nicely trading around 0.7830 (1.2770) with the prospects of 0.7700 (1.2990) evenly poised.



Good morning

Hope you had a good festive break and you received some useful gifts!!! Or was it another pair of socks/perfume/gift voucher/car/private jet!!!

Having taken a few days off last week I of course kept a close eye on developments and in particular the MIGHTY USD!!!

People sometimes ask where we came up with our name, PARITYFX. Given the amount of people talking about EURUSD trading at PARITY in the coming year (in other words: 1 EUR = 1 USD) I thought it would be a good idea to use this as my subject line. A terrific article written in the Telegraph newspaper says it all: “Dollar dominance to push currency towards PARITY with euro”. It goes on to say, “Experts say combination of tighter monetary policy in the US and the prospect of more loosening in the eurozone mean the single currency is on its way to PARITY with the dollar. The dollar will continue to strengthen in 2015, pushing it close to PARITY with the euro for the first time in more than a decade, experts believe. Data last week showed the US economy grew at an annual pace of 5% in Q3. Experts said the recovery would continue, preparing the ground for the US Federal Reserve to raise interest rates. Economists at Citibank said a combination of tighter monetary policy in the US and the prospect of more loosening in the eurozone meant the single currency was on its way to PARITY with the dollar. Citibank has forecast that one euro will only be worth $1.10 by next September, from around $1.22 today. It expects the euro to fall below PARITY to $0.99 in 2016 for the first time since December 2002.”

Citi Bank commented, the USD would also strengthen against the pound to $1.43 next year, from its current level of £/$ 1.5570. “The macro backdrop is very conducive to dollar strength, and that’s built around the idea that you’re going to see rates rising in the US, and rates stable to lower in the EU for a long time. History tells us that these trends may persist for longer than you might think. For us, EURUSD PARITY is a logical destination.”

Ultimately, the winner (other than the USD) will be GBP vs EUR with a move to 0.7000 (1.4300) on the cards by December 2015-Q1 2016. Trading at 0.7830 (1.2770) presently I think we will see a SERIOUS move take place over the first few weeks of January. I get the impression the momentum with the GBP is strong and a big swing is on the cards. My initial target is 0.7692 (1.3000) as the psychological break level.

Later today, Greek Prime Minister Samaras faces a vote in parliament that will decide whether the country goes to snap elections that could bring the leftwing Syriza party to power and derail an international bailout. Voting is due to start at midday (1000 GMT), with the result likely around an hour later. Underpinning the EUR, Jens Weidmann, a member of the ECB’s Governing Council and the president of Germany’s Bundesbank, told a newspaper on Sunday that growth in Germany – Europe’s biggest economy – might be better than expected next year, and that the situation in Europe is not as bad as many people think (or is he simply TALKING HIS BOOK). Weidmann is the most vocal opponent of quantitative easing, which some economists believe is the ECB’s last resort to revive the euro zone economy.

This week is light of course on the Economic calendar. However we will see US Consumer Confidence Tuesday (expect 93.2 vs previous: 88.7), China Manufacturing PMI Wednesday (Previous 49.50), and German Manufacturing PMI (expect 51.2 vs previous: 51.2).

So all eyes on Greece today, and I CANNOT STRESS THE IMPORTANCE OF THIS VOTE. The future of the EU as we know it is on the brink of a new crisis as the Greece’s parliament prepares to vote on a new president. The Greek government has so far failed in two rounds of voting to find the parliamentary majority it needs to have its presidential candidate approved later.Failure to win the vote on Monday morning will trigger a snap general election, under the Greek constitution, at a time when a far-Left party opposed to eurozone austerity leads in the opinion polls. The election of the popular Syriza party, which is opposed to austerity measures demanded by EU and IMF creditors in return for a Greek debt bailout, threatens the future of the euro. Gikas Hardouvelis, the Greek finance minister, warned on Sunday that the election of an anti-austerity could lead to punitive ECB economic sanctions against Greece.

