Good morning

After talking the USD down at the last FOMC meeting Pres. Yellen of the FED must be wondering what else she can say and do to slow the USD rally and give the FED a real chance of hiking rates. I am afraid to say there are some things that just cannot be fixed this way and the market ultimately will be the one who determines how the USD fares on the international markets. And so after falling to 1.1042 (low) post FED, the USD has traded in a range before finally giving up the losses and trading sub 1.08 (EURUSD) handle as I write this. The Pres. noted that the “appropriate time” to raise rates is not yet upon us though “lift-off” may well be warranted. In other words, she is not going to pull the trigger in April (FOMC meeting 28/29th) but thereafter it is all to play for. I have stated recently that the case for a hike could come as soon as MAY, while the market is calling for a hike in September. My reasoning behind this call is the market has fully discounted a rate hike imminently, so why wait till September (if the others are to be proved correct). Surely a 0.25% hike in May/June will finally relieve us of the WHEN ARE THEY question, and we can get on with wondering when the second hike will come. Employment, GDP and Inflation (target 2%) remain the data that the Pres. is keeping a close watch on. Even if 1/3 doesn’t match up, I believe the FED will jump the gun and kick start the hiking game. One thing the FED will NOT want to do is hike rates and then have to reverse that decision if things don’t go according to plan. Look no further than the ECB when they hiked rated to 1.25% only to reverse that decision (and then some) when the EU stalled. So you can see why it is so important to get the timing of the hike right. All in all things are proceeding according to “the plan” so we now watch and wait. As for the USD, I know there has been an awful lot of rhetoric of late calling for the USD to fall (before resuming towards PARITY) but i simply cannot see this playing out for real.

Greece continues to be a thorn in the EUR’s side.  Greece’s creditors push for more in the way of structural reform plans which the Syriza party is finding hard to pass through legislation. Greek PM Tsipras is facing a battle with the hard Leftist elements of his party to stick by his electoral pledges. Greece’s energy minister is in Russia today, an indication that the hard-Leftists in the Syriza party are more than willing to make overtures to other parts of Europe, as talks stall with the EU. Panagiotis Lafazanis, who is part of the Left Platform, of the party noted over the weekend his country was on a collision course with a “Germanized Europe”. He added that any proposals for reforms could not curtail the “will of the people and popular sovereignty” in an interview which lays out the nature of the domestic difficulties faced by PM Tsipras. He said “The current Germanized establishment, despite its internal differences, is the most devastating thing for Greece, and more comprehensively, for the entire European continent. The sooner this becomes realized in practice, the better. Because, there is no time. We have no more time. Greece is situated at a breaking point. At this hour what is required for the country, urgently and without any delay, are big and bold choices, alternatives to the Germanized Europe. The Germanized and established EU is literally suffocating our country, tightening the noose on the neck of the economy week by week”. Perhaps if they had not blown the financial pot and starved the country financially he would have had a different view. Pot kettle black!!! I find it hilarious that these politicians can throw comments like these around when THEY ARE THE ONES responsible for the mess to begin with. Greece needs to clean up their back yard before pointing fingers at other EU countries.

Bottom line, I remain confident the EUR will fall to PARITY over the coming months (well ahead of the year end as predicted by some others). Even if a solution is found in Greece (and there will be one), the higher rates in the US coupled with a slowdown in China and the EU, and lower oil prices will keep investors piling into the USD as the currency to hold. Best the FED start printing more $100 bills….they are going to be in even more demand.

NFP published this Friday will be closely watched. As I mentioned above the FED is keeping a keen eye on NFP and unemployment. With the UK and EU off for Easter, liquidity will be thin and therefore I expect currency moves to be more volatile post publication of the number. After March’s +295k and 5.50% anything over 250k will be warmly welcomed and see the USD continue to rally. That I am afraid to say means further weakness in the EUR, GBP, AUD, NZD, CAD and EM currencies which have already suffered losses over the past 24 hours following the rally in the USD. MORE OF THE SAME TO COME.

