20150731 – DAILY FX COMMENT

Good morning

High Low High Low
EUR/USD 1.0949 1.0927 USD/ZAR 12.7328 12.6728
GBP/USD 1.5616 1.5591 GBP/ZAR 19.87 19.77
EUR/GBP 0.7016 0.7002 USD/RUB 60.31 59.25
USD/JPY 124.28 123.90 USD/ILS 3.7900 3.7700
GBP/CHF 1.5131 1.5080 S&P 500 2,111 2,107
GBP/AUD 2.1417 2.1352 Oil (Brent) 53.51 52.91

The big news over the past week was undoubtedly the FED meeting where the FED has left the door wide open to a POSSIBLE rate hike in September as the US economy continues to grow (+2.3%) and improving jobs sentiment. FED members voted unanimously to keep rates on hold on Wednesday but hinted that a rate hike (for over 6 years) was imminent. In fact Gov Carney of the BoE has also hinted that rates in the UK are also being primed for a hike citing early 2016 as a possible date. As history and experience tells me, the US are generally always the FIRST to get the hiking season started and we are expecting possibly 2 hikes by the FED this year, starting in September (17th) and followed in December (16th). As the Greek issue moves from page 1 to somewhere in the middle of our daily newspapers, the FED can now concentrate on doing what they do best, concentrate on getting the US economy to levels where growth is sustainable and growing on its own without the intervention of the FED (QE). This is indeed good news as we know the world’s economies are for all intents reliant on a growing US economy. In fact I am almost certain even the Chinese (who have endured a horrific period of poor growth (7%) are cheering because the feelgood  will be felt globally. Ample warnings have been given and it is now imperative that companies and households start to prepare for a period of higher interest rates.

A story that is starting to gather momentum is the possibility that criminal charges (including treason) will be brought against Greece’s former FM Varoufakis following revelations of a secret plan to establish an alternative currency in the event of the country leaving the EU. The Greek parliament is currently examining an array of complaints brought by private citizens against Varoufakis. It is no wonder really considering so many highly influential negotiators told PM Tsipras they wanted nothing to do with Varoufakis and in fact HE was the one that was stalling and causing the negotiations to grind to a halt. It was no wonder then he was fired (stepped down) by Tsipras. Either way where there is smoke there is fire so I would not be surprised to see Varoufakis end up in a courtroom. Of course he has immunity like all parliamentarians, so it will be up to the Greek parliament to overturn this immunity and allow the courts to prosecute. For now Greece has done what they have been asked but no doubt this story is simply hibernating until the next bailout cash is due and then we are back to the races. With the imminent hike in rates in the US and possibly Greece drawn back into the GREXIT/GREXIN debate, the sure winner will be the mighty USD, and so it is in my opinion that EURUSD at PARITY will become more of a reality come Q3-Q4 2015. So confident I am, unlike most other banks commentaries for PARITY in 2016, I am sailing alone and predicting that we will see PARITY before the doors shut for new years eve 2015…..the dice is cast…..

Interesting article in the Daily Mail this morning “Currency providers’ zero commission claims are ‘phony’: Money transfer firm warns customers feel ripped off by forex fees hidden in poor exchange rates” – FX firms offering unfavourable exchange rates to make a profit by offering 0% commissions or “free” transfers. In fact these companies are making massive profits by charging these customers up to 5% between the spot market and the rates the customers is offered. In fact exchanging cash at the airport costs customers over 10%….sometimes even 20%….with the argument being it is the price you pay for not exchanging earlier. PARITYFX DOES NOT CHARGE COMMISSIONS & TRANSFER FEES PERIOD. OUR CUSTOMERS USE US BECAUSE THEY SIMPLY CANNOT FIND A BETTER FX RATE ANYWHERE ON THE STREET – FACT. OTHER FX BROKERS WHO PURPORT TO OFFER A FLAT FEE ARE NOT BEING FACTUAL BECAUSE THE RATE CAN CHANGE BETWEEN WHEN THE DEAL IS ENTERED INTO AND DELIVERY TAKES PLACE. AT PARITYFX WE PRIDE OURSELVES ON BEING THE BEST FX RATE PERIOD. PARITYFX OWNERS HAVE OVER 40 YEARS COLLECTIVELY IN THE FINANCIAL MARKETS AND PRIDE OURSELVES ON BEING PROFESSIONAL AND HONEST. YOU WILL SIMPLY NOT FIND A BETTER RATE WHEN YOU EXCHANGE YOUR MONEY. In fact on a recent trip to Spain a friend exchanged £10,000 into Eur with a leading FX broker at 1.3925 which he said was the absolute best rate he could find (he uses them a great deal). When I told him had he used PARITYFX he  would have got 1.4200, he realised that the best was in fact FAR from the truth. 

