Good morning

The BIG event for the week has to be the FOMC meeting starting today and ending tomorrow. The expectation is that the FOMC are likely to END forward guidance by dropping the “patience” language in favour of language that highlights that the US economic outlook warrants a gradual removal of policy accommodation or in simple words, they are ready to hike interest rates when they ready to do so. As we have been saying recently, as the outlook in the US has improved from month to month, the employment and activity outlook is robust enough to warrant hiking rates as early as May 2015 (most commentators looking for June onwards). Following the March meeting the FOMC meet again 28/29 April and then 16/17 June. It is for this reason I think they will surprise the market and hike sometime in May. Surprise is what they probably want, as this will take out any nasty moves in the June meeting. While the market ultimately expects a hike, positioning will be crucial so May looks to be the best bet for me. EURUSD has been trading “sideways” for the past few days ahead of tomorrow’s meeting. We expect that to change once the rhetoric is confirmed, and the USD to reassert itself as the currency to hold. I therefore expect the USD to mount another challenge on the 1.04 handle post meeting.

Oil has fallen hard over the past 24 hours as rumours surface about a deal between the US and Iran and more specifically Iran sanctions relief. Caution is always warranted when it comes to Iran as the sanctions are unlikely to be removed in their entirety. A case of wait and see will be initiated. I will not get into my opinions and thought on the outcome of the negotiations but the US had better tread carefully because a nuclear Iran will bring the world to their knees. Iran’s neighbours are none too happy as we know. The Saudi’s especially have noted their unhappiness at the prospects. Time will tell how this will all play out.

Wednesday sees the UK government present its 2015-2016 budget. Already we have seen they are due to change the inheritance tax, minimum wage and access to pensions. Make no mistake this is a political coup ahead of the elections in May. The UK economy is moving ahead nicely and these carrots will be seen by the electorate as a way of making it easier to pick the Conservatives as the party to lead for the next 5 years. I for one sincerely hope this is the case. Like I have noted previously, a Labour government will set the UK back to 2008 and the GBP will in all likelihood be crushed. How many FTSE 25 companies have come out in recent weeks to voice their concern about a Labour government. If people do not listen and take notice then it will be these same people that suffer the consequences of their vote. Already today we have seen the GBPUSD lose ground falling beneath 1.48 handle and EURGBP climb above 0.7170 (1.1930) after trading as high as 1.4250 ( 0.7019) just last week. The Conservatives have done an amazing job steadying the ship and putting the UK on a growth course. That is simply because the people who are running our finances know what they are doing. No disrespect meant, but Ed Balls as our Chancellor….I would rather have “Curious George” (if you have kids and they watch Disney jnr you will know what i mean). As things stand, I think the GBP will recover against the EUR, but regardless against the USD, the writing is and has been on the wall for months. The USD remains king of the castle and despite the economic soundness of the UK economy, the US economy still dominates (especially as I mentioned above the anticipated hike inn rates over the pond).

Across the other pond, the RBA (Australia) considered cutting rates in March but decided to wait for the time being (as we said it wasn’t going to wash). After starting the easing cycle in February, we remain confident they will cut in May (5th). The RBA members are waiting because  (1) benefit in allowing some time for the structure of interest rates and the economy to adjust to the earlier rate cut,  (2) advantages in receiving more data to indicate whether the economy was on the previously forecast path, and (3) a greater degree of uncertainty about the behaviour of borrowers and savers in a world of very low interest rates.  The RBA retained a strong easing bias, with members “recognising that further easing over the period ahead may be appropriate” and “were of the view that a case to ease monetary policy further might emerge” even with low interest rates and a lower exchange rate. The AUDUSD is trading around 0.7640 having appreciated vs the GBP in particular over the past 96 hours. I am firmly of the view that the AUD will remain “weak” and continue to slide vs the USD (and GBP) once the dust settles.

Israeli elections today. So much has been said and written. These days it does not matter who wins the most seats but rather who can form a majority in the Knesset. It is a race between security and socio economic. The latter there is grumbling over the rise in property over the past 5 years (+50%). But if you have been to Israel you will have noticed besides its beauty and history, there is only so much space to build, so instead of going out they going up (hello NY). Demand from Europe, UK, US (techies) means property is like the holy grail in Israel. I am not surprised to see prices grow. Even the BoI recently suggested the rise has been worrying. Then again the RBA (above) have the same issues. Property is king.  Needless to say overall my view is the ILS will remain weak and under pressure along with other EM currencies.