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The strong US growth momentum of Q2 and Q3 2014 appears to be moderating according to the Q4 data published at the end of last week, and when you add this to the global leading indicator data from Goldman Sachs, there are clearly some reasons to be concerned about the quarters to come. The suspicion is that cold weather and the appreciation of the US dollar will dampen the growth data in Q1 2015, so as things stand unless we see a strong consumption drive in the United States things might look a good deal less rosy in the next few months, despite robust growth in employment data – which, by the way, Goldman Sachs also suggests has peaked. This, of course, means that there might be less compelling reasons for US dollar strength going forward, but that only means that there is a weakening on one side of the ledger which argues for further dollar strength. Remember that with aggressive QE by the Japanese and European central banks, if the euro and Japanese yen are to continue their depreciation paths, the greenback will still have to do the heavy lifting. However, as I’ve often suggested, trends do not happen in straight lines, otherwise I would be on my super yacht sailing off to my private Caribbean island for the Easter break right now! Alas, but markets move in waves, and as things stand I believe that we are in for a few months of trendless markets. Only a substantial new low in EUR/USD could convince me otherwise at this point.

Election results in Nigeria have been delayed due to problems with the new voter identification technology. Technology, I should add, that the US Ambassador has proclaimed is better than anything currently used in the United States. That doesn’t mean that irregularities can’t occur, after all no system is infallible, but at the very least it should be more difficult, and it shows that the West African giant is moving in the right direction. Turnout, apparently, hasn’t been great and it’s possible that fears about Boko Haram and just the generally tense situation on the ground might have put off some potential voters, and indeed there have been some reports of violence in different parts of the country. However I’m not sure, based on historical comparisons, whether this has been worse than one would normally expect. We, like everyone else, will be forced to await the results, despite some of the claims posted on social media suggesting a landslide for the opposition candidate. We are not so naïve as to believe what looks like fairly crude propaganda when the body responsible for the count has clearly stated that they are still counting.

Some disappointing industrial production numbers out of Japan, but the forward looking data still looks constructive and when you add that to the less negative inflation numbers published in Spain than forecast, as well as better than expected retail sales data in other parts of Europe, there are reasons to believe that while the US might not be forging ahead quite as strongly as would have been hoped, the rest of the world is not nearly as gloomy as expected either.

Later on today we should get the Federal Reserve’s favoured inflation data, with very low inflation expected. And for the rest of the week we can look forward to some fairly significant data, not least Tankan in Japan and non-farm payrolls in the United States. Big things continue to be expected from the US employment data, if it disappoints this time there is a risk that the US dollar could be sold quite aggressively in my view. I would just like to further clarify my stance at this point… I do believe the US dollar will continue to strengthen over the medium term, it is not clear to me however, that in the short term the bullish trend is ready to continue. Time will tell!

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Yesterday saw the first of the UK Leadership debates, albeit a different format, with only the leaders of the two main parties, Labour and Conservative, interviewed by a news presenter and then facing questions from the audience. The polls suggest that David Cameron edged it, which means a doubly good day for him given the strong retail sales numbers published in the morning. Clearly we are seeing the benefits of lower oil prices.

Today we should see more retail sales data from other European countries as well as GDP data from the United States. Nothing earth-shaking, but enough data points to enable us to increase our understanding of where things are heading. Despite the gloomy implications of the Goldman Sachs Global Leading Indicator from weeks back, for now the Western world at least looks to be showing more constructive signs of recovery. But it would be foolhardy to ignore the GS forecasts, which suggest a topping of employment growth in the United States and a concern that the risks are now pointing towards slower growth. I was quite intrigued by the GS view that US bonds are expensive, implying that they are looking for higher bond yields from here. That could be key for Emerging market assets, so it’s worth watching.

The dollar has strengthened since yesterday afternoon with what looks like an across the board move. Despite this my view that we are in for a trendless market for some time to come remains. This is the type of market where traders lose money as they try to jump back into the preceding trend anticipating that the correction is over, it is by no means unusual for this to be done too early, and I fear that is the case right now. What I am trying to say is that until there is much lower conviction about continuing dollar strength I don’t expect the trend to start again. I really am not sure we’re there yet, but surely we would need to make a substantial new low before we can be certain. What trader will wait for a few percentages of a move for confirmation before jumping in? Not many.. hence the pain I think is yet to come.