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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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20150729 – A LONG RIDE

High Low High Low
EUR/USD 1.1085 1.1030 USD/ZAR 12.5973 12.5467
GBP/USD 1.5621 1.5589 GBP/ZAR 19.65 19.58
EUR/GBP 0.7100 0.7072 USD/RUB 61.24 58.66
USD/JPY 123.70 123.33 USD/ILS 3.7921 3.7693
GBP/CHF 1.5061 1.4993 S&P 500 2,099 2,091
GBP/AUD 2.1360 2.1236 Oil (Brent) 53.55 53.04

 

Full confession, the British pound continues to confuse me. Normally after data disappointment, particularly in an environment where GBP is heavily owned, it falls and continues to fall. This has not been the case this week. Sure we can say that the GDP data which came out yesterday was in line, and this news would have settled some of the concerns of those who are betting on imminent rate rises. This is a justification, but at the end of the day, all we saw was that the numbers were in line. I might speculate and suggest that the provisional Q2 GDP data is likely to be revised higher at the next update, this would not be unusual in a situation where growth in Britain is strong, any further updates are likely to reveal upward revisions, and this is probably the case. The market is betting that both the UK and the US have had enough of rates at the zero bound, and anything short of disastrous data will result in hiking sooner rather than later. Let’s go with that view for now, as nothing else explains the recent price action.

 

Interesting to read in the Financial Times that Nissan’s earning have been boosted by strong demand in Europe. For those who see the crisis in Greece, and indeed the poor fiscal situation in any number of Eurozone constituent countries as evidence of stagnant growth in Europe, perhaps a revision of that simplistic view is in order. Frankly I was a bit taken aback. Perhaps those fiscal deficits are helping to boost demand? It’s always difficult to arrive at conclusions with one data point, it could just as easily be that Nissan is succeeding on the back of the recalls that have hit both Toyota and Honda in recent times, after all Nissan has now overtaken Toyota as the top selling Asian brand in Europe. But the truth is probably somewhere in between, as car sales in Europe are as strong as they’ve been since 2009. The tougher regions at present are in the BRIC countries China, Brazil and Russia – no surprise there. This does nothing to alter our view about where the euro should go from here. There is virtually no chance of tightening monetary policy in the Eurozone for the foreseeable future, while as we’ve already discussed central bankers in the UK and US are looking the other way. It is on that basis that we remain bullish on the pound and dollar. But more so the dollar, as it is hard to imagine GBP appreciation not being curtailed by its behemoth trading partner – the euro.

 

Weakening demand situations in Brazil, China and Russia are nothing new, and the horrific falls in commodity prices have compounded this, and will continue to inform our view that Emerging market currencies are in for some tough times ahead. As I mentioned in yesterday’s blog, oil prices are testing recent lows, indeed Brent is down almost 1% as I write. This will inevitably feedback on resource rich currencies, and looking at the Russian rouble we can already see the depreciation trend. We expect this will only get worse as the clamour for rate rises in the United States gathers pace.

 

Today we get some housing data in the United States, and later on the announcement at the conclusion of the FOMC meeting. Economists are not expecting rate rises this time around, but anything can happen, we are that close now. Perhaps the data has not been compelling enough yet, perhaps there is still some caution ahead of the Greek debt renegotiations, but sooner rather than later, we should see the first interest rate rises since 2007. It is time to start considering what is likely to happen afterwards. I wouldn’t be shocked to see some of the dollar longs taken off in the wake of such a decision, perhaps after an initial spike higher in the dollar, depending, of course, on how surprised the market is, but then the trend will continue, we strongly believe that the bullish dollar trend is here to stay, not just for months, but for the next few years, and we may not even be half way to where this trend will take us. Buckle up, it’s going to be a long ride!

