20150227 – RE-PRICING THE RISK

High Low High Low
EUR/USD 1.1219 1.1192 USD/ZAR 11.5588 11.4938
GBP/USD 1.5449 1.5404 GBP/ZAR 17.85 17.72
EUR/GBP 0.7271 0.7256 USD/RUB 61.81 60.73
USD/JPY 119.43 119.11 USD/NGN 202.6 201.5
GBP/CHF 1.4716 1.4631 S&P 500 2,113 2,107
USD/ILS 3.9760 3.9418 Oil (Brent) 61.56 60.03

I posed the question in the last blog about what the driver would be when the bearish EUR/USD trend re-asserted itself a weak euro or stronger dollar? Now I’m not saying the bear trend is back in force yet, but yesterday we saw strong US goods data driving the currency pair lower. Clearly a stronger US dollar was in play. For the record, data for January saw a 0.6% month on month increase in goods orders versus a fall of 0.7% previously, with economists forecasting a 0.3% increase. Those are decent numbers. The accumulation of solid US economic data may yet force the market to re-price the risks of earlier than expected Federal Reserve hikes after all. The story is well documented, the global fear of deflation due to weak aggregate demand and falling energy prices, but the US Federal Reserve correctly views lower energy prices as transitory, the risk as they see it is accelerating wage inflation due to tightening labour markets.

 

Some of our readers might wonder why I have continued to remain sceptical about whether the bearish trend of the EUR/USD currency pair has started again… despite the fact we are close to the recent lows. As an Elliott Wave technician I monitor the wave patterns in markets, and while I remain open to the possibility that the downtrend is again dominating price action, I am also very aware that a well know pattern might be developing. I’ve taken the liberty of attaching the chart from yesterday (which is still very relevant). I made the point to a friend, and superb currency trader, that there was a possibility that EUR/USD could move lower to 1.1186, before surging higher one last time, after which we should expect to see significantly lower lows. Today we have reached a low 1.1192. I’m not saying my speculation is correct, but it certainly is yet to be invalidated. That would take a move down below about 1.1050 which is quite some distance away. I therefore reserve the right to my scepticism for now!

20150227

Today we will see lots of Eurozone country inflation and GDP growth data, as well as important sentiment, consumer spending data and GDP in the United States. We will certainly get an updated picture of global macroeconomics when the day is done. Already I have observed solid consumer spending data in France, far better than expected, and even more impressive retail sales data in Sweden. Who knows, it might be a good news day. The wall of money is certainly finding its way into stocks at the moment, and I don’t see much stopping this paradigm in the next few months. It’s not all sweetness and light though, Japan appears to be slipping back towards deflation, as slowing core inflation looks like undermining the credibility of the extraordinary policies being implemented by an Abe inspired Bank of Japan.

 

It looks like my EUR/GBP target has effectively been achieved. Some months ago I suggested 0.7255 was the immediate next target for the currency pair, and we have seen a 0.7257 low so far today. This doesn’t mean I believe that we’ll see a recovery from here, far from it, but I did expect to see EUR/GBP get down here, there isn’t much in the trend to suggest it stops here, although there are disturbing (and in my view sterling negative) things to ponder. Labour looks to be edging ahead of the Conservatives in the polls with Ed Milliband being given a 74% chance of becoming prime minister…. Hmmmm! Furthermore a think tank has calculated a 1 in 6 chance of ‘Brexit’, a UK exit from the European Union. Neither of those scenarios bodes well for the pound sterling in my view!

 

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

 

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High Low High Low
EUR/USD 1.1374 1.1348 USD/ZAR 11.4749 11.3944
GBP/USD 1.5553 1.5519 GBP/ZAR 17.85 17.69
EUR/GBP 0.7325 0.7304 USD/RUB 61.91 60.21
USD/JPY 119.10 118.67 USD/NGN 202.5 201.0
GBP/CHF 1.4770 1.4716 S&P 500 2,117 2,111
USD/ILS 3.9577 3.9320 Oil (Brent) 62.21 61.08

 

RBS, one of the UK’s large ‘high street’ banks looks set to sell its investment banking assets. If more large banks around the world did this the world would probably be a much better place. As wonderful a time as the Clinton era was, repealing the Glass-Steagall act in 1999 will probably be viewed as a huge mistake by economic historians at some point in the distant future. There is simply no way, in my view, that retail banks should be allowed to conduct riskier business with our deposits subsidising their activities. One imagines there’ll be a scramble for some of these valuable investment banking assets, this could give the pound sterling a small boost at some undetermined point in the future, assuming a foreign entity is the bidder.

 

This morning, a Spanish GDP year on year comparison for Q4 2014 showed a 2% rise, which was in line with forecasts and matched the growth rate of the previous quarter. In a speech yesterday, the Spanish Prime Minister forecast growth of 2.4% in 2015, and with unemployment falling, albeit from over 20%, things are clearly improving. I do think PM Rajoy is taking it a bit far suggesting that the Spanish turnaround is the envy of the EU! I mean.. seriously!?? But his northern neighbours would certainly not begrudge him such hubris, Merkel and Schauble must surely be pleased and may point to Spain in discussions with the new Greek government.