I would just add, a point I raised in yesterday’s blog, that if the dollar does weaken over the next few months, the probability of a Federal Reserve interest hike will rise. Something to consider..

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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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Candlesticks are an ancient Japanese visual tool for conducting technical analysis of prices. If I have my history correct, it was initially developed for the rice markets. I find the methodology very useful, as it enables market technicians to quickly assess the price action over a given period, by illustrating a visual representation of opening prices, closing prices and the high and low prices for a given period. It is thus easy to look at a chart and see that prices opened near highs made significant new lows but then closed again near the highs. If I seem to be talking gibberish my apologies, but there’s a point to be made. When you look at the monthly chart for EUR/USD going back 15 years using Japanese candlesticks it is noticeable that at significant market lows there is evidence of strong buying pressure before major reversals. This is what we see at the moment for EUR/USD, and even though the month is not yet over, as things stand there is a substantial risk that we have made a significant low in EUR/USD this month. Please see the chart below…

And here is an excerpt of some commentary I made regarding the chart to a colleague yesterday…

“Looking at the monthly chart for EUR/USD, it’s clear that if we end the month, around current levels or even a bit higher the potential exists for an even larger reversal than has already happened. The current monthly candle stick looks very much like a hammer formation, albeit I prefer the body to be a bit smaller (hence a higher EUR/USD ~1.11). Whatever the case, the amount of buying from the lows – if this were month-end right here – has been substantially more than at the lows of 2008, 2010 and 2012, and based on the RSI we are at far more oversold levels now than at any of those prior periods. Even if we don’t believe that we get the sort of sustained bullish move that has tended to follow such reversal signals in the past, it would not be unreasonable for the currency pair to get up to the fastest of the moving averages in the chart below. That implies a move back to the 1.19 – 20 zone. I’m not sure people are prepared for that and furthermore I’m not sure what the implications are of a reversal in the dollar move of that magnitude but it should have a serious impact on global macro…

Finally.. even if we don’t get a substantial reversal from here, the level of the RSI implies to me that we will get a sustained period of trendless price action as the RSI works its way from current extremes. Worth thinking about!”

I’ve attached it to today’s blog to give you as clear a sense of my thinking as I possibly can. But please let me be clear.. I don’t believe the dollar bull-trend is over, but we may be in for a period of counter-trend reversal. This doesn’t not mean that we, at ParityFX, don’t still believe that EUR/USD parity is no longer possible this year, but the path to that target may become much more complicated… and volatile.

Tensions in the Middle East with Saudi Arabia launching air strikes against rebels in Yemen have given oil prices a huge boost today with Brent crude up 5% this morning. And out of the woodwork we hear of anti-consensus ‘oil to $100’ trades being put on by traders (according to the Financial Times). There is macro risk out there in a way it hasn’t been for some years. In Europe we have stock markets surging to new highs; sentiment and manufacturing data suggesting the Eurozone is turning the corner; robust employment in the United States; a Federal Reserve that is just itching to raise rates; data that looks far less positive coming out of China. We have the whole works!

If the candlesticks read right and we get a bounce higher in EUR/USD, the Federal Reserve will no longer feel as concerned about dollar strength as they currently are. There will be nothing to stop an interest rate hike then. Sometimes you focus on one things and something else slaps you in the face. You have been warned…

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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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Good morning

PARITYFX OFFERS OUR HEARTFELT CONDOLENCES TO THE FAMILIES WHO LOST LOVED ONES IN THE TERRIBLE PLANE CRASH THAT OCCURRED YESTERDAY.

Markets have taken a breather after a tumultuous few months where the FED, ECB, Greece and China have all added extreme volatility to the fragile world economy. We might be past the worst, but we have by no means solved the issues. The FED continues to keep the market guessing as to when they are likely to raise interest rates, the ECB pumps in excess of €1trn into the EU to boost the Euro Zone, Greece continues to play hardball and risk being kicked out the EU, and China continues to slow down which is creating headaches for the PBoC and causing ripples amongst commodity and retail businesses alike. In other words there remains too many unknown factors impacting the financial markets on a daily basis.