 

 

 

 

 

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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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20150728 – DAILY UPDATE

High Low High Low
EUR/USD 1.1100 1.1052 USD/ZAR 12.6610 12.5636
GBP/USD 1.5581 1.5542 GBP/ZAR 19.71 19.54
EUR/GBP 0.7132 0.7101 USD/RUB 61.11 58.55
USD/JPY 123.71 123.07 USD/ILS 3.7878 3.7597
GBP/CHF 1.5011 1.4947 S&P 500 2,083 2,068
GBP/AUD 2.1436 2.1256 Oil (Brent) 53.74 52.92

 

One of those big data announcements comes this morning – UK GDP. We all saw the market’s reaction to disappointing data last week with British retail sales. GBP dropped hard in the wake of the data disappointment, a clear indication that the market over-owns GBP. In addition, there is already talk in the papers about how much the strength of sterling has harmed manufacturers. Today, provisional GDP numbers for Q2 are forecast to show a small dip from 2.9% for Q1 to 2.6% for Q2. It will be very enlightening to observe the market response to a deviation from the expected outcome. Either way it will be most instructive. After the decline at the end of last week, GBP/USD has made what looks very much like a corrective bounce, retracing a perfect 61.8%, experience suggests that any disappointment today could lead to a capitulation of GBP longs. Please look out for our tweets if the surprise (if any) is significant.

 

It feels very much like the dollar is set to strengthen today. All the majors are ever so slightly weaker against the greenback, and the Russian rouble is already over 1% weaker versus the dollar this morning. The latter is almost certainly being influenced by the continued decline in the oil price, which is approaching what looks like a significant interim support level at around $52.50 (Brent).

 

We got some strong German confidence data yesterday, which didn’t do the euro any harm, the single currency was already having a decent day, but must surely have received a boost when Germany avoided yet more bad data. You’ll note that in recent months the good news among the Eurozone countries has come from the likes of France, Italy, Spain and Ireland. If there is any hope that Europe can grow out of its current crisis, a strongly growing Germany is surely a pre-requisite. EUR/USD traded above 1.11, but has dipped back below this morning. We will see if the greenback takes back more of its recent losses today.

 

Even some slightly disappointing data may not do much to dissuade Yellen and Carney. I can only imagine the central banks of the United States and United Kingdom are extremely keen to normalise monetary policy as soon as they are able, and move on past the disaster that was the 2008 Global Financial Crisis. For the lessons of being stuck near the zero bound, both central banks only need to look towards Japan. Durable goods data yesterday afternoon from the United States can only have given Ms Yellen more confidence about rate rises in the U.S. The numbers were a solid positive surprise, and the case for moving to a brave new world of higher interest rates is only growing stronger.

 

 

 

 

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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20150727 – DAILY UPDATE

High Low High Low
EUR/USD 1.1041 1.0969 USD/ZAR 12.6707 12.5735
GBP/USD 1.5546 1.5507 GBP/ZAR 19.66 19.52
EUR/GBP 0.7106 0.7067 USD/RUB 59.32 57.40
USD/JPY 123.85 123.35 USD/ILS 3.8457 3.7957
GBP/CHF 1.4949 1.4875 S&P 500 2,088 2,080
GBP/AUD 2.1364 2.1269 Oil (Brent) 55.05 54.59

A very poor start for European stocks this morning. As I write I see the main index (Eurostoxx 50) down 1.3%, no doubt a reaction to the steep fall in Shanghai overnight. As I mentioned some time ago the Chinese government’s actions to halt the decline in stocks was unlikely to convince retail investors to stay the course. Once again the Chinese index looks to be attracted back down towards a major support level. Apart from burnt fingers, and a real loss of wealth (albeit probably distributed amongst a large number of investors), it’s difficult to say whether this will have much of an impact on confidence in China. It may give some pause to retail investors and encourage a more rational investment methodology in future, but perhaps that’s too optimistic. There has always been something of the casino about retail investors in the Far East. Time will tell..