A vote in favour of the far-Left party will in all likelihood send the EUR into another round of (serious) selling. Greece has for MANY YEARS been on everyone’s lips when talking about the 1 country in the EU MOST LIKELY to quit the EU. Of course we all think this just CAN’T HAPPEN….then again if we can put a man on the moon, what’s stopping Greece leaving the EUR!!! I guess you know what I mean. Heaven forbid. It will make the Lehman Brothers fiasco kids play.

Have a good day ahead and best wishes


Equities rose to record highs yesterday, with the Dow Jones Industrial Average closing above 18,000 for the first time ever, and the US dollar bullish trend continued with EUR/USD posting yet another year to date low, as did GBP/USD. Meanwhile energy prices have been consolidating close to the year to date lows, with the price of Brent crude hovering just above $61 – it really looks like there could be a minor recovery with $67.50 capping any move, before a new test of the recent lows. As I’ve mentioned before the bearish oil move looks very mature and I wouldn’t be surprised to see a larger recovery in the weeks ahead. It’s clear that the positive surprise from better than expected US GDP numbers were a factor in the festive risk sentiment last night – GDP growth was much higher than expected at 5% vs 3.9% previously and a forecast of 4.3%. When you factor in the solid Michigan sentiment data, and stable core PCE price data, it was a clear goldilocks scenario for the United States. You might actually say that it’s better than goldilocks… those are the best GDP growth numbers for a decade. Markets might celebrate right now, but in such seasonal news, are the seeds of future market turmoil. The Federal Reserve will have to take notice of such growth, they may be forced to act earlier than the market anticipates!

On the other hand, UK GDP numbers were slightly disappointing, with no change to the original estimate. Economists had expected an upward revision but this failed to materialise. Still… 2.6% growth is still decent. Not so much that UK citizens should concern themselves with rate normalisation concerns, but if the retail numbers for the Christmas period are anything to go by the UK consumer is quite buoyant. We may yet see continuing improvements in UK data.

I guess econometricians go on holiday early, because there really isn’t much data to speak of today. We don’t expect much excitement with even the Russian rouble virtually flat on the day, indeed over the last few sessions the rouble has been able to follow a recovery path and is now trading around the 54.50 level. A quite stunning 55% recovery from the panic lows of 84.30.

There’s not much else to report, so I’ll take this opportunity to wish all of you a wonderful and Merry Christmas.

20141223 – PONDERING 2015

The S&P 500 hit its record high again into the close last night, even as EUR/USD made a new year to date low. The paradigm of equities going up as the US dollar strengthens appears to remain in force. This is reinforced by USD/JPY going back up above 120. As we approach the end of the year the markets look set to maintain the trends which have dominated the global macro this year.

This morning we have seen a lacklustre French GDP report, with 0.3% growth which was in line with expectations and bang in line with the previous quarterly number. Certainly not enough to get that pesky public sector deficit moving in the right direction – public debt has risen in Q3 to 95.2% of GDP… ouch! Shortly we’ll see Italian retail sales, with UK and US GDP numbers to follow. We also have durable goods and core PCE price data in the United States as well. Economists expect 3% growth in the UK and 4.3% in the US, so it’s not surprising at all that these are the economies most likely to begin the process of rate normalisation next year, and naturally it’s not surprising that the Eurozone in which France is the 2nd largest economy is looking to ease further. So much to ponder about 2015.

These growth differential macro forces will continue to drive currencies next year, and we at ParityFX continue to maintain that the US dollar will trend higher versus its major rivals, and developing markets to boot. It is also our expectation that we will see more developing markets under pressure with the main risk being corporate debt. As we’ve mentioned in these blogs in recent months, corporates in developing markets have borrowed heavily, primarily in US dollars, over the last 5 or 6 years, the data is sketchy, but when you consider known debt issuance, and the fact that the foreign subsidiaries of a lot of these corporates have also borrowed and sent money back home, it raises the question of exactly what component of foreign direct investment has really been… foreign in the last half decade. Which western banks have exposure to over-leveraged businesses in at risk economies? These are the types of risks that look likely in the new year. The story is always the same, collectively humanity must be insane, because we really do keep doing the same things over and over. But perhaps not, perhaps you’re only insane if you expect a different result!?