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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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A big data week ahead of us with the FOMC announcement on Wednesday. There will also be interest rate decisions from Japan and Norway, albeit of less global significance, and in addition we will get a chance to look at the minutes of the central banks of Australia and England, as well as numerous speeches by some key central bankers. Needless to say, by the end of this week, we will have a far better picture of the state of global monetary policy.

In Europe, some comments by the Dutch and German representatives on the ECB governing council make it clear that the divide is not Germany against the rest, but Northern Europe against the rest. Recent comments by both these central bankers have raised concerns about the moral hazard of the ECB’s quantitative easing policy. After all.. what reason do the French and Italians have to reform when the QE panacea has been given to them, it’s hard to argue with this, but then I’ve never been supportive of a policy, central to which is the belief, that the best way to fixed an over-indebtedness problem is to make it as easy as possible to borrow. Silly me!

But the most significant issue this week has to be the FOMC. We already know from Ms Yellen’s congressional testimony that the Federal Reserve is keen to get rid of its “patient” pledge before raising interest rates. This will open the way for the central bank to assess the interest rate level on a month by month basis. As I’ve said before in recent blogs, the pace of strengthening of the US dollar has in my view reduced the probability of hikes, although there’s a strong argument that even two 25bps hikes – which would take the policy rate to 0.5% – isn’t exactly a huge burden! But my point is that a strengthening dollar IS a tightening of monetary policy and is in fact an implicit increase in the interest rate already.

It’s the US dollar that captures my attention at the moment. While the rise has been hugely impressive it is important to remember that a large number of countries have tried to maintain the value of their own currencies in relation to the US dollar, this has been a popular strategy in the Far East for example, and while these currencies have weakened against the US dollar, it is possible they may not have weakened as much as fundamentals might require. Foremost amongst these currencies would be the Chinese yuan. Consider this… in 2015 the euro has fallen 13% versus the greenback, while the yuan is down only about 1%. This means that the yuan has appreciated by 12% versus the euro, or I could say that the cost of Chinese exports to Europe have gone up by 12% since the start of the year. Clearly there is a significant risk of an export slowdown from China, and there’s very little chance that increased exports to a booming United States economy is going to be enough to compensate. If you weren’t aware of it already, it’s worth pointing out that China probably exports more to Europe than the United States. This is important. Particularly when you consider that Chinese companies have been heavy borrowers of US dollars over the last half decade, they really need to maintain their sales to pay off their debts. I’m not making a forecast so much as identifying a possible risk on the horizon. One that is not dissimilar to the problems in 1997 in the Asian crisis. As always vigilance is key.

Meanwhile in Europe stocks are flying. The DAX index is already up 23% in 2015 and is in record territory. QE continues to deliver for those who have shares, which is mainly the wealthy and the pension funds. Much the same as it was in the United States and the UK. We can only hope that the more rigid economic structure in the Eurozone will also be able to recover as quickly as the Anglo-Saxon economies… but don’t hold your breathe!

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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

No change then in the fate facing the EUR. The currency slid lower against the USD at the European open, falling to a low of 1.0564 as the ECB’s QE programme continued to weigh on the EUR.

The EUR remained under pressure after the ECB began purchasing securities on Monday as part of an asset-buying program amounting to €60 billion a month. Additionally concerns over the situation in Greece continue to support the weaker EUR, as the Euro-group of ministers continued talks in Brussels to discuss a reform package put forward by Greece as part of its bailout review. Germany’s FM Schaeuble warned earlier in the week that Greece must stop wasting time and start developing its reform package. Isn’t it strange that that is exactly what we at PARITYFX have been saying since the 28 February. Greece has 2 options, comply with the Euro-group and face expulsion and return to the stone age.  Ok stone age might be going back a little too far, but I guess you know what I mean. If the EU/IMF pull the plug on the bailout package the Greek banks will simply run out of cash, the financial system will implode and the economy will simply stop. Will this mean a return to the Drachma? How long will it take to print the cash again and more importantly at what rate will they fix the EUR/GRD….this is a situation that does not bear thinking. So let’s try be positive. I do believe a solution and compromise will be found. I do believe that Troika and Syriza will reach an agreement whereby we can all move on with a sign of relief. However between then and now, you will see volatility, new lows and as we have been saying since the 01st January, EURUSD WILL GO THROUGH PARITY 1.00/1.00. Of that I am as sure as my name is David…. 