 

More importantly major currency markets, apart from a strong recovery in EUR/USD appear largely indifferent so far. Perhaps as unenthused about a Monday morning as the rest of us? Certainly the euro is paying scant attention to the rumoured scepticism of bailout monitors in Greece. The monitors are somewhat disbelieving of being granted the required access to staff and facilities in Athens. There are also concerns amongst creditors that the legislation that has been voted on so far will prove insufficient before a new deal is agreed. My view on this is that Northern European countries seriously overestimate the importance of legislation in Greece. Execution is the only thing that matters. Please don’t misunderstand me, I am not suggesting that the ‘right’ policies will be implemented without legislation, I am sceptical that legislation will ensure that the right policies will be implemented at all. In any case, the euro is strengthening this morning and whether this is primarily due to technical factors or not is difficult to say. The bias at the margin does appear to be mild dollar weakness, although pound sterling which, along with the dollar, had been a leader, has now firmly flipped towards weakness.

 

Some fairly important data this week. Today we’ll get German expectations data; Eurozone money supply; and durable goods in the United States. But the bigger stuff happens a bit later on in the week: Spanish, U.S and UK GDP numbers; Japanese retail sales, some Eurozone country consumer confidence data; and Michigan sentiment data in the United States. Quite a feast of additions to the macro-scope. We will certainly have a better sense of where global growth prospects are by the end of the week. More importantly we will continue to gauge how the currency markets react to this new data, and this will inform our views on where currency trends might go. For now, we maintain our view that USD strength should persist, but the retail sales disappointment of last week seems to have done for sterling for now. It seems clear that the market got ahead of itself and positioning has been too long of GBP. It therefore makes sense for GBP to underperform for now, as the market finds a new equilibrium.

 

 

 

 

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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20150724 – GBP OVER-OWNED?

High Low High Low
EUR/USD 1.0996 1.0963 USD/ZAR 12.5410 12.4275
GBP/USD 1.5525 1.5500 GBP/ZAR 19.46 19.24
EUR/GBP 0.7090 0.7068 USD/RUB 58.88 57.38
USD/JPY 124.06 123.53 USD/ILS 3.8393 3.8051
GBP/CHF 1.4916 1.4856 S&P 500 2,109 2,102
GBP/AUD 2.1330 2.1075 Oil (Brent) 55.71 55.30

The currency markets have been tough over the last month or two, and speaking to some of my colleagues who are experienced traders it is clear that it has been a challenge for even the best to manage the ups and downs of the random walk unscathed. Yesterday retail sales data was released in the UK and it was singularly disappointing, core retail sales rose 4.2% year on year, which on the face of it is impressive, but it was down on the reading of the previous month, and some distance worse than the economist forecasts of 5%. What was particularly useful however was to observe the reaction of the currency market.  The pound sterling fell heavily against its main trading pairs with GBP/USD down about 1% since the data came out, and EUR/GBP up roughly the same. This was clearly a GBP move and we can surmise from the price action that this currency is relatively over owned at the moment – the market has taken Governor Carney’s hawkish comments at face value and run with it. Clearly market participants were not anticipating soft retail sales data, and they were duly punished by the negative surprise.

 

As expected South Africa raised rates by 25bps yesterday. This despite weak growth, but the central bank governor stuck with his mandate, acknowledging that failure to adjust monetary policy now might result in inflationary pressure later. The rand has not been a stalwart currency for some time, and aside from a brief reaction in support of the move, it continues to weaken, in my view, in response to the likelihood of rate rises in the United States, and the general weakness of the commodity complex. As I have mentioned in recent days, this is to be expected. The same could be said for the Russian rouble which is as weak as it’s been since the end of Q1, and looks set to continue depreciating. These are tough times for the commodity complex and associated currencies.

 

Lest anyone consider the travails of the commodity complex to be a uniquely developing market paradigm, you need only cast your eyes towards Australia and New Zealand. Both currencies are under pressure, and you have to go back as far as the global financial crisis to find a time where AUD/USD has been as weak. When you consider that back in 2012 this currency pair was trading comfortably above parity at 1.10, it has fallen some ways to trade currently below 0.73!! So clearly this doesn’t just happen to emerging market currencies. The fundamentals that support all currencies will have their day, make no mistake.