We would expect the strength of the US dollar to start weighing on US large cap earnings, both from translation effects and also from price competitiveness, therefore I wouldn’t be shocked to see US small cap stocks outperform their larger brethren as they benefit from robust domestic growth. We would, however, only expect an accelerated decline in the euro if Mr Draghi is somehow able to convince Mr Weidmann of the merits of purchasing sovereign debt, or if the stresses of stagnating growth and rising debt levels force some sort of EU wide political crisis. Any of these things are possible, but the middle path points to a continuing gentle decline in EUR/USD with bouts of sharp corrections. As the linkage between positive global growth and strong US economic performance is maintained, we would expect periods of negative risk sentiment to strengthen the euro in particular.

Finally we don’t expect the base for oil prices base to be too far from the current $60 level (Brent), and we would not be surprised to see a ranging market next year, after all the excitement in 2014. Commodity focused developing currencies are likely to continue to suffer. The likes of Korea, India, and Mexico look to be in prime position to benefit from the present situation, as strong US growth should benefit Korea and Mexico, while lower energy imports as well as a reforming Modi should benefit India. Net global liquidity should be reduced as I don’t believe that the ECB’s promises and Japan’s intentions will be sufficient to counteract Federal Reserve tightening. I guess the really big question is… have legislators left the financial system in a sufficiently robust condition to handle the rise of volatility that is sure to happen as financial repression recedes? We shall see..

20141222 – HANGING ON..

I confess to a great deal of confusion regarding the price action since the last FOMC, and I have looked at some of the comments of my brethren Elliott Wave theoreticians… confusion reigns. After the damaging fall in equity prices leading into FOMC, I started to raise the probability of a significant fall in prices from small to probable, but here we are, just a whisker below the record highs. I will have to reassess what this means before I can make any further guess-timations about where we go from here. I will say however that, as unlikely as it seems, the expectation of a significant fall is only eliminated when a new record high is posted – not happened yet. Talk about hanging on to a view for dear life!


Not surprisingly there’s not much on the data front today. We’ve already seen some import price data out of Germany this morning which I believe highlights the disinflationary effect of lower energy prices. The year on year import price index to November is down 2.1%, versus a 0.3% fall previously and -1.8% forecast. At this stage, any Eurozone data signalling lower inflation will give Mr Draghi the ammunition he requires, and it’s particularly helpful if it’s German data. Call me cynical but I suspect Herr Weidman will be slightly less trenchant with his principles if Germany is directly affected. That’s not to say he doesn’t genuinely believe in his position (the ineffectiveness of quantitative easing, and more specifically, the illegality of the ECB buying sovereign bonds).


What can we say about the mighty greenback? EUR/USD made a new low last week, which makes it highly likely that the trend is reasserting itself, and further lows should follow. It is worth noting however that the recent general pressure on emerging market currencies appears to have abated. The Russian rouble has made a stunning comeback, and even today it has appreciated 4%. It remains to be seen if this is just a pause or if the crisis will re-gather its strength in the coming weeks.


The last fortnight of the year is a time of very poor liquidity and any moves that occur tend to be of the questionable variety. For now I will view 1.2303 as a EUR/USD short term pivot level, above this level I would call a halt in the short term to the dollar bullish trend, but for now, I would continue to view the path of least resistance as lower for EUR/USD (and higher for the US dollar).

20141219 – G-D BLESS THE FED

Good day

Apologies for the delay in publishing this blog. I know for many of you followers, your breakfast is incomplete without reading our comments…

So would you not think that the subject of this blog pretty much says it all. WHAT A RALLY. The biggest 1 weeks gains seen in the US and European bourses for 2014. It was only a few days ago when the S&P was languishing at 1985 that people were thinking this is potentially the start of a BIGGER move lower. And then Pres. Yellen of the FED dressing up as Santa came bearing gifts….whoosh!!! S&P 2071 (high 2079, 1 unit off the all time high’s). What a wonderful present for stock holders. There is no need for me to elaborate any further on what the FED delivered on Wednesday eve as I said it all yesterday. Suffice to say they have opened the door to “we will raise rates at any time and not necessarily at a FOMC meeting”.