Yesterday saw an improvement in EU/German manufacturing and services PMI giving the EUR a lift, while in the UK inflation dropped to 0.00% driven by lower global commodity prices, lower oil and lower food prices. No doubt when the Gov. of the BoE said rates could go down as much as they could go up he was being very serious. Given the inflation target of around 2%, you can see why rates are unlikely to go higher and I for one have now pushed my rate hike to either late Q4/early Q1 though this is very dependent on wage growth and a climb in inflation. Unemployment is dropping and businesses are all saying there has been a pick up giving rise to a feel good factor. With the elections a stone throw away, it is imperative the ruling Conservative party impress upon the electorate that it is they that deserve another 5 years and complete the impressive turnaround in the UK economy which they have achieved. Throwing this chance away will have severe repercussions for the UK economy should a Labour/SNP party come to power. Honestly and I mean no disrespect, but I think my 5 year old daughter could do a better job than the shadow Chancellor.

At a meeting last week the Swiss National Bank kept their rates unchanged at -0.75% and stated that they continued to see the CHF overvalued and should weaken over time. This supported their -ve interest rate policy. The SNB further stated that the deterioration in the Swiss economic outlook is likely to remain for the time being following the CHF appreciation and have thus downgraded their growth outlook. “Hot Money” continues to flow into the Swiss Banking system from the likes of Ukraine and Greece which in turn is adding pressure on the CHF and potentially force the SNB to lower rates again. However, after the SNB’s actions recently when they removed the peg, it is my opinion that they are likely to let the markets decide on the best value for the currency.

EM currencies continue to enjoy a respite after the recent fall in the USD. USDZAR testing 11.78 o/n in America. The SARB will publish their interest rate decision tomorrow with no change expected. If the SARB were clever (and they are) they would surprise the market and cut rates following other Nations in cutting rates to boost the economy. Now is the time to give a helping hand to the economy and boost the inflows of capital. After all I am sure the authorities in S.A want to retake the top economy in Africa spot from Nigeria. Off the subject, I am heartbroken for our cricket side who lost to the Kiwis (5 runs/2 balls). So close yet again!!

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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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Good morning

The USD has had a torrid time over the past week (since the FOMC statement) falling from 1.0650 to 1.1043 and then back to 1.0650 the day after the FED meeting only to fall again towards 1.1000 on the back of a potential deal between Greece and her creditors. While there is no deal signed as yet, the mere fact that efforts are being made to reach a deal have given the EUR a boost. ECB President Draghi spoke to the European Parliament Committee in Brussels yesterday saying that the ECB will reinstate the Greek waiver if the review is successful. We still keep in mind that Greece should service €2 billion debt on Friday (besides paying salaries to government workers and pensions) and can do it only by rolling over its treasury bills as the ECB stopped funding the Greek banks in February. This gives the Greek banks the choice between participating to fundraising to save Greece, or to let it default. The second scenario will severely harm the EU/EUR and send Greece back to an era not worth thinking. We have always said that the negotiations will be fraught with difficulties but a resolution will ultimately be found. The Greeks are simply doing what they have to and the EU is saying we need to toe the line and treat you just like we do the other member states. Even Spain got into the act yesterday saying Greece will not be given more money until they adhere to the reforms and fall in line with the rest of the EU. No doubt there will be a great deal more to write before we see a resolution agreed.

To aid the EUR, German manufacturing PMI came out better than expected at 52.40 from 51.1, while the EUR manufacturing PMI also came out stronger at 51.9 from 51.00 and services PMI 54.3 from 53.7. No doubt these numbers will give Pres. Draghi a smile by confirming the ECB’s QE is going some way to lift the economies of the EU. On the flip side, Chinese manufacturing PMI dropped to an 11 year low of 49.20 from 50.70 in February. No doubt and as we have noted previously, these are “worrying” times for the PBoC. They are throwing the kitchen sink at getting the economy to grow. They are very likely to drop the interest rate currently at 5.35% having lowered the repo rate by 0.10% to 3.55%.