 

I note with interest that Cote d’Ivoire has successfully issued a $1bn bond, with the market accepting a lower yield compared equivalent securities sold by Nigeria, Zambia and Kenya. Political stability and being the top cocoa producer in the world has gone a long way to ushering a period of normality for the West African country, but what I find most interesting is that the market is willing to differentiate and assess sub-Saharan economies on their own merits. This is a good thing, and illustrates that risk appetite – despite periods of taper tantrum and commodity related disruptions – remains robust. And rightly so… major equity markets are at record highs, indeed I believe the MSCI World index has recently achieved such, while currency markets have been largely calm so far in 2015. As I’ve mentioned before, I believe that EUR/USD continues to trade within a corrective complex, but as I’ve also pointed out, when this period of consolidation ends I expect the bigger picture bullish dollar trend to re-assert itself. At this moment in time, it is unclear what the narrative will be which drives the trend continuation.. it could be dollar strength, or it could be euro weakness. Two different paradigms that largely amount to the same thing, at least where EUR/USD is concerned, but depending on which narrative is in the ascendency will be the fate of a multitude of other assets.

 

For now oil continues to recover, but I still maintain that there are limits to how far this can go. OPEC continues to maintain supply at pre-crisis levels, and producers in the United States are still very much in the game. This is something to watch over the next few months, the ripple effect from last year’s energy price collapse will start to lose its power in the coming months, so we would all be best advised to keep an eye on the employment data in both the US and UK. The data has continued to be solid, and wage growth looks to be picking up. It is not clear to me that the market is properly pricing in the risks of a more aggressive reaction by the Federal Reserve. Or perhaps the markets are smarter than all of us and it looks even further out at the turmoil a few rate rises might inflict on global asset prices! Never-the-less, we must remain vigilant.

 

 

 

 

 

 

 

 

 

 

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Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

 

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20150225 – CEASEFIRE, NOW WE WAIT FOR GREECE

Good morning

High Low High Low
EUR/USD 1.1389 1.1335 USD/ZAR 11.5105 11.4220
GBP/USD 1.5513 1.5446 GBP/ZAR 17.82 17.70
EUR/GBP 0.7345 0.7324 USD/RUB 63.25 62.17
USD/JPY 119.00 118.62 USD/NGN 201.5 199.0
GBP/CHF 1.4725 1.4668 S&P 500 2,116 2,113
USD/ILS 3.9657 3.9222 Oil (Brent) 58.96 58.38

So, the Greek PM Tsipras “won” 4 months reprieve from Troika creditors, while at the same time keeping his Syriza party on board. As conflicts go, a ceasefire has been agreed, now we wait for the formal agreement between the “warring” parties. Greek stocks and bonds rose as a result of the tentative agreement as finance ministers approved a bailout extension as Greece pledged to revamp tax collection, consolidate pension funds and maintain sales of state-owned assets. The agreement now paves the way for the ECB/IMF to continue supporting the Greek banks, while at the same time buying time for Greece to convince her creditors that Greece will deliver. As we have noted on several occasions, an agreement was always expected to be reached. What was not known was what the agreement comprised. Now we have a little more clarity and breathing space, authorities on both sides will be working hard to make the promises a reality. The ECB and IMF will still need to be kept content by the Greek’s governments pledge to come good on their promise to deliver the reforms she has pledged. No easy feat by any stretch, but it is a start and its progress. The deal will fire a warning signal to other EU members that while there is “some” room to manoeuvre, there is NO ROOM to bully the EU into changing the landscape and ultimate terms of their austerity packages. Bottom line, if you run up debt you better have a plan in place to pay the loan back. Debt can be a wonderful thing and can help build empires. But if you cannot service that debt, the entire house of cards that was constructed will come crashing down. Look at what happened to the Billionaire Reichmann brothers from Canada. Controlling what was once the world’s largest property empire (Olympia and York) they went on (BRILLIANT VISIONARY) to build Canary Wharf. Then in the mid 90’s their vision, brilliance, exuberance and business empire came crashing down (they could not pay back their creditors) and O&Y declared bankruptcy and the Reichmann fortune was shattered. As you know the cash rich Qatar Investment Authority have now taken control with a cash buyout (they seems to be buying up London).

As I mentioned yesterday, the Bank of Israel cut rates citing inflation and an overvalued currency. I warned yesterday that this is a clear signal from the BOI that they are looking to drive the USDILS above NIS4.00 vs the USD. Having traded as high as 3.9657 this morning, the currency has fallen back to trade at 3.9400 as I write this. Just to repeat what I said yesterday, you need to seriously take note of what the BOI are saying and ensure you are hedged for a weaker ILS over the coming weeks/months.