EURUSD continues to be dragged lower, trading as I write this at 1.2260 (2014 low 1.2247). My target of 1.2200 is now a stone throw away and if I might say so myself I am pretty chuffed with my call from July when the EURUSD was trading at 1.3650. Ok originally i said 1.2000, but that was raised 6 weeks ago to 1.2200. Like I ended off my blog yesterday would you HONESTLY reject EURUSD at PARITY(FX) – EURUSD 1.00:1.00. I think not. Ok I am not saying it will happen tomorrow, but if I was looking for a punt why not look to buy a EURUSD one touch with a trigger at 1.00 expiry 31 December 2015. If the FED are going to start hiking in the summer of 2015, it is likely they will probably hike 3 times over the course of Q3-Q4 meaning everyone and their dog will be pilling into the USD.

USD/NGN (Nigeria) – In an effort to reduce foreign exchange speculation by local banks and support the Naira, CBN has stipulated that dealers must reduce the percentage of shareholder’s funds held in dollars from 1% to zero. I fear this policy change will be counterproductive. Starving the market of liquidity is exactly the opposite of what you should do in this type of situation, as the market will find its fair value no matter the obstacles. All this will do is increase the level of volatility and if anything the naira is likely to trade at a discount to fair value as price discovery will be more difficult to achieve. Some analysts are now predicting the naira could find its level around NGN 195 in the short term.

USDZAR (South Africa) – After the rally in the USD on Wednesday eve into Thursday, you would have expected the ZAR to trade weaker as a result. Instead the ZAR rallied from 11.70 to 11.50 catching EM traders by surprise. The ZAR has opened weaker this morning at 11.62 and it our opinion that the ZAR is sitting on a pretty slippery slope,  ready to slip off at any time. The proposed electricity blackouts announced by Eskom for 2015 is not doing the economy any favours. Can you imagine if the power went out (often) in NY, London, Tokyo or Moscow. It would not be acceptable. The costs of installing generators is immense and an unnecessary cost to businesses. Call me a cynic, but I really have a bad feeling about the future prospects for the ZAR to recover. Great news if you are an exporter (buying ZAR), bad news if you are an importer (selling ZAR – like SAA!!) – As I have said over and over again, in a trending (against you) market YOU NEED TO HEDGE YOUR FX OR YOU WILL SUFFER LOSSES.

The SNB (Swiss National Bank) has decided to introduce a NEGATIVE interest rate on deposit account balances that exceed a given exemption threshold. This move HAD to come in order to protect the “floor” of EURCHF 1.2000 that the SNB set. The rate of -0.25% will kick off from the 22nd January 2015, and mean that any deposit in excess of the set amount levied on the bank will result in a charge to the bank of 0.25%. This is effect will make holding excess CHF LESS desirable and hopefully reduce the pressure on the CHF. Only a few days ago the EURCHF FX rate was trading at 1.2010 before moving up to 1.2060 currently. As the ECB has often said, and what the SNB has adopted, “we will do whatever it takes”. Actually I think Pres. Putin said pretty much the same thing at his year end conference. It is going to be a cold winter in Siberia that’s for sure.


Last but not very least, our beautiful POUND (GBP). It has held up over the past 24 hours trading at 1.5625 vs the USD while rallying beautifully vs the EUR from 0.7940 (1.2600) to 0.7850 (1.2740). If you are a SELLER of GBP to buy foreign currency (excl EUR), PLEASE PLEASE think about hedging NOW!!! These levels will not stick around for too long. If you are SELLER of GBP to buy EUR, I would say you are sitting pretty and wait it out because as per the market, we see the GBP continuing to strengthen (through 2015) vs the EUR. If you are an exporter and converting your USD (for example) into GBP, again the market is moving in your favour. Needless to say, if you feel uncomfortable, simply HEDGE. You will sleep easier.

Have a great weekend and be well


Good morning

If you are a parent I am almost sure your kids have seen the movie “Frozen” a 100 times and know all the songs. The headline song “Let it go, let it go” i guess SAYS IT ALL after last night’s FED meeting. In other words let the USD go, let the USD go bla bla bla.