Yesterday meanwhile saw a strange anomaly in the USD’s fortunes. Retail sales fell 0.6% in February, the third consecutive monthly decline. Economists had forecast an increase of 0.3%. While I am sure you could argue that the severe weather conditions in the US over the past month must have had a significant effect on this number, it is nevertheless not what the FED want to see. Overall though, the numbers (NFP +295 last week) remain steady so no need to worry, yet. Later today, the U.S. was to release data on producer prices (PPI).

GBPUSD…finally playing catch up. PARITYFX has noted over the past months that the GBP, while being held up due to positive signs of economic recovery and potential rate hikes later in 2015, was on a steady downward spiral. FINALLY 1.50 broke yesterday and at the time of writing we are sub 1.49. Don’t get me wrong, this is not necessarily a GBP bashing, but rather a USD rally (GBP playing catchup to the weak EUR). EURGBP has bounced back from the low of 0.7014 (1.4257) and is now trading at 0.7130 (1.4025). This is not a EUR recovery but rather a GBP getting bashed giving the EUR some breathing space. Suffice to say by the time you have to buy your EUR for your holiday, your sangria just fell another 10%. If on the other hand you are going to the US, well all I can say is you should prepare for further losses (less USD for your GBP). It is for this reason we ALWAYS advise our clients the importance of hedging your FX flows to avoid unnecessary losses (Adidas, Proctor and Gamble, Coke, Puma are a few example of multinationals who did not hedge their FX and suffered losses as a result).

AUDUSD found a fire in her belly rising to a high of 0.7730 in defiance of strong USD showing yesterday. GBPAUD fell like a stone from 1.9850 to 1.9350 as a result of the 2 moves. The Aussie has since fallen back trading around 0.7688 and with the RBA starting a new easing cycle we think the AUD will fall back to below 0.76 in line with the USD strength

Keep in mind, the USD strength and potential rate hike in MAY/JUNE continues to weigh on EM currencies. ZAR, MXN, BRL, ILS all falling in recent weeks. A strong USD = weaker EM so expect further weakness as the USD rally continues.

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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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Good morning

The story will simply not go away. If you are looking for a reason for the USD rally yesterday look no further than…Greece. The negotiations and tit for tat continues unabated. The Greek Govt. has said they are going to hold more talks with Troika (her creditors) today and try find a solution. Obviously there is more than meets the eye. The Greeks no doubt are trying everything to appease their anti-austerity supporters and keep Troika happy. In the end though the Greeks will have to accept that they simply have to accept the line thrown to them by the creditors and move on.

As ParityFX has been citing for a couple months the much anticipated rise in US interest rates has vastly contributed to the recent gains in the USD. Cast your mind back to 01 January and the EURUSD was trading at 1.2000!!! It was back then we forecast that (1) US will raise rates EARLIER than everyone in expecting – Q2, and (2) EURUSD will reach PARITY WELL AHEAD of what others were predicting. EURUSD is currently trading just under 1.0700 and given the proximity I think it will be safe to say that our predictions are looking good.  Then of course there is the small matter of the ECB’s new stimulus plan, which began this week. The plan is simple, lower interest rates and devalue the EUR. As the monetary policies of the two central banks move in different directions, vast differences in growth (GDP), employment and general data being published and the fact that NEITHER CB has mentioned a word about the strength of the USD or weakness in the EUR confirms what we have been saying in January. One has to applaud the measures taken by Pres. Yellen and her colleagues at the FED. They pushed ahead with reforms and pumped the US economy with cash and liquidity. No doubt those measures are now reaping the rewards while the ECB dug their heels in, buried their head in the sand and hoped for a miracle. Unfortunately it was not to be and the ECB is now throwing everything and the kitchen sink simply to stay above water. Things would have looked vastly different had they started the QE reforms around the same time as the US. Alas let’s not cry over spilt milk. As far as the USD is concerned not only are we going to penetrate PARITY, but we are heading for the all time low in the EURUSD 0.8225 last printed in October 2000.  Granted that is still some way off, but casting my mind back to those days (and they were awesome) the stage is set for a repeat of a EUR drubbing.