The lower USD has led to a resurgence in EM currencies with the ZAR (sub 12), ILS (sub 4.00), RUB (sub 60) to name but a few all rallying on the back of this. Do not be confused with a rally as a result of changes locally. The EM rally is on the back of a fall in the USD one which is healthy and which Pres. Yellen would be glad to see. In her conference last week, she mentioned the strong USD so the recent turnaround is not surprising. Our view has NOT changed and PARITY EURUSD 1.00/1.00 is still very much on the cards and anticipated to happen over the coming months. FX options traders have started buying SUB PARITY strikes for Q3-Q4 in anticipation of this move. It is always a good indicator to see what the Options desks are doing as it gives one a better idea of what we are likely to see over the coming months.

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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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There is no doubting that currency volatility has picked up dramatically in the last few weeks. Whether this is the new ‘old paradigm’ or just a blip is yet to be determined. Logic however would suggest that this is just a blip and we will have a reversion towards the new mean. There is still a huge amount of central bank liquidity sloshing around out there, and this should keep volatility in check. Still.. this is what you get when the world’s largest central bank prepares to pour the happy juice out of the punchbowl.

I suggested in the blog following the FOMC announcement that the spike sell off of the USD might be a low which could remain unchallenged for some time to come, and while that USD low has held for most currency pairs, it failed for NZD/USD overnight. There could be an idiosyncratic reason for a new US dollar low (or more correctly NZD high) to occur, but so far I have been unable to determine one. However, as a consequence, I have slightly reduced my level of conviction in the view that the US dollar rally will continue from here. It probably will, but I wouldn’t have expected a new weeks high in NZD/USD.

With elections imminent in Nigeria, one of the credit rating agencies Standard & Poor’s has downgraded the emerging giant one notch, reasoning that there are increased risks associated with the country because of the impact of lower oil prices and rising political tensions. I don’t think anyone can argue with that. The legislature recently agreed to drop the budgeted price for crude from $65 to $53 per barrel which is sensible and more realistic, but it’s going to be interesting to see if the political will exists to construct a budget consistent with this number. There are tough tough times ahead in Nigeria.

There is precious little data out today. We will monitor the major currencies to see how they trade on their own merits. This morning the US dollar has started off strongly against its main rivals, as I’ve mentioned before we need more data to get a better sense of where we go from here. But it is entirely possible that for now, the Fed’s acknowledgement that a stronger currency from here could restrain the pace of rate rises. This might be in play, acting as a restraint on the mighty greenback..

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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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After participating in the dollar selloff following the FOMC announcement emerging market currencies started to weaken against the US dollar again yesterday. No great surprise there, as the greenback re-asserted its dominance against the majors as well. There were quite significant retracements across the board, which reinforces my view that what we saw on Wednesday evening was a positioning clear-out exacerbated by poor liquidity. It’s really something to watch the Brazilian real at the moment, just a few years ago we wondered if parity with the US dollar was possible, and here we are now trading above 3.30. The questions isn’t ‘how can things turn bad so quickly?’ It’s more like.. ‘how can we fail to acknowledge what is wrong for so long?’ It took the markets a long time to penalise Dilma for failing to persist with reforms, it makes me wonder where the other blatant errors are, that the market continues to ignore. Time will tell…

There isn’t much on the data front today that’s noteworthy, apart from possibly inflation data in Canada and Brazil. But talking about inflation, I was stunned to read a comment from the Bank of England’s chief economist suggesting that rate cuts are as likely as rate hikes at this stage. What is he seeing I’m not!!? Clearly his reaction function is so far away from what I would hope it is that this sort of comment is possible. And indeed that appears to be the case with his concern being low inflation. Low inflation.. really? I recall just a few years ago when inflation was so far above their mandate but they kept rates low because they saw through the number and focussed on weak growth. Here we are now with the economy getting stronger and stronger, labour markets tighter and tighter, a one off energy price fall causing low inflation readings, and now… we might need to cut rates because of… low inflation? What good is a supposedly independent central bank when there is such a clear asymmetry in the reaction function?