Over the past few months with all the rhetoric from the FED/Gov. Yellen most banks have been calling for a US rate hike in early Q3(Sept/Oct). PARITYFX on the other hand have been saying no – we think the hike will come EARLIER, around May/June (most likely June). Seems a prominent high street UK bank has read our blog and has just published their economic thoughts on the FED and when they think the FED will hike. Here is an extract: ” We read Fed Chair Janet Yellen’s prepared testimony to the Senate as indicating the Fed is readying a change in its forward guidance, which we see coming at the March meeting. However, the Fed is also saying that such a change in March would not automatically signal a rate hike in June, but, instead, would open the door for rate hikes in June or after, depending on the incoming data flow. We retain our call for a rate hike in June and look for the committee to alter the March statement by removing “patient” in favour of other language that suggests full data dependency. Risks to our forecast skew in the direction of a later take-off, especially if the downward pressure on core inflation from a stronger dollar is greater than expected.” As that wonderful advert on TV, “you should have gone to Specsavers”, we could change that to read, you should have listened to PARITYFX :-). At 3pm today, Federal Reserve Chair Janet Yellen is to testify on the economic outlook and recent monetary policy actions before the Joint Economic Committee. Expect some fireworks and volatility following her comments. Just like I noted above with our views on USDILS, the US rate hike “ball” is in motion so it is advisable to ensure you have taken the necessary steps to hedge your FX.

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Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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20150224 – GLOBAL MACRO DAILY

Good morning

High Low High Low
EUR/USD 1.1342 1.1300 USD/ZAR 11.6741 11.6200
GBP/USD 1.5466 1.5429 GBP/ZAR 18.04 17.95
EUR/GBP 0.7344 0.7324 USD/RUB 64.17 62.92
USD/JPY 119.37 118.76 USD/NGN 200.9 200.0
GBP/CHF 1.4712 1.4649 S&P 500 2,111 2,104
USD/ILS 3.9341 3.9095 Oil (Brent) 59.30 58.00

The news we have been waiting for: Greece has made the next move to avoid going bankrupt and stop the recent run on the banks by submitting a list of structural economic reforms to the EU. The reforms are aimed at appeasing EU creditors and securing a 4 month bailout lifeline which was tabled last Friday. Should the EU’s finance ministers endorse the proposals an extension until the end of June of Greece’s bailout programme will begin saving us the worry that the present bailout will expire at the end of the week with no agreement in place. As I mentioned yesterday, the proposals will include an overhaul of Greece’s tax inspection regime aimed at improving tax collection and a crack down on widespread tax evasion among the wealthy. Athens will also crackdown on the illicit tobacco and fuel trade as well as reform her labour laws. Furthermore the proposals were said to leave recent privatisations untouched, not to re-employ workers in the public sector, and halting home repossessions caused by failure to repay loans. In a nutshell, Syriza blinked first by accepting the terms laid out by troika (EU/IMF). In effect the Greek government will stabilise her economic and fiscal policies and renounce any unilateral moves to amend the terms of Greece’s bailout. Greece is therefore committed to fully repaying the debt mountain. In return, Greece gained two major changes: (1) a likely reduction in the primary budget surplus – the excess of revenue over spending when debt-servicing costs are excluded – allowed to Greece by the EU this year, and (2) the leeway to propose her own fiscal and economic policies rather than having them determined by the troika. Once the EU/IMF and ECB feel satisfied that the terms are to everyone’s satisfaction, the €7.2bn still available for Greece can be paid out. This money is Greece’s lifeline without which she will surely fall on her sword. Germany’s finance minister, Wolfgang Schäuble, said Greece would not get one € until the end of April at the earliest. He added that reality had caught up with the new Greek government. In a statement of Friday when the agreement was tentatively agreed “The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the [EU, IMF] institutions,”

As a result of all this toing and froing the EURUSD initially climbed above 1.14 handle but has since settled back towards 1.1330 over the past few hours. I have said this repeatedly, Greece could not afford to play hardball and risk alienating her creditors. So normal operations resume!!! If you asked me now what my overall feelings were towards the EURUSD, I would tell you the same thing I said at the beginning of January – EURUSD IS GOING TO PARITY – END OF!!! If you then followed that up with WHEN – I would answer SOONER THAN the market expects!!! With the FED likely to start raising rates END Q2 (market expects later – WHAT THIS SPACE) I think that in itself will give the USD the “ammo” to drive lower. What’s more, the ECB will be only to pleased to see a weaker EUR which equates to making EU goods and services more attractive internationally.

In a “shock” move overnight the BOI (Israel) CUT interest rates by 0.15% to 0.10%. The BoI press release provided a strong rationale for the base rate cut, emphasizing ILS appreciation during the past month, “The Monetary Committee is of the opinion that in view of the increased rate of appreciation, and its possible effects on activity and inflation, reducing the interest rate to 0.1% is the most appropriate step at this time in order to support achieving the policy targets.” In addition, the statement emphasized that inflation had slowed considerably in January with energy being the main contributing factor, shaving 0.7% off inflation. The BoI also mentioned reduced water rates, the lower housing component, and seasonal factors, as well as a loosening of global monetary policy conditions by major central banks. The BoI indicated that it would monitor the situation and is apparently prepared to rely on QE in the future if needed. “The Bank will use the tools available to it and will examine the need to use various tools to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, and in this regard will continue to keep a close watch on developments in the asset markets, including the housing market.” Just like her EU counterpart looking for a currency weakening and thus boosting exports and stifling imports, the BOI “apparently” WANTS USDILS to cross the 4.00 threshold. Alongside the interest rate cut, the Bank of Israel can also be expected to continue intervening in the foreign exchange market with the aim of boosting the rise in the exchange rate and break the psychological 4.00 barrier. I don’t think the BOI could make it ANY MORE CLEARER, the USDILS is going to depreciate so you had better make sure YOU HAVE HEDGED YOUR FX NEEDS!!! 