The strength of the USD is not only affecting the EUR of course. In fact it is having a vast impact on EM currencies and stocks. Some other examples include:

(1) USDZAR and ZAR crosses being hit hard by locals. Last week the Fin. Minister surprised by announcing a rise in income tax, fuel and electricity levies. In other words, they have spent so much money of Pres. Zuma’s new house they need to recoup that from his people. As for electricity, what a joke. The powerhouse of Africa and they continue to suffer from blackouts. Perhaps stop exporting so much electricity and keep your own country lit. Their technology is so back dated, it will take billions to see it right. Not in my lifetime!!! Suffice to say the increased taxes and stronger USD has seen the ZAR fall over 7% in recent weeks. GBPZAR having fallen to 17.75 is now trading upwards of 18.60 as time of writing. Your castle lager now costs £0.80!!!

(2) India Balance of Payments narrowed in Q4 (2014) to 1.60% of GDP. With a lower import bill it is highly likely the BoP will turn into a surplus in Q1 2015 and much to the envy of her trading partners.

(3) Chinese data continues to disappoint pointing to a continued “slump” in growth. Industrial production and retail sales both disappointing. As I mentioned a couple days ago, we are looking for FURTHER EASING by the PBoC as well as further QE to support growth and reach their target of 7% this year. Who wouldn’t take 7% growth….but this is China and 7% is deemed as underachieving.

(4) BoI rate cut and the non-spoken words that a devaluation of the ILS was on the cards is now taking shape. From 3.9350 when ParityFX recommended buying USDILS) the ILS has in fact devalued and is currently trading at 4.0450 (2.8% fall). As long as the USD continues to outperform, EM will continue to feel the brunt.

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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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Good morning

A rather “quiet” start to the week as sentiment remains muted post the rather electrifying NFP last Friday. Greece back in the spotlight as they failed to come to an agreement with her creditors yesterday on the proposed reforms and secure the bailout payment early. After giving in to Troika ahead of February’s deadline and seeing the fallout from the anti-austerity protesters, it would appear Syriza’s Tsipras is now trying to act tough. When will he understand that there is very little room to negotiate and Greece, like her EU partners are all in it together. The EU cannot be seen to pardon Greece while keeping the purse strings tightened with the rest. Reform is the answer. It is difficult we know, it is difficult to sell to your supporters we know, it takes years to see the results we know, but it seems Tsipras and his followers simply do not know and prefer to keep their blinkers on and face up to reality. The good times are gone. Stand up and accept reforms will happen or Greece will face bankruptcy and potential expulsion (not really an option). That will take decades to fix itself let alone years. Syriza announced in February a list of reforms and targets the EU/IMF were looking for. But as we now get into the nitty gritty of these reforms one wonders have they simply plucked the figures out of thin air and that Troika would not ensure they are carried out to the word. Tsipras is a virgin politician. In fact his party is made up of amateurs. I don’t think they know just how deep in the hole they are and hoping their inexperience will help them get some leeway from Troika. Unfortunately this will not happen. While a deal will happen one way or another, getting there will be fraught with pot holes and difficulties. What this space. Bottom line the ultimate winner as usual is the USD. Trading UNDER 1.08 in Asia EURUSD is once again on a cliff’s edge. As PARITYFX has written many times since the beginning of January, EURUSD IS GOING THROUGH PARITY WELL BEFORE THE END OF 2015. I HAVE WRITTEN Q3, but at this stage it could be the summer holiday gift. 

Chinese inflation data was released overnight. While consumer prices rose by 1.4% in February, well ahead of expectations and a hefty jump from the January reading, PPI fell much further than expected, by 4.8%. With the PBoC targeting 3% CPI levels, on the face of it this reading was an anomaly and the PBoC will find it difficult to push ahead with that target. There are simply too many negative factors affecting the Chinese economy right now and will simply have to continue cutting rates and adding QE to straighten the economy.