The Nigerian central banks reserves continue to fall, with some estimates suggesting that just $28bn or roughly four months’ worth of imports remain. With elections just days away and no meaningful policies until after the changeover, we’re looking at June or July before any new budget is implemented. It is increasingly obvious that the naira, even though it has apparently stabilised in the last few weeks, is simply untenable at current levels. While the 1 year forwards look extreme pricing in a further 30% depreciation from here, common sense suggests depreciation in the double figure percentage area for sure. No matter the outcome we are likely to be entering a period of a few months where this pseudo-stability of the naira will vanish. Strap on your seatbelts…

Next week the currency market focus might well move away from the US dollar again to the euro. The ECB is likely to limit the amount of Greek treasury bills that Greek banks can buy as one of the red lines in the Eurozone is that central banks cannot fund sovereign governments. The Greek banks are getting close to doing just that. There are a series of member state meetings in the next few days where this issue will be discussed, we all know the participants and the sides they’re on, it’s just a case of waiting to see the outcome.

While I continue to see the euro weakening versus the US dollar, we are now sufficiently close to the UK general elections, and BoE officials are so willing to talk about rate cuts, that I see a risk that the pound sterling could be weaker than the euro over the next couple of months. I would therefore not be surprised if we see a significant move higher in EUR/GBP in the near term with consequent declines in the GBP/USD as well, given our view of EUR/USD. As always we will watch the trends and update you about the level of our convictions. Have a great weekend.

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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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The FOMC came and went, and as expected the Federal Reserve’s pledge to be “patient” before raising rates has been removed. However the central bank has also signalled it will probably be cautious about actual rate hikes. This is no surprise, and I’ve made this point in recent blogs, the strengthening of the US dollar is a de facto hike in interest rates as monetary conditions tighten as a currency appreciates. The fact that the FOMC specifically mentions dollar strength is very important, at least in terms of noting the impact of import prices on inflation, but as I’ve said many times before, if employment conditions continue to improve at the current pace, the hand of the Federal Reserve will still be forced. There is no greater sign of incompetence in central banking than getting behind the curve. Ms Yellen is extremely competent, I think it is very unlikely that could happen to the United States. I also believe, that rates at 0% represent an unwelcome problem for the Federal Reserve and any chance that they can get away with interest rate rises will be gladly taken. So, with all due respect, to financial journalists holding on to the hope that rates will continue to remain unchanged for months to come… I think the Federal Reserve will hike as soon as they can. If they could get away with 2 hikes of 25bps in 2015, taking the Fed funds rate to 0.5% I think they would jump at it. After all, what happens when the next recession comes and you have no ammunition to play with? I’m sure you see the point…

The reaction in the currency markets was not altogether surprising. After all for months investors and traders alike have been betting on the Federal Reserve’s actions yesterday. The declaration that rate hikes are coming, has been the motivation for the dollar buying trade, and when the central bank confirms the market view, the smart guys move to take profits, it happens every time… “buy the rumour, sell the fact”. While I had expected to see a dollar selloff, the extent of the move caught me by surprise. It is clear that liquidity isn’t what it used to be, and policy makers (one would hope) should take note. The financial markets are NOT safer than they used to be, far from it. But already today we can see signs of dollar strengthening again as the positions have reduced somewhat and dollars have been re-purchased at vastly superior levels. I am not certain if the correction is over, it will take another few days to increase my confidence level, but it is very likely that 1.1045, the overnight high for EUR/USD and 1.5165 for GBP/USD are hugely significant levels. It is probable, these currency pairs will not exceed those highs so long as the dollar bull trend persists. I will be able to make that statement with a bit more confidence after further study, but it is looks likely to be the case.

US equity markets reacted very positively to yesterday’s announcement, but as I have inferred, US dollar strength is likely to continue. It is therefore probable that stocks which are more sensitive to dollar strength will continue to underperform relative to the more dollar insensitive component of the US equity markets. Whether the S&P rises in a dollar strengthening paradigm will depend on where we are in the re-allocation of investment funds away from exporters and other dollar sensitives to more domestically focussed corporates which are either indifferent to dollar strength or indeed benefit from it. But it is important to note that we have seen these situations before and dollar strength is no barrier to further US equity index gains.