 

In what I personally consider to be a backward step, the Indian government is introducing legislation to curb the independence of their central bank, RBI. The plan is to alter the rate setting committee, with 4 government appointees and 3 RBI appointees. Such a great pity, the Indian central bank governor is widely perceived to be one of the truly smart ones in office today. Quite why this should make sense given historic precedence escapes me. But this could result in a weaker fight against the predations of inflation in future. In a country with a huge population of poor citizens there are likely to be adverse consequences, and it doesn’t bode well for the evolution of politics in the world’s largest democracy. It will be interesting to see what this does to the Modi premium. Perhaps he won’t be afforded the benefit of the doubt so freely in future. If this goes thru, I fear it doesn’t bode well for the longer term prospects for the Indian rupee, but perhaps I am reading too much into this. Only time will tell.

 

We are now entering what should be the final lap in the Greek crisis. Legislation has been passed, as demanded by creditors, and now the Greeks are back at the table with creditors to finalise the €86bn rescue package. Negotiations are expected to take a few weeks, and all must be mindful of the August 20th deadline for a large repayment to the ECB. Failure to reach an agreement, will add volatility to the market the closer we get to the deadline. There are never certainties in these negotiations as recent history makes abundantly clear. The hope is to get an agreement that Eurozone finance ministers can sign off on in a few weeks. Fingers crossed!

 

 

 

 

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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20150723 – DAILY UPDATE

High Low High Low
EUR/USD 1.0956 1.0922 USD/ZAR 12.4442 12.3878
GBP/USD 1.5635 1.5603 GBP/ZAR 19.45 19.34
EUR/GBP 0.7015 0.6989 USD/RUB 58.65 56.67
USD/JPY 124.16 123.91 USD/ILS 3.8254 3.8030
GBP/CHF 1.4998 1.4965 S&P 500 2,121 2,112
GBP/AUD 2.1223 2.1132 Oil (Brent) 56.34 55.99

 

The Greek legislature passed some key reforms as required by creditors as a pre-condition for negotiations on a new bailout. This time the laws were voted in with overwhelming majorities, even if the discussions beforehand were protracted, sometimes you need to vent especially when you already know which way the wind blows. There are no real choices here, this was likely always a formality, and rightly so as a €3.2bn repayment to the ECB comes due near the end of August – the ECB is no IMF! In other parts of Athens there must have been some good cheer as well, the banks would have felt some relief at news that the liquidity assistance facility at the ECB was increased by almost a billion.

 

Not exactly breaking news, but an article in the Financial Times today notes that borrowing in the Eurozone has risen to record levels. Well… duh! One would imagine that the likes of Greece are high on the list of guilty sovereigns, but they are by no means alone, and Belgium and Italy have historically had excessive levels of sovereign debt. This is not a situation that is likely to turn around soon, particularly given the anaemic growth levels in the Eurozone. Ireland is certainly the poster child for Germanic style fiscal orthodoxy. They took their pill, and look to be coming out of some tough years with impressive growth numbers, and now tax revenues are beating expectations. The Irish find themselves in the happy situation of deciding how to take advantage of this windfall. No doubt, those to the south and east can only look on with envy.

 

But what does this all mean for currencies? To my mind this merely illustrates the difficulties and the time it will take for Eurozone states to get on to a proper sustainable recovery path, if it is possible at all. Interest rates are likely to remain low in the Eurozone for an extremely long time, it could be considerably more than a decade. Meanwhile other parts of the developed world should achieve policy normalisation. In fact the Bank of England minutes – published yesterday – indicate that but for the Greek crisis, some members would probably have voted for an interest rate rise at the last meeting. You don’t have to be a rate strategist to figure out the less noise we hear from Greece the more likely normalisation will begin in the UK. This news will keep sterling bid, it has been one of the stronger currencies in recent weeks, and this looks set to continue. New lows in EUR/GBP (highs in GBP/EUR) look very likely indeed.