Before I get into the comments for today allow me to recap on yesterday’s blog and I quote: ” They ended their taper in October, but maintained their guidance of rates low for a considerable period of time, but in speeches several governors, and key personnel have hinted that, with the current pace of employment growth, rates would have to rise in the near future. This could be the big announcement this evening – an end to the use of the phrase “considerable time”. There is a discrepancy in the interest rate path that the Federal Reserve anticipates compared to the market. The central bank expects rates to rise more quickly than the market does. That gap needs to close – there’s an orderly way to do this, and there’s a disorderly path, currently I fear the latter outcome seems more likely”.

In the FED statement last night, they moved away from the use of “considerable time” in its policy rate guidance to a message of “patience”. In other words the gates have opened to a rate hike at any time and could be announced outside the FOMC meetings. FED Chairwomen Yellen, noted that the FOMC expects the declining oil prices to have a transitory effect on inflation and stimulate growth. The FOMC said it “can be patient in beginning to normalise the stance of monetary policy”, showing its willingness to hold back on changing its rates. The changing of the wording has given economists the results they were looking for. As we at ParityFX have noted many times, a rate hike in the US will come in the summer of 2015.  FED Pres. Yellen continued “This new language does not represent a change in our policy intentions.” In other words we happy with the way things are moving in our economy and don’t be surprised if we surprise the market and hike rates when they were least expected.

The change in the wording sent US stocks into the black and then some. S & P up 2.04%, Dow up 1.69%, NASDAQ up 2.12%, Nikkei up 2.32% and European bourses already up over 1.25%. The USD shot through the roof with the EURUSD moving from 1.2485 to 1.2300, GBPUSD 1.5725 to 1.5575, AUDUSD 0.8275 to 0.8170 to name but a few. As we commented in our blog yesterday, we have maintained for some time that the case for dollar strengthening is sound, and in the bigger picture we stick with that view. if you are a follower and read this commentary daily you will know going to July this year we have been going on and on AND ON about the case for a strong USD calling for a target of 1.2200 (updated from 1.2000) on the 31 December. The HIGH for the day has been 1.2278 (EURUSD). Ok granted we have not “hit” my level yet, but you have to admit we hit a HOME RUN!! Eat your heart out BARRY BONDS (National Baseball Hall of Fame).

Having spoken to various clients over the past few weeks I have advised them that they MUST hedge their USD (mainly) purchases URGENTLY because of our opinions on the USD. Last night simply reinforced what we had said. The USD is king. The USD will remain king. Don’t mess with the USD!!!

We highlighted yesterday the plight of the RUB. Of all the oil exporters, Russia has endured the worst of the sell-off. The fall in oil prices and the sharp depreciation of the RUB (from 35.00 mid-year), combined with the sanctions against Russian entities limiting access to international capital markets, have raised concerns about a surge of defaults. Some of the recent moves may even invoke memories of the 1998 Russian crisis, though I would imagine the CB and Politburo would move heaven and earth to avoid such a situation. The Russian CB intervened heavily in the FX markets yesterday containing the fallout and bring the RUB back to “normality” (61.00 as I write this). Bottom line, things pretty much got out of hand and the CB had had enough. They HAD to show their hand and stop the rout. They have achieved this FOR NOW. The markets on the other hand still smell blood so don’t be surprised if we see another attack.

So much for a quiet December!!! Let it not be said but I told you so.

Have a great day ahead and let’s be careful out there.

20141217 – BAD HABITS

Apologies for the late blog, too many meetings this morning!


The last 2 days US equities have fallen dramatically into the New York close, it’s getting to be a bad habit. Tonight we have the FOMC, where Federal Reserve governors will announce their guidance to a nervous investment community. Is it possible that the crisis in Russia, will temper their hawkishness? Sadly I doubt it. As I’ve said over the last few weeks, the collapse of the Russian rouble does not happen in isolation, if anyone thinks that there isn’t going to be collateral damage from this, please let me know what they’re drinking, it must be the good stuff! My concern is that some banks or corporates must be on the wrong side of the collapsing rouble and will be experiencing severe financial stress. It’s the sort of thing that you find out after the fact, after the damage has been done. Let’s recap what’s been happening recently with the Federal Reserve and possible guidance changes:


  • They ended their taper in October, but maintained their guidance of rates low for a considerable period of time, but in speeches several governors, and key personnel have hinted that, with the current pace of employment growth, rates would have to rise in the near future. This could be the big announcement this evening – an end to the use of the phrase “considerable time”


  • There is a discrepancy in the interest rate path that the Federal Reserve anticipates compared to the market. The central bank expects rates to rise more quickly than the market does. That gap needs to close – there’s an orderly way to do this, and there’s a disorderly path, currently I fear the latter outcome seems more likely.