Finally, we saw a fighting budget from the UK government yesterday. It was a good budget, a smart one, only time will tell whether it’s enough to get the Conservative Party over the line. But incumbency is an advantage of sorts, and with both larger parties – Labour and Conservative – neck and neck, I still think the question will be asked by enough in the polling booths in 49 days time… is a change justified? I’m not sure it is, but maybe I’m biased!

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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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Good morning

UK BUDGET and FOMC. Markets could not have wished for a better day to find volatility.

The USD was almost unchanged against the EUR/GBP/JPY in quiet Asian trading with investors staying on sidelines ahead of the outcome of the much anticipated UK Budget followed late afternoon by the U.S. Federal Open Market Committee (FOMC) meeting later in the day. The FED is expected to remove the word “patient” from its statement on the timing of a possible rise in interest rates, opening the door to a rate increase as early as May (PARITYFX) or June onwards (Economists). HOWEVER caution is also called for. Recent somewhat disappointing US data (excl NFP at +295k), lower oil prices (again) and of course the incredible rally in the USD might lead the FED to hold off changing their rhetoric and continue with “patience”. If the latter does happen you will see a monumental sell off in the USD as the markets expectation for an imminent rate hike is quashed….like the recent Israeli elections, the result is just too close to call. I would like to think the US economic engine is rolling over nicely at the FED’s expectation. Then again the clever people at the FED might have other ideas and think the USD rally, lower oil, rising employment is good enough for now and there is no need to hike rates just yet. The conference starts at 6pm London time. The lingering uncertainty about the economy data, low inflation and wage data and the strong USD will be behind their decision later. Pres. Yellen will use the press conference to express this by signalling that dropping patience by no means points to a rate hike at one specific FOMC meeting.  In other words the gap between the April and June FOMC meetings might signal that a hike IS possible outside an FOMC meeting.

Then there is the small matter of the UK Budget.  All eyes will be on George Osborne as he delivers his sixth budget, probably his most important as the country goes to the polls in May. The Chancellor has promised a budget with “no gimmicks” but it is expected to contain a few pre-election presents (has to be done!!). To aid the Chancellor, at 9.30am London time the BOE publishes its rate vote/Unemployment and BOE minutes. No doubt these minutes will be crucial in giving us a hint whether the BOE is also (like the US) considering raising interest rates later in the year. I have no doubt the minutes and data will be a welcome boost to the Chancellor in convincing the electorate to give the Conservatives another 5 years having turned around the economy and increased jobs/wages. After all it was a rise in wages that the BOE has always hinted at being the spark that ignites future rate rises. Economists are looking for a drop in unemployment to 5.60%, which if confirmed will be the lowest rate since June 2008 and the start of the financial crisis. Not bad going by the Conservatives. With wage growth likely to hit +2.1% (4x inflation), the Gov. might signal things are looking ripe for a rate hike (but NOT before the US of course).  Overall the GBPUSD has fallen in recent days breaking comfortably through the 1.50 barrier. I am afraid to say, while pullbacks are possible, my sentiments remain the same and I see a continued fall (weakness) in the GBP against the USD. Against the EUR, the GBP has fallen back to 0.7190 from a high of 0.7019….I think we could very well have seen the high for now. Consolidation a range bound. If of course the USD does mount another challenge on PARITY it all depends how fast the GBP falls with the EUR (against the USD). As we have repeatedly said, the UK economy remains well ahead of the EU and therefore i see the GBP re-affirming its strength against the EUR

Israel’s Likud party (Netanyahu) has pulled the rabbit out the bag and claimed victory in yesterday’s elections. No doubt the swing to the right was based on Israel’s security and ability to survive rather than socioeconomic factors. The ILS has traded sideways at just above 4.00 as I write this. It is now interesting to see who he brings in to form the 60+ seats he needs in the Knesset.

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