 

We get retail sales data in the UK later on this morning, an interest rate decision in South Africa (a hike is expected), and some consumer confidence and leading indicator data from the U.S. Marginally interesting I would say. I’m also keeping an eye on the oil price in the background. It continues to grind lower and I still think a re-test of the year’s lows is probable. This is of interest because pressure on the commodity complex is sure to impact resource rich countries and their currencies. And as you know, here at ParityFX, we’re all about the currencies! The dollar correction seems to be sustaining this morning, I could easily see EUR/USD getting into the mid 1.10s before we see a re-start of weakness. Our base case remains that the greenback will recover most of this week’s losses by the close on Friday.

 

 

 

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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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20150722 – PATH OF LEAST RESISTANCE

High Low High Low
EUR/USD 1.0968 1.0924 USD/ZAR 12.3737 12.3169
GBP/USD 1.5626 1.5549 GBP/ZAR 19.29 19.15
EUR/GBP 0.7038 0.7006 USD/RUB 58.07 56.29
USD/JPY 123.90 123.57 USD/ILS 3.8119 3.7799
GBP/CHF 1.4964 1.4880 S&P 500 2,122 2,111
GBP/AUD 2.1112 2.0928 Oil (Brent) 57.30 56.56

Just as I opined about the inability of the currency markets to entertain even a mild correction in the dollar trend we got just that yesterday. It wouldn’t be too far from the truth to characterise the price action, after yesterday’s blog was published, as a ‘reversal day’. This is a paradigm that we have seen in markets since the great financial crisis in 2008, corrections of trends have tended to occur early in the week, particularly on Tuesdays, but sometimes on Mondays. It is hard to determine if this has any legs, or if indeed it is a correction as I have described it, and please note that this price action is most certainly not limited to the currency markets as the equity markets and even gold experienced the same phenomenon. The narrative attached to these events is the disappointing earnings numbers from Apple, but truth be told the price action in the currency markets came out earlier than that. Whatever the real reason is, gold continues its decline today, and we are now at levels not seen over the last 5 yrs. If the rise of gold since the global financial crisis has been based on its qualities as a store of value, what can we say about the observable collapse we are seeing now? To me, this is as much a sign of macro-economic normalisation as talk of imminent rate hikes in the United States and the United Kingdom. This is good news.

 

It’s worth briefly studying Apple’s earnings announcement. $66bn was wiped off the company’s market capitalisation as investors reacted adversely despite the tech company beating analyst revenue forecasts. The disappointment was in the unit sales number which was some way short of expectations, even if the average selling price was higher than anticipated. It’s worth noting as well that sales in China are surging, the economy as a whole might be slowing there, but don’t tell that to consumers! Very impressive indeed. However my key takeaway from this, is that this is an unforgiving stock market environment, disappoint even a little bit and the punishment is severe.

 

Later on today we’ll get to see the voting data during the last Bank of England meeting. I don’t think anyone is expecting any changes, with all of the policy makers expected to have had an unchanged view with regards to the interest rate decision. Any further commentary, detailing the actual decision making process, might be enlightening though. This morning we have already got slightly softer than expected inflation numbers in Australia, and later we are expecting inflation numbers out of South Africa, retail sales data from Italy, house price data in the United States and an interest rate decision in New Zealand much later tonight. In short… not much is expected from the macro front today.

 

In terms of currency markets, we need to look at how much further the bounce in EUR/USD and GBP/USD will or can go, or if it’s just a temporary correction which is our base case. As things stand we would still expect both of the aforementioned currency pairs to end the week lower than where the currently are. Euros performing somewhat more weakly than sterling though. That in our view is the path of least resistance.