Gov. Carney will appear before the Lord’s Economic Affairs Committee in London this afternoon. We reckon the Gov. will simply repeat what we know already about CPI, GDP, and more importantly interest rates. We have noted many times in this commentary, the Fed will beat the BOE to be the first major central bank to raise interest rates. We suspect and predict the FED will act in JUNE. The BOE is likely to follow suit with SEPTEMBER being my bet. More importantly WHO WINS THE ELECTIONS IN MAY!!! A labour Govt. will see the GBP fall off the cliff. That could add a few grey hairs to the Gov. With lower CPI driven by falling oil and food prices, the Gov. is hoping to see a continuation in wages, thus creating inflationary pressures. The BOE may decide to raise rates even if current inflation is well below target.

Other key points: (1) The USD index continues to edge higher reaching its highest level since 2003, (2) USDILS continues to trade above NIS4.00 AS PREDICTED BY PARITYFX post the BoI meeting, (3) AUDUSD finally gave in and kicked the bucket after rising post NFP to 0.7825. We still expect the RBA to make another cut, probably on the 5th May thus giving itself time to see how the February cut worked

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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 non-farm payrolls report published on Friday was better than market expectations, with almost 300,000 jobs added in the United States in February, and the unemployment rate declining to 5.5%, the lowest level since 2008. The US dollar surged and yields rose in response to the strong data. Market participants are using the weak wage growth data as a reason for the Federal Reserve to hold off raising interest rates. They may be right, or they could just be misreading the reaction function of the US central bank. After all… where’s the harm in a 25bps hike? The next FOMC meeting will be of great interest, because the Fed is likely to drop its pledge to remain patient on rates, which should open the way for imminent action.

Currency markets showed an across the board gain for the greenback with major levels being exceeded, EUR/USD below 1.09 – remember just a few months back when it was at 1.30? Wow…It wasn’t just EUR/USD though, there was USD/JPY trading comfortably above 120, USD/ILS above 4.00, USD/MXN at 15.50. In summary there were many significant moves with currencies of all regions weakening against the US dollar. It appears that US economic strength is starting to boost other economies with China registering a record trade surplus last month. If there is one prayer central bankers around the world have in common, it’s the hope that US economic momentum drags the rest of the globe into recovery. I suspect it’s a forlorn hope, but it appears to be working at the moment.

I’ve been heartened to see that deflation fears are subsiding, and the benefits to the consumer of lower energy prices are starting to be felt. Well… ahem.. I think we said that months ago! But now we’re starting to see the hard evidence, with annual retail sales amongst advanced economies rising at their most rapid pace since 2006 apparently. The ECB will claim some credit because of its QE programme, but personally I think consumers were smart enough to realise that lower energy prices are a transient phenomenon, but don’t mind me!

I remain cautious about the US dollar from here. As I mentioned in recent blogs, there are signs of weaker price momentum, and a significant reversal is a possibility. If you are selling dollars, you may not get better prices than these for months to come.

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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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Big big data day today, with employment data in the United States. As we’ve blogged over recent months this information is – outside of the machinations of the ECB governing council – the most critical for the world’s macro-economic future as it will be highly influential in determining when the Federal Reserve pushes ahead with interest rate hikes. But before we expand on this, there has been some significant activity in the last few days that merits discussion.

On Wednesday afternoon we saw ADP Nonfarm Employment data published in the U.S, it’s always a precursor to the Federal data that gets disseminated today, and it’s fair to say that it isn’t always in line. Wednesday’s number disappointed both in terms of comparisons to the previous month and also economist forecasts. We will see how this correlates with the more important data today. Also on the same day we got ISM non-manufacturing data which showed a slight improvement in aggregate but some key sub-components disappointed, notably business activity and new orders, while the employment sub-component was very very strong. This is further evidence of the strength in the pickup of employment in the United States, but the less positive activity and orders data is also consistent with the recent Goldman Sachs Global Leading Indicator which is pointing towards contraction later on in the year. It’s going to be interesting to see how less conducive business conditions later on in the year, square with very robust employment growth. Is it possible that a more confident US consumer will ride to the rescue and power the US towards a new consumption cycle? I confess, I really don’t know what to think at the moment.