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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20150223 – IT’S MY PARTY AND I’LL….

Good morning

High Low High Low
EUR/USD 1.1406 1.1313 USD/ZAR 11.7530 11.6025
GBP/USD 1.5413 1.5364 GBP/ZAR 18.07 17.83
EUR/GBP 0.7406 0.7358 USD/RUB 65.35 61.43
USD/JPY 119.36 118.87 USD/NGN 200.2 199.5
GBP/CHF 1.4601 1.4445 S&P 500 2,111 2,104
USD/ILS 3.8805 3.8045 Oil (Brent) 60.53 59.51

The subject line says it all. Today is my birthday (party) and I’ll….

Moving on to more important matters. So the Greeks have finally “lost the battle, but the war goes on”. So much for sticking to their anti-austerity manifesto. It was kind of like getting cut off by another driver, screaming and shouting what you are going to do and then Floyd Mayweather steps out the car. Erm….I think an apology is forthcoming not to mention getting back into your car and driving away in one piece. The point I am trying to make, Greece threw their toys out the cot, threatened this that and the kitchen sink. But when the EU Finance Ministers stepped out the car, the Greeks knew the battle was over (for now). They HAD TO ACCEPT the deal that was on the table or risk pretty much losing everything. And I mean everything. When you run out of money and there is no one to help it becomes pretty difficult to keep a straight face and soldier on. Greece knew that if they took the EU to the cusp there was a real likelihood that the EU would have let them go their own way, default and leave the EU. The latter of course did not want that and therefore continued negotiating. However, ALL members of the EU have to be dealt the same deal otherwise it would open pandora’s box with Spain, Cyprus, Italy, France and who know who else going to the EU and saying we want a better deal too. That was simply too much to bear. So while the market awaits Greece unveiling her reform proposals the European market have opened positively though the EURUSD which recovered initially has since lost steam and is trading circa 1.1325….

The agreed extension of up to 4 months (Greece wanted at least 6) to the current programme is conditional on Greece delivering a clear reforms/austerity mandate. The present agreement will thus allow further negotiations between the parties (like I said the war goes on). It is understood that any further “handouts” of bailout funds will depend on being approved by the EU/IMF/ECB (towards the end on April).  Initially the Greeks will put forward a plan to root out tax evasion and overhaul the country’s labour laws (bringing them more in line with the rest of the EU). It is hoped that these plans will go a long way to satisfying and convincing Greece’s creditors that they are doing their bit and thus being granted the extension to the bailout programme. If the creditors are satisfied, the ECB/IMF will then release over €7bn in financial aid to the Greeks, money that is crucial to their survival. Any failure to satisfy the EU/ECB/IMF, could basically see Greece run out of money (end Feb) as it initially faces repayment of €1.5bn to the IMF made even more difficult by a continued run on the banks (talk of €1bn being withdrawn a day last week).

The Greek PM, Tsipras nevertheless remained defiant adding (in an address to the people on Saturday), his country would no longer be “asphyxiated” by austerity. “Yesterday’s agreement with the Eurogroup cancels the commitments of the previous government for cuts to wages and pensions, for firings in the public sector, for VAT rises on food, medicine. We averted plans by blind conservative powers, within and outside the country, to asphyxiate Greece on February 28,” he said. Fighting talk but for how long!! The ECB banned the acceptance of Greek bonds as collateral for loans earlier this month, forcing banks to rely on more expensive emergency liquidity help which has been stretched to its limits over the past week. At the current rate of deposit flight, Greek banks will run out of money in less two months not to mention the option of capital controls not be ruled out in Greece to stop the rot. Simply put there is still EVERYTHING TO PLAY FOR.

FX HEDGING: How many times have ParityFX said it. If you take the risk and don’t hedge your FX you could be staring down the barrel of a shotgun. Another report this morning (Telegraph) reporting that the “strength of the GBP knocked £2.7bn from British firm’s revenue(http://www.telegraph.co.uk/finance/economics/11427976/Strength-of-the-pound-knocked-2.7bn-from-British-firms-revenues.html). We reported many times of the past 6 months the importance of hedging. We have a terrific well written article titled (PARITYFX – FX SERVICES FOR SME) – please let me know if you would like a copy – though it can be found on our BLOG website www.blog.parityfx.com – ParityFX has a wealth of experience and expertise to ASSIST YOU WITH YOUR FX HEDGING. Let us know.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

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20150220 – OF TEUTONS AND TROJANS..