 

 

 

 

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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20150721 – TICKING BOXES

High Low High Low
EUR/USD 1.0835 1.0811 USD/ZAR 12.4702 12.4013
GBP/USD 1.5584 1.5555 GBP/ZAR 19.42 19.31
EUR/GBP 0.6962 0.6946 USD/RUB 58.23 56.17
USD/JPY 124.48 124.21 USD/ILS 3.8373 3.7882
GBP/CHF 1.5021 1.4986 S&P 500 2,132 2,126
GBP/AUD 2.1208 2.1070 Oil (Brent) 56.76 56.50

 

The steady and persistent gain in dollar strength continues. Even after yesterday morning where it seemed that a recovery of some sort from last week’s dollar appreciation trend might see the greenback end the day weaker, it still closed marginally stronger. That’s not to say that yesterday wasn’t what I would describe as an indecisive day, it was, but it’s notable that booking profit (if that was indeed the cause of the recovery) wasn’t enough to stem the tide. From a technical perspective, EUR/USD looks like it’s grinding its way to a trend-line formed of the April and May lows. Already the lows of June have been breached, and the set of boxes to confirm the commencement of a new period of dollar strength are being ticked one by one. I see the trend-line coming in around the low 1.07s, below that and the path is clear for a test of the year to date (and multi-year) lows. After that… parity.

 

Normality has started to return to the Greek economy as banks opened for the first time in weeks yesterday, at least on a limited basis. In addition the Greek government was finally able to repay the IMF loans that had been due in June, the ECB’s bridge financing also allowed the Greeks to repay loans due to the ECB itself. You have to love it, giving someone a loan, to be able to repay a loan owed to you! I call it normality, you come up with whatever name you’re comfortable with. The bottom line is that some of the crisis element that has been a haze around markets is lifting, and so indeed are the equity markets. The S&P 500 in the U.S is just a few points away from new record highs and the recovery in European equities over the last few weeks has been nothing short of stunning. So much for summer doldrums this year.

 

It’s not all cheer though. Resource rich economies must be suffering as commodity prices are generally under tremendous pressure. I’ve talked about the specific currency technicals supporting the case for renewed dollar strength, but from a cross-asset perspective the general fall of commodity prices which seems to have accelerated in recent days, may well be another sign that the greenback is regaining its mojo. Attendant to this is the fact that the currencies of commodity rich economies are likely to come under even greater pressure, whether it’s Brazil, Russia, Indonesia or Nigeria, keep an eye out for it, I don’t think it would be that great a surprise.

 

There is really not much macro data to speak of today, nor was there yesterday, so I’ll finish with a brief observation about Nigeria. The new President, has still not named individuals to lead his ministerial portfolios. It seems that the legislature is the political pillar that has organised quickly to identify its leadership. How this is going to affect policy is as yet uncertain, but it cannot be a good thing. There has been ample time before the changeover, and since, for key executive posts to be assigned, but yet the world waits to see what direction policy will take. We can only hope this situation is resolved sooner rather than later. There are historic opportunities that the giant of Africa can grasp, and the geopolitical consequences of a backward step are too depressing for us to consider yet. For now the naira is bearing the brunt as there is a reluctance to buy the currency. Why would you when there is no transparency, no direction. Food for thought…

 

 

 

 

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20150720 – MORNING UPDATE

High Low High Low
EUR/USD 1.0849 1.0820 USD/ZAR 12.4606 12.3300
GBP/USD 1.5624 1.5582 GBP/ZAR 19.43 19.20
EUR/GBP 0.6958 0.6936 USD/RUB 58.78 56.26
USD/JPY 124.20 123.97 USD/ILS 3.8298 3.8038
GBP/CHF 1.5043 1.4975 S&P 500 2,127 2,124
GBP/AUD 2.1275 2.1109 Oil (Brent) 27.33 56.91

 

Greek banks reopen today, for the first time in weeks. Capital controls still remain place, but the bridging finance from the ECB should go some way to ensuring that bankruptcies don’t occur. There are restrictions however: (1) €60 per account per day withdrawal limit; (2) weekly withdrawal limit of €420; and (3) the ban on inbound/outbound international transfers remains for Greek businesses. There will be enhanced security at branches no doubt, which are likely to be open for extended hours as a pent-up demand for cash should lead to a surge of customers. If the crisis in Greece has not already evoked memories of the Great Depression, those queues today are likely to illustrate the crisis quite nicely.

 

If you weren’t already aware from our constant imminent rate hike chatter, the price action in gold this morning will have surely done the job, the yellow metal fell hard this morning, although it’s recovered somewhat. It’s currently down almost 5% month to date, but was as much as -7.5% (MTD) this morning. I would expect further pressure on gold as we get closer to rate hikes in both the UK and the US. You might think of this as the flip side of dollar strength.