Yesterday saw interest rate decisions by both the Bank of England and the European Central Bank. Both kept rates unchanged, but the headline numbers were always likely to be that way. The key is always the narrative that underlies the headlines. In the case of the Bank of England there was nothing new to report, at least where policy is concerned. Indeed, the newspapers were more interested in a Serious Fraud Office investigation into the central bank’s conduct at the height of the financial crisis. This probably bears watching as reputational capital is a critical component of the power of a central bank, and it is arguably at risk because of this probe. But as I’m sure you guessed, the ECB, and more specifically Mr Draghi’s post-rate announcement speech was always going to be the big show. And the news from the Eurozone’s premier central banker was extremely positive. He declared the end of the Eurozone crisis, with growth forecasts of 1.5% in 2015; 1.9% in 2016; and 2.1% in 2017 for the Eurozone. Much better numbers compared to ECB forecasts just 3 months ago. Not surprisingly he attributes the recent improvement in financial conditions to the announcement of QE at the beginning of the year. I confess to some discomfort at this chest thumping from such a remarkably accomplished figure, and an image flashed in my mind as I watched this. Do you recall President George W Bush on the USS Abraham Lincoln declaring mission accomplished during the war in Iraq? We all know what happened after. I couldn’t help wonder if I was witnessing something similar. Time will tell, and I know people in Greece who would strongly disagree with the rosy outlook!

And then we come to today. It’s not just the non-farm payroll number itself that will merit attention, but we also need to pay close attention to the revisions to prior months. Historically as employment conditions improve, previous months’ data tends to have a bias towards significant upward improvement, i.e., the employment conditions in previously reported months turns out to be even stronger than initially reported, which therefore means that the labour market is even tighter than suspected. In addition to data revisions, we should pay close attention to the Average Hourly Earnings data because the Federal Reserve will be looking at this. Any sign that wage growth is picking up strongly will force the hand of the central bank more quickly than anything else could. Be warned!

Yesterday, for the first time since 2003, over a decade ago, even longer ago than President Bush’s fateful ‘mission accomplished speech’ on the battleship, EUR/USD traded below the 1.10 level. It’s back above again today, at least in the European morning, but strong data in the United States could see a sharp fall. I am seldom trusting of market reactions to big data, and today is no exception. When I look at the price action in EUR/USD I see us at new lows relative to January on considerably weaker price momentum, I don’t like positive divergence, but this is what I see. I am unwilling to discard my view that we will see parity in this currency pair at some point this year, but the signs are that we may be close to a significant bottom that may take time to re-test. If my concerns were specific to EUR/USD alone I might ignore it, but EUR/GBP also looks to be close to a bottom, albeit a less significant one. Let me be clear, I’m not saying that we could be seeing the end of a major trend, I just think that we may be close to a low in EUR/USD that will only be re-tested again after many months. We will have a clearer picture for you after the big show this afternoon..

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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

There is a wonderful phrase I would like to open today’s blog with: ” You can’t keep a good man (USD) down”. Other than profit taking and surprising US data, I just cannot think of any other decent reason that will bring a (temporary) halt to the USD rally. EURUSD  suffered further losses (starting yesterday and continuing into today) hitting a fresh 11+ year low following a morning of weaker than expected EU services data and decent numbers from the US which brought out the USD buyers in force. Not to be forgotten, GBP also suffered losses against the USD  but rallied vs the EUR. Today see’s the interest rate decision by the ECB and Gov. Draghi in the following conference will reveal the ECB’s plan to execute its €1 trillion QE programme. Questions and (apparent) answer on the how and when the QE programme will be set out has left the EUR in tatters. While the programme is due to carry on until late 2016, we are of the opinion that this could last longer if the ECB plan to raise inflation back to the 2% target….wishful thinking for now . No doubt the ECB will have to adjust (lower) its inflation and growth forecasts for 2015 (0.7% and 1% resp.). A marked change to the forecast  will influence EURUSD with a downward adjustment to inflation and growth adding to the pressure on the EUR. Either way the EUR’s downward trend looks intact and further weakness for EURUSD looks set to continue, not to mention the publication of the NFP number tomorrow (adding more pressure to the EUR). The one thing that stands out is the complete SILENCE from the FED/ECB about the strength/weakness in the USD/EUR. No doubt the EU/ECB are delighted to see the EUR weakening as it makes European goods more attractive (cheaper) for foreigners and exporters alike. PARITYFX continues to call for EURUSD PARITY in Q3 2015, ahead of the expectations by the banks. We were right about the EUR falling from 1.3750 (July 2014) to 1.2000 (31 Dec 2014), so we are now making another bold call.