High Low High Low
EUR/USD 1.1373 1.1339 USD/ZAR 11.6917 11.6514
GBP/USD 1.5435 1.5412 GBP/ZAR 18.03 17.97
EUR/GBP 0.7376 0.7353 USD/RUB 62.17 61.24
USD/JPY 119.10 118.78 USD/NGN 199.2 197.2
GBP/CHF 1.4688 1.4626 S&P 500 2,099 2,095
USD/ILS 3.8744 3.8369 Oil (Brent) 60.78 59.90

 

It’s all hotting up in mainland Europe. While the Greeks appear to be capitulating, they are now asking for an extension – clearly a case of the age old lesson about being careful what you promise your voters, as the reality of governing will always bite you on the behind – Germany appears to be playing hardball and has rejected the Greek finance minister’s request, ironically making a reference to Trojan horses!

 

You can access the link from Reuters here: http://www.reuters.com/article/2015/02/19/eurozone-greece-request-idUSL5N0VT2S720150219

 

As inflammatory as the German rejection might appear to be, it seems when you fully consider the context of the letter, that there is some clever politicking going on by the Greeks, as they play to several galleries. The Greeks are indeed trying to frame the negotiations as a way to review the terms of the loan. This is clearly unacceptable to some of the creditors. The Eurogroup meeting today, which would normally be conducted via teleconference, will be held in Brussels and will be a key market focus, with the hope being that face to face talks will calm the tone of the discussion and increase the chances of a positive outcome. It’s worth noting that if a solution is not agreed by all parties the ECB may take it upon itself to review the solvency of Greek banks. A two thirds majority of the governing council’s 21 voting members is required to end the Emergency Lending Assistance programme (ELA) which would force Greece to impose capital controls or exit the euro currency area. While I don’t see this happening, it is important that you understand the full scope of the crisis that could occur today. Not surprisingly Greek assets were crushed after the German response yesterday. Put your seat belts on, it could be a rocky ride today!

 

Unsurprisingly the fate of EUR/USD will be in the hands of the Eurogroup today. It is already under significant pressure this morning. I would suggest that the 1.1260 – 70 zone is worth watching as a move below is likely to significantly reduce the likelihood of my recent speculation that we could get one final spike higher in the currency pair before the bearish trend continues. I am reluctant to give up on that view yet, and the fact that gold prices haven’t started rallying suggests to me that there is no real panic in the market at the moment.

 

On the data front, we have some Eurozone PMI data in aggregate and in some of the larger countries. French and German manufacturing sector PMI are already out and while not impressive show signs of expansion, however the services data is more constructive. It looks like the Germany economy is picking up a bit of momentum actually. Remember I mentioned an improving outlook in Japan in yesterday’s blog? So that’s 2 out of the world’s 4 largest economies showing signs of improvement, even as the largest – the United States – maintains a robust growth profile. All is certainly not gloomy! Later, we also expect to see retail sales data in the UK which is forecast to be solid on a year on year basis.

 

There could be significant announcements around the Eurogroup meeting. We will endeavour to alert you to them via our twitter handle (@parityfxplc) through the day.

 

 

 

 

 

 

 

 

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

 

Follow our tweets @parityfxplc

 

20150219 – SILVER LININGS

High Low High Low
EUR/USD 1.1451 1.1392 USD/ZAR 11.6325 11.5395
GBP/USD 1.5466 1.5433 GBP/ZAR 17.99 17.83
EUR/GBP 0.7410 0.7378 USD/RUB 62.50 60.91
USD/JPY 118.83 118.42 USD/NGN 200.2 197.9
GBP/CHF 1.4591 1.4527 S&P 500 2,100 2,091
USD/ILS 3.8649 3.8281 Oil (Brent) 60.56 58.88

 

Japan appears to be reaping the benefit of lower energy prices, as surging exports to Asia compounded with lower import bills to reduce the trade deficit by more than half. Shipments to both China and the United States showed substantial growth versus a year ago, but a deficit is still a deficit, and that doesn’t change unless the Japanese government permits a move back towards nuclear power generation. The bottom line is that the weak yen boosts the import bill, and aggressive quantitative easing will continue to exacerbate the problem. Still.. business sentiment in Japan has improved somewhat according to the latest Reuters Tankan report, which makes sense given the modest recovery from the recent sales tax inspired slump, there’ll need to be more than this to justify Mr Abe’s efforts. Looking at the USD/JPY chart, the Elliott Wave Theoretician in me, believes that the currency pair will continue to consolidate for another week or two, possibly declining to the 116 – 117 zone before a 5th wave impulsive move higher challenges the 2007 highs.

 

Interestingly the timing of my speculations about a stronger USD/JPY might fit in with when EUR/USD should emerge from its current range trade. I still believe a spike higher to the 1.15 – 16 zone is possible, before EUR/USD makes new multi-year lows. The hope will be that the Eurogroup meeting tomorrow will be more successful than the one which broke down on Monday, but everyone’s eyes will be focussed on the 28th of February when the current bailout programme expires. Failure to agree an extension or new terms before this date is what could drive the euro to new lows. This will not play well to general risk sentiment, as the worst case scenario puts Greek membership of the Eurozone into question.

 

A decent sized drop in oil prices yesterday, and selling pressure has continued in early sessions today. It’s premature to suggest that the ‘dead cat bounce’ is over, but it just might be. As I’ve mentioned a few times, after the impulsive collapse last year, I would expect crude to trade in a fairly large range over the next year or so.. $30 – $70 is rather wide, but that range should contain the price action. This will force budget cuts and economic retrenchment in producer markets, but support consumer growth as well. As always for every cloud, there is a silver lining if you look hard enough!