 

This morning has started with a mild recovery from last week’s dollar strength. It appears at the moment to be a brief respite within the trend. We will continue to look for further dollar strength, and at the very least relative strength in the pound sterling as well. There is every chance that EUR/GBP could attempt a run towards 0.65 (i.e., above GBP/EUR 1.53), where the pair should find multi-year supports. What we struggle with is the possibility that GBP/USD can continue to hold strong in a period where EUR/USD drifts lower. That is not something that happens for a sustained period, and if it were to happen it is likely to lead to comments from the Bank of England which will characterise the phenomenon as a rate hike. In that scenario GBP/USD is sure to quickLY collapse as the rationale for sterling strength would have been withdrawn. For now GBP strength continues unabated with EUR/GBP as low as at any time since the Global Financial Crisis in 2008.

 

There is precious little macro data of consequence today. It would not surprise us if we see some drift in major currencies at least during the European morning, this is of course contingent on orderly activity in Greece. One can never guarantee that!

 

 

 

 

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20150717 – JUST WHEN YOU THINK IT’S OVER

High Low High Low
EUR/USD 1.0904 1.0872 USD/ZAR 12.4083 12.3795
GBP/USD 1.5671 1.5602 GBP/ZAR 19.45 19.00
EUR/GBP 0.6977 0.6943 USD/RUB 58.04 56.36
USD/JPY 124.24 123.98 USD/ILS 3.8097 3.7797
GBP/CHF 1.5004 1.4937 S&P 500 2,125 2,121
GBP/AUD 2.1158 2.1044 Oil (Brent) 57.28 56.86

 

Just when you think it’s over Germany’s Finance Minister Wolfgang Schauble has suggested that a voluntary exit from the Eurozone might be a better solution for Greece than the bailout agreement. Wow! I’m not going to say I disagree with him, in fact I said just the same thing to some bankers yesterday evening, but that was over a glass of wine in the relative privacy of a bar in Mayfair. Herr Schauble made his comments in the Bundestag. Again… wow! This is not to be taken as meaning that Germany wishes to retreat from the bailout agreement, it is well known that Chancellor Merkel and the Finance Minister have slightly different views on the Greek question. Nothing wrong with that, Herr Schauble is a Finance Minister and prioritises economic realities while the Chancellor is just as concerned about Germany’s standing in the world, and geopolitics. There is a natural conflict here. In any case there has been no damage to the euro as a consequence of the Finance Minister’s comments – the pound sterling and US dollar have needed no outside help, other than their esteemed central bank Heads.

 

It almost seems as if released from the fears of Grexit, Yellen and Carney have been able to talk up the prospect of imminent interest rate rises in their respective countries, and rightly so. For his part, Mario Draghi, has professed his confidence in Greece staying in the Eurozone (i.e., using the euro), and has extended the limit for emergency loans to Greek banks by €0.9bn over one week. Greek banks are expected to open on Monday after being shut for two weeks. They will offer “all services which do not give rise to capital flight”. One imagines you can make withdrawals to stock up on groceries but liquidating your account will be a big no no! Clearly capital controls will still be maintained. The ECB is also providing bridge financing to the tune of €7bn today to prevent Greece defaulting on its ECB loan which is due 20th July. All in all, Draghi’s press conference was greeted warmly by markets with European stocks achieving month to date highs.

 

Talking about stocks, I will be fascinated to see what happens with US equities today, the recent rally has taken the US index right up to possible trend-line resistance. If we finish higher it could be a sign of new market highs to come. If…

 

We have some inflation data coming out later in the United States to look forward to. This morning has the feel of markets wanted to take a breather after some decent moves in recent days. Still I wouldn’t be surprised if the trend is maintained at least until much later in the day. Bottom line, the scene looks set for continuing dollar strength. As I mentioned some weeks ago, absent an immediate Greek crisis, the market will focus on economic fundamentals and the prospects for interest rate normalisation in the countries with the strongest economic recoveries – the United States and United Kingdom. This looks like what we’re seeing, and USD and GBP are the stronger for it.

 

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