With “GREXIT” off the table I guess the only thing that could change the USD’s sentiments today is if Gov. Draghi RAISES growth and inflation forecasts. Anything is possible of course but by doing so he will be adding unnecessary pressure on the EURO (zone). Failure to reach these forecasts will be viewed quite negatively and in all likelihood see the EUR torn to pieces.

Other key developments yesterday:

(1) Bank Of Canada left rates unchanged as expected.

(2) Aussie retail sales came in at +0.40% as expected

(3) China cut its 2015 growth target to about 7% and its 2015 inflation target to 3%, as expected.

(4) USDILS remains weak trading again through NIS 4.00, currently just under. Pressure will remain on the currency in line with the recent rhetoric by the BOI.

(5) precious metals in general on the sidelines with Gold and Silver pretty much unchanged over the past few weeks. Obviously all eyes on currencies, QE and interest rates for the moment. Inflation is a known factor now so hard to use that as a reason to test the metals price resolve.

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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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Good morning

With only 2 days to go before we know how the employment sector in the US fared in February, the USD remains bid trading narrow ranges but continuing to show signs of intent to move higher vs the basket.  The RBI (India) cut rates to 7.5% from 7.75%. As we have noted previously there are still economies that remain in “cut” mode (Australia, Israel). No doubt they are behind the curve in that they really should have followed the US in cutting earlier to stimulate their economies. Of course it is never too late, but they have wasted opportunities to cut and stimulate. The Chinese HSBC services PMI rose marginally from 51.8 to 52.00. PBOC deputy governor Yi Gang ‘countered’ speculation on an imminent widening of the official trading band as he said that there is no urgent need to do so. USDJPY traded mostly unchanged around the 119.70 area. The Japanese services PMI declined substantially from 51.3 to 48.5. Australian Q4 Growth was reported at 0.5% Q/Q (2.5% Y/Y). AUDUSD rose yesterday from mid 0.77’s to mid 0.78’s but has since fallen back to trade just above 0.7800 in line with other major currencies. I have said this before and I will say this again, the USD is on the march (again) and baring any shocks (data), I see no reason why the rally cannot carry on unabated. PARITYFX continues to call for a rate hike in the US as early as MAY 2015. PARITYFX continues to call for PARITY vs the EUR as early as Q3 2015. In a nut shell, THE TREND IS YOUR FRIEND and the trend is USD UP.

As noted here FIRST last week, USDILS finally crossed the NIS 4.00 barrier yesterday trading as high as 4.0215. We wrote in this blog last week when the BOI cut rates that a warning signal had been fired and the BOI intends to allow the currency to fall vs the USD. We HIGHLY recommended any importer cover their FX risks (from 3.9350) as the currency was hanging off the cliff. As predicted by PARITYFX, the NIS slipped off. We have come back from the recent lows to trade just under the NIS4.00 handle, but the trend remains in favour of a weaker ILS and therefore we would again recommend being vigilant and covering any exposure.

Bank of Canada meet later today. We do not expect any change in rates. Despite lower energy and food prices, we feel the BoC does not necessarily need to act now. A wait and see is the wise move. As noted above the CAD will remain under pressure vs the USD.

No surprises yesterday from Gov. Carney. GBPUSD trading around 1.5365 and EURGBP 0.7250. The GBP will remain pressured vs the USD but buoyant vs the EUR. The reasons are simple, the UK economy is growing slower vs the US but faster vs the EU. No doubt the local elections in May will be a HUGE fundamental risk facing the GBP. A loss for the Conservatives will be seen (in my opinion) as negative and will likely see the GBP getting hammered in the markets. I know there are issues and no political party is ever perfect, but for the love of g-d surely seeing your bottom line increase & seeing your business grow spurs you to keep with the current Govt. in the hope that things will only get better. It is like changing a successful manager of a sports side with someone else (who we know is NOT UP TO THE TASK). The results could be catastrophic. Let’s hope sanity prevails in May and people think more above the love of being better off than the “need” to vote Labour/UKIP.

Lastly, ECB meeting/conference tomorrow. No surprises or fireworks expected. Rather we will simply find out more from the ECB how QE is working and when they are looking to start buying Govies (bonds).

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