  • The Federal Reserve has made it clear that it views the collapse in oil prices as a permanent supply shock, which is at variance with the ECB. In this case, I have to side with the Federal Reserve, and most analysts would agree. Therefore the likely coming fall in inflation (because of lower pump prices) has to be viewed as a positive outcome with consumers gaining an effective tax cut. This is a positive for the US economy. It’s notable that the United States with a significant energy sector is likely to be a beneficiary on the consumer side, but will suffer the declining revenues (and employment) of high cost Shale gas producers who are forced to cut back. Europe has virtually no domestic energy production to speak of, so this should be an even greater benefit to the Eurozone economy.. but as I’ve said before, Mr Draghi has his own agenda.


  • Federal Reserve governors have hinted that the only thing holding them back from starting the normalisation process is the weak wage growth data that we’ve been seeing, but even they acknowledge that it’s hard to see this situation remaining as it is, with the unemployment rate edging towards 5%. Employees will be able to bid their wages up as tighter employment conditions become apparent, and the Federal Reserve will be keen to contain any resulting inflationary impact.


What does this mean for the US dollar? We have maintained for some time that the case for dollar strengthening is sound, and in the bigger picture we stick with that view. It is worth noting however that the recent price action and inter-market relationships indicate that the US dollar is sensitive to positive global growth. We see this when equities, and general risk sentiment is positive, the US dollar rallies, but the opposite happens when risk sentiment is bearish. But… but… I have to add the following recent observation… last night when equities collapsed into the New York close, the dollar sell off was muted in comparison with the move in equity prices. It’s just possible that there is a limit to how far the US dollar can fall in a negative risk scenario. Alternatively, it could just be that investors are reluctant to reduce their long dollar exposure with the FOMC announcement imminent. We will learn more about the inter-market relationships following this evenings events.


The Russian authorities have been intervening in the currency markets this morning, but with limited success. At the Russian roubles highest point this morning the USD/RUB rate went down to 62.20, as I write it’s back up to 68.90. This is a full blown battle now between the market and the Russian authorities, and I’m not sure it’s a battle the Russians can win. There’s blood in the water and the sharks aren’t circling any more, they are tearing chunks out of the economic prospects of President Putin’s Russia, and I don’t see a positive outcome. I don’t believe there’s been as much excitement in the macro world since the height of the Eurozone crisis. But one man’s excitement is another’s disaster. It really is a sobering situation, and we really must consider what remedies President Putin will seek to get Russia out of this financial disaster. I don’t need to tell you he isn’t an economist, it’s not clear to me that his solutions are going to be in that spirit.


Looking around at other Emerging market currencies, we appear to be in a period of consolidation after the frenetic activity of recent days. Consolidations are usually ended with continuations in the dominant direction (i.e., continued weakening), but I suspect that everything will remain on hold until after tonight’s announcement from Washington. As I’ve mentioned, the US dollar’s major partners appear to have hit the limits of their counter-trend rally. We see that in the likes of euro and Japanese yen some distance from their highs of the week. As with their Emerging market cousins, I suspect we’re in a holding pattern, but clearly the signs are pointing towards a continuation of US dollar strength.


We’ve seen UK average earnings data come out stronger than expected this morning. 1.6% for October, versus 1.2% previously, economists had forecast 1.5%. A few more months of data like this and Governor Carney might jettison his recent caution. We continue to believe that it is unlikely that we see UK rate hikes before the general election next summer, but we would not be surprised to see the Bank of England follow the big guys across the pond later in 2015. Unemployment data for the UK was also published with no change, which is mildly disappointing in comparison to the forecasts.. ah well! The other big data out this morning has been Eurozone CPI, which was in line with expectations, and the same as the previous 0.7% (core) outcome. On the face of it this aids Mr Draghi, but we see that the Bundesbank President his main rival on the ECB governing council is implacably opposed to Mr Draghi’s attempts to introduce quantitative easing, that’s a big battle that we should all be concerned about. This afternoon we will also see CPI data come out of the US – economists are forecasting no change at 1.8%. We shall see!