 

Finally.. the UK continues to follow a similar path to the United States. Unemployment continues to decline, and wage growth was solid according to the data published yesterday. If you recall the inflation numbers from the day before yesterday had resulted in sterling weakness, but yesterday’s events seem to have put a floor under pound sterling:

  • the solid employment numbers (more people found work in the UK last year than at any time since 1988);
  • the fact that wage growth exceeded inflation for the fourth consecutive month;
  • and signs of splits amongst rate setting decision makers at the Bank of England.

 

I make no secret of my view that lower inflation right now is energy price related and is thus transient. I believe the Bank of England should pay more attention to accelerating wage growth. As a central banker, there are few things as embarrassing as being behind the curve! The UK data continues to support our view at ParityFX, that EUR/GBP will continue to trend lower in the bigger picture.

 

 

 

 

 

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

 

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FX Services For SME’s and Individuals (The pitfalls to trading internationally)

ParityFX Plc is a financial services company that focuses primarily on executing currency transactions,  providing structured FX solutions and currency advice to SME’s, Large Caps and individuals. We aim to:

(1) Provide first class currency execution.

(2) Improve hedging efficiency and timing.

(3) Enhance treasury decision making:  lowering net interest expense; and reducing the volatility of your currency exposures.

(4) Provide a traders’ insight into the macro-economic landscape particularly where currencies are concerned.

 

Why Choose ParityFX

Over 40 years experience: Having a combined 40 years experience of trading currency and fixed income products, the founders of ParityFX have an extensive network of relationships in the financial community from which to leverage information. As a client you will get more than great execution, you will be provided with an insight into how FX markets are positioned and the key drivers that could impact your currency exposure. At ParityFX you won’t just be confronted with a web-interface or inexperienced staff handling your business. Our priority is to understand your needs and help make your exposure to the currency markets work to your advantage. Tailored Products: We offer a product tailored to your needs. If your business requires timely execution, we will provide it. However there are circumstances when immediate execution may not be optimal. Our knowledge of currency markets are a great asset to you, as our client, and we can assist your company in determining the optimal timing for FX execution. Our aim is to help you make the currency markets work for you. Financial Savings: Do not under-estimate the savings you can make.

Our execution can save you several percentage points relative to what you get from banks (and other MSB’s). But the potential for savings is greater. As a client you can make savings if you time your trades correctly to take advantage of volatile markets. You can make savings from adjusting your exposure to adverse moves that could impact the valuations of your foreign holdings. Over the financial year partnering with ParityFX can accumulate savings that will substantially impact your bottom line, and afford you greater control of your risk.

Foreign Exchange markets are exceptionally volatile as any business in the import/export business will tell you. Only recently Coca Cola and Procter and Gamble recently announced that the strong USD has weighed heavily on their earnings. In fact P&G noted that exposure to FX is expected to REDUCE sales growth by 2-3% for the year. That is a real loss (rather than an opportunity loss) and one that could have been avoided. FX risk management is a reality that cannot be ignored. This is especially true for companies like P&G and Coke in today’s globalised business market and volatile foreign exchange rates.

For any company that trades goods and services internationally, managing foreign exchange is not just prudent, it is necessary. There are a variety of methods businesses can use to limit currency risk; (1) Currency Forwards, (2) Currency Options and (3) Interest Rate Currency Swaps. Options (2) and (3) can be complicated and are leveraged meaning your losses can be exponential. For a company that relies on being financially prudent, I would suggest that unless you fully understand how these instruments work, you should stay away from them. Having said that, if you BUY a currency option your losses (if there are any) are limited to the amount of premium you spent to buy the option, however if you sell an option your losses can be unlimited.

That leaves companies with only 1 option, and that is using FX Forwards. They are easy to use and understand. Simply put, if you buy a forward outright the rate you set at the beginning is the rate you exchange your currency at on settlement date. So if you buy GBP against USD for say 28 November at 1.5997 (spot currently1.5998) then come the 28 November you will sell your USD and buy your GBP at 1.5997 (i.e., $100,000 = £62,511.72). If for example the inter-bank spot market for GBPUSD on the 28th Nov. is 1.6100 you will have made an opportunity profit of £399.92 ($100,000 x 1.6100=£62,111.80) because you had bought your GBP at 1.5997 rather than on the day at 1.6100. The opposite holds true if the inter-bank FX rate for GBPUSD was 1.5900 on settlement date. In this case you will have made an opportunity loss of £381.36 ($100,000 x 1.5900 = £62,893.08) because instead of buying at 1.5900 on the 28th Nov, you are buying your GBP at 1.5997. In other words, a FX forward is a contractual agreement to buy or sell currency at a FIXED RATE on a FIXED DATE.

Despite having a fixed FX forward contract you are still able to “unwind” this contract at any time before the settlement date, AND also “draw down” on your funds. In other words if you fixed the contract to SELL USD ($100,000) Ag BUY GBP for the 28th Nov. and say on the 14th Nov. you needed to sell $50,000 of the total that is entirely possible. By drawing down early it means that on final settlement the 28th Nov. you will only have remaining $50,000 to execute.