Good morning

Going back to the day’s when I was trading FX derivatives, there was a misconception that December was the month to sit back and enjoy the festivities and more importantly to sell volatility and earn time decay. That I am afraid has been proved wrong time and time again. Looking at the various bourses over the past week one could only imagine what must be going through peoples minds right now (including mine).

Back in October stock markets globally got a proper beating. I for one did not like the look of it and decided to sell my entire portfolio. Then November came and the rally and I was left scratching my head thinking am I really seeing things? Alas last week and yesterday simply confirmed my feeling back in October that stocks were overvalued and due a correction. Now don’t get me wrong, this move could again be a “plot” to wash the market of the dead-wood, the day-traders and the weak. Or this could be the start of something bigger. Remember back in October, Oil was very much on the back-burner and we were talking about CPI, conflicts, EBOLA (unreal how quickly we forget), deflation and global growth. Those symptoms are still very much alive and thriving, only this time no one seems to want to write about them and vocalise them on Sky, BBC, CNN, Fox, CNBC etc. Apart from the USA and UK does any nation stand out (I am excl. China India etc.) as coming back from the dead? I think not. In recent weeks China, Norway and Poland all CUT interest rates to try spur on growth and only today Russia HIKED their rates to 17.00% (from 10.50%) but then again that’s a different story all-together.

So let’s quickly jot down a few key points: (1) China manufacturing PMI contracted to 49.50 from 50.50, (2) The RBA retained its forward guidance of stable rates with a dovish inkling, (3) Stocks are falling like a stone, (4) FOMC meeting tomorrow (17th) will shed more light on the path they are taking, (5) oil has been flushed down the toilet, (6) the USD while off the recent high’s is simply gathering its bullets for another push towards my target of 1.2200 by year end (remember my target was 1.2200 as previously noted), (7) the threat of the EU entering a period of DEFLATION edges closer and closer.

USDZAR, USDMXN, USDILS, USDTRY, USDINR, ALL UP THE CREEK WITHOUT A PADDLE. Only this time we can’t blame the strong USD. Just look at the 7 points I raised above and you will get an idea of why EM currencies have been swash buckled. For countries like S.A, Israel, Turkey, India the lower oil price has indeed been a blessing given they are net importers of oil (and thus inflation). The problem is when one goes THEY ALL GO. It is a domino effect. Once the currency broke key levels the rest was history. I feel the opportunity to reverse these losses has come and gone, and while we could see minor pullbacks the writing is on the wall. For the aforementioned nations above, a weaker local currency is AWESOME news given the increased revenue (potential) from the export market.

I will say this again, any CORPORATE WHO REQUIRES FX NEEDS TO HEDGE!!! These are trying times, these are volatile times and relying on lady luck is not really something I would bet on. I am SO CONFIDENT when I say this, the USD will drive below 1.2000 and head towards PARITY(FX) – now you know where our name is derived from – during 2015. The reasons are numerous, but the facts are simple. The US is the only western economy with growth in excess of 2% (their last GDP hit 3.9%). The rest of us are scrambling with a +ve number let alone something as mouth-watering as a 3 handle. So you see, when Gov. Yellen starts hiking rates in the summer of 2015, it will resemble adding a ton of gasoline onto the burning fire. While the rest of the EU/Scandy/Antipodean nations battle to stay afloat, the US will be off to the races and well ahead of the pack. So if you need to BUY USD (vs selling GBP, EUR, AUD, NZD, EM) you would be VERY WISE to put on a hedge now because leaving it until “a better level” is like going to the casino and putting your money on no. 23….what are the chances!!!

As I write this French PMI 47.90vs 48.40 while German PMI going to be published at 8.30am prev 49.50 vs anticipated 50.40….here is hoping it is not as bad as the French.


Wish you a good day ahead