As your business grows and you become more and more global you MUST take care to factor in all the necessary risks of globalisation. FX risk as I mentioned above is one of those factors. So what are the things you should consider when dealing in FX? (1) The interest rate deferential between the 2 currencies, (2) the currencies volatility, (3) Fundamental risks (Earthquakes, floods, hurricanes, inflation, unemployment and war), (4) Economic risks (CPI, GDP, PMI, Retail Sales, Interest Rate decisions, (5) Commissions and costs related to transfer of funds, and most importantly (6) the FX rate itself. So many people through no fault of their own, simply ignore these issues to their detriment.

There will always be pitfalls when trading internationally. It is the fact of doing business globally that means you will be subject to the volatilities encountered in the FX markets. No business is immune to currency fluctuations (up or down). However as long as you are able to take the necessary steps to manage your exposure to foreign exchange markets, the volatility can be mitigated and even work to your benefit.

ParityFX charges NO commissions or fees when transacting FX on behalf of our clients. There are no hidden charges OR funny rates. It is really quite simple, we will provide you with a competitive foreign exchange rate quote at which your money can be converted. That is all there is to do!  We do not deal in “cash/notes” like a Bureau de Change, transactions are electronic, and we will make payments, for you, to your suppliers (or yourself) on your instruction.

ParityFX ALSO offers the ability to RECEIVE 3rd Party Payments. This is particularly useful if you sell your products on websites like AMAZON, eBay, ALIBABA etc. Instead of your revenues being converted back into pound sterling at punitive rates with limited transparency, we can receive your foreign currency earnings on your behalf, convert them at a competitive exchange rate and remit the funds directly to your bank account.

ParityFX also writes a DAILY FX COMMENTARY which our customers find incredibly useful. While banks often provide this service, a large percentage of SME’s are not able to access the publications as those commentaries are generally restricted to the large corporate who trades large amounts with the bank. Feel free to check out the blog directly www.blog.parityfx.com or alternatively you can access this information through our website address which is www.parityfx.com

Should you wish to discuss any of the above in more detail please feel free to call ParityFX on telephone number 0207 112 1530 

Alternatively you can write to me at david.rosenberg@parityfx.com

I hope this information helps to develop the best strategy for managing your foreign exchange needs.

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

20150218 – LET THE (GREEK) GAMES BEGIN

Good morning

High Low High Low
EUR/USD 1.1417 1.1384 USD/ZAR 11.7469 11.6555
GBP/USD 1.5362 1.5341 GBP/ZAR 18.03 17.89
EUR/GBP 0.7437 0.7416 USD/RUB 63.70 62.00
USD/JPY 119.36 118.86 USD/NGN 202.1 199.5
GBP/CHF 1.4418 1.4298 S&P 500 2,101 2,098
USD/ILS 3.8665 3.8492 Oil (Brent) 62.66 62.05

Over the past few weeks we have spoken a great deal about Greece and the negotiations with Troika. Yesterday was BAD news. Today is slightly BETTER news. In other words the see-saw back and forth in favour of either party continues for now. As the saying goes (and I am changing it slightly to suit) “The pen is mightier than the talk”. Talk is easy, putting pen to paper is another story altogether. According to some news agencies, (today) Greece is going to request an extension of its current bailout on the basis of the framework of the Moscovici plan. According to sources the request will ask for a 4-6 month extension beyond its 28th February expiry in exchange of agreeing to certain principles. Greece would maintain eco reforms, continue to run primary budget surplus and pledge to pay its creditors in full (happy days). Greece would be given the leeway in deciding which reforms it would agree to. PM Tsipras yesterday announced two draft laws that clearly contravene the Moscovici plan. The Euro group rejected the EU plan and asked for an extension of the existing bailout package (its current terms). The rumoured divergence between the proposal of the EC and the Euro group suggests that a compromise is still possible but remains difficult (eg the latest Greek draft laws). One thing is for certain, the back room behind the scenes dealings are going on with a hope that an agreement will be reached. Newspapers (Telegraph: http://www.telegraph.co.uk/finance/economics/11418494/Grexit-fears-mount-as-Athens-leaders-refuse-to-accept-psychological-blackmail.html) have already started to write about the reality of GREXIT and the consequences. If the stock markets are a good sign of things to come then the latest news has been welcomed with open arms as European bourses open up positively (Germany, France, Italy +0.60%, UK +0.30% and Greece +4.25% as I write this). Grexit MUST NOT HAPPEN. I know it is going to be tough because like I said yesterday, if you start easing terms with one member, what is stopping other (EU) members (Italy, Portugal, Spain, Cyprus) coming forward and asking for the same terms to their packages. That will simply start a snowball effect that I tell could derail the EU as we know it. If that happens make sure you have stuffed your mattress with all your cash because the amount of casualties (banks) will be monumental. Financial armageddon. Ok enough with the bad news 🙂 ….

Puma (sports) announced results yesterday. While revenue was up, net profits were down because THEY NEVER HEDGED THEIR FX. as per their report, due to continued currency weakness in Turkey, Russia, South Africa, India, Japan and the Americas, sales declined by 5.8% in Euro terms. Perhaps Puma should have read PARITYFX’s research titled FX Services For SME’s and Individuals (The pitfalls to trading internationally) – Please let me know if you would like a copy!!! Now had they read that,  PARITYFX would have been able to advise Puma on their FX hedging and thus saving them not only THEIR MONEY but also the embarrassment of having to let the markets know their FD did not take due care to hedge the FX cash flow.

Other key developments today:

(1) The Bank of Japan kept its aggressive monetary policy in place (as expected) but upgraded its assessment of the economy by highlighting progress in industrial production and exports. We expect the weakness in the JPY to slow.

(2) January FOMC minutes. Will the Fed will drop the phrase “patient” in its statement. Further we will look for a description of metrics the Fed might use in making this decision. Rate hikes?

(3) BOE/MPC Minutes out at 9.30am.  The main focus will be on the vote count and whether the hawks are back. On the 5th Feb meeting attention was drawn to comments by the BOE recognizing the dangers of low/negative inflation and that they (the BOE) would be prepared to lower rates and ease rates further if needed. While initially this caused the GBP to wobble, Carney then emphasized that he still believes that the next interest rate move will be higher. EURGBP has been trading around 0.7420 (1.3477) so this morning’s minutes will be crucial as to the next GBP move.

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

20150217 – ET TU GREECE!!

Good morning

High Low High Low
EUR/USD 1.1367 1.1321 USD/ZAR 11.6750 11.6300
GBP/USD 1.5382 1.5349 GBP/ZAR 17.95 17.86
EUR/GBP 0.7396 0.7374 USD/RUB 63.97 62.30
USD/JPY 118.65 118.23 USD/NGN 204.8 203.5
GBP/CHF 1.4370 1.4301 S&P 500 2,089 2,084
USD/ILS 3.8905 3.8571 Oil (Brent) 62.17 61.31

Here we go again. The merry go round of tit for tat. Yesterday’s talks between the Syriza party and Troika representatives broke down, as Greek authorities rejected proposals to extend the current bailout conditions. As you know the present deal runs out on the 28th February. After that, well who really knows!! The news of the fallout sent shockwaves through the market weighing on the EUR. European stocks opened in the red this morning down 0.50% at the open. While Greece’s Finance Minister continues to talk the talks up saying an agreement will be reached, truth is can you really trust what these amateur politicians have to say. The big worry is of course the fall out. If Greece defaults, who’s next Cyprus Portugal Spain Italy, take your pick. I find it quite amazing that the Greeks knowing how easy they have had it for so long don’t see the merit of keeping within the EU and finding a happy medium. EU finance ministers have said they are ready to have another round of talks with Greek officials on Friday, provided that the Greek government commits to a number of principles as outlined by the other EU members. EU finance ministers will meet today and will undoubtedly discuss the Greek situation again. Germany as you know has already softened her tone and is willing to relax some of the earlier demands. I guess the Greeks are sticking to their guns and more importantly sticking to their mandate that got them into power. You know what, let them go bankrupt. Let them leave the EU and the EUR. Cut their credit lines. Let’s see how far that gets them. By the time they realise the country is about to implode it will be too late. The damage will have been done and maybe the markets will see actually see the positives from all this. Short term pain for long term gain. Enough is enough.

Neither the German Chancellor nor other European leaders want to have to tell their parliaments that the money they lent Greece will not be coming back. That would appear to preclude a straightforward debt write-off of the kind that the new Greek authorities initially sought. Greece is not due to start repaying most of its official debt (€240bn) until after 2030, and it has a 10-year interest payment holiday on EU zone loans. Creditors such as Germany, Finland and Slovakia could face parliamentary resistance if they granted Greece’s radical government additional funds on easier terms with fewer conditions and less intrusive oversight. In other words the EU has to stand firm(ish) and find an amicable solution where everyone wins something. Governments in Spain, Portugal and Ireland that have pushed through painful austerity plans in return for aid, and face elections in the next year, are determined not to see Tsipras win the fight…that would simply hand the advantage to their own political opponents.

The EURUSD fell to a low of 1.1320 as a result of the news having traded “comfortably” above 1.1400 for the past few days. The failure of the talks ensured the EUR is now back in play with the advantage handed back to the USD. The sentiment is likely to remain weak – the ECB deciding when to cut off Greek banks’ ELA access on Wednesday and Euro Group President Dijsselbloem is saying this week is the only window for negotiation. Further failure in negotiations will send the EUR reeling through 1.13 handle opening up the prospect of 1.1097 lows. BRING ON PARITY.

Today sees 2 MIGHTY economic data. (1) UK CPI at 9.30am, market is expecting a drop to 0.40% from 0.50% for Jan…GBPUSD already fallen back into the 1.53 range and any shocks could send the GBP on the next rocky road towards that dreaded (but its coming) 1.40 handle!! and (2) German ZEW economic conditions (last 48.40, expecting 55). Nevertheless all eyes on EU/GREECE negotiations. As our rugby coach always told us, Losing IS NOT AN OPTION. I wonder who will blink first.

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc