20150916 – DAILY FX COMMENT

Good day

High Low High Low
EUR/USD 1.1299 1.1222 USD/ZAR 13.4995 13.3765
GBP/USD 1.5435 1.5329 GBP/ZAR 20.75 20.60
EUR/GBP 0.7360 0.7271 USD/RUB 67.38 65.39
USD/JPY 120.56 120.10 USD/ILS 3.9241 3.8429
GBP/CHF 1.5055 1.4903 S&P 500 1,983 1,973
GBP/AUD 2.1570 2.1350 Oil (Brent) 48.75 47.70

The lines have been drawn, the pistols are loaded and now we wait for 7pm tomorrow when quite simply the most important central bank meeting decision is announced. Will the FOMC raise US interest rates or will they hold off until December at the earliest. The 2 camps (Ye and Ne) are clearly marked and my impressions are that FX-Stock and Bond traders are looking for a hike, while economists are being drawn to the ne camp and calling for a the FED to remain on hold as the defer the rate hike as the FED assesses the risks to the recent financial markets crises (i.e., China). Data wise as we have seen, the FED has been supportive of a rate hike decision. Our friends at a large UK bank are of the opinion that FED Chair Yellen will emphasize data-dependence and that every meeting remains “live,” adding they believe concerns about external demand and inflation will delay hikes until March 2016. The Summary of Economic Projections (SEP) is likely to show revisions to 2015 GDP growth (higher), 2016 growth (lower on stronger USD), the unemployment rate (lower), 2015 headline PCE inflation (markedly lower), the longer-run FED funds target rate (25bp lower), and would not be surprised to see the longer-run unemployment rate, or NAIRU, fall to 4.8-5.2%. These changes to the outlook, along with a message of “not now, but likely soon,” will, in their view, lead the median policy path on the “dot chart” to fall 0.25% relative to June, with the risk of a larger 0.50% decline in 2017.

Good UK data yesterday (Inflation in line with forecast) and excellent Average Earnings (excl bonus) surprised today with a rise to 2.90% from 2.80% previously. As we know the BoE is watching this number VERY closely as to the decision on when to raise rates in the UK. With economists predicting a rise in inflation and now a rise in wage growth, the BoE will feel more confident that the hike is indeed coming in early 2016.

i will not want to keep you much longer, other than to say tomorrow will define a generation and impact your pensions amongst other things. No doubt the FOMC/FED are crunching numbers and burning the midnight oil in making their decision tomorrow. No doubt the decision they make is the one that they feel is in the best interests of the US and in turn have the least amount of impact on the rest of the world.

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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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20150915 – WAITING MODE

High Low High Low
EUR/USD 1.1329 1.1285 USD/ZAR 13.5542 13.4763
GBP/USD 1.5435 1.5401 GBP/ZAR 20.91 20.78
EUR/GBP 0.7346 0.7324 USD/RUB 68.98 66.75
USD/JPY 120.66 119.55 USD/ILS 3.9421 3.8776
GBP/CHF 1.4956 1.4910 S&P 500 1,961 1,951
GBP/AUD 2.1712 2.1527 Oil (Brent) 47.85 47.26

 

So far this week there have been a number of interesting macro data points published.

  • August year on year Chinese industrial production was slightly better than the July reading but not as good as economist forecasts.
  • August year on year fixed asset investment in China was worse than forecast and represents a decline from the July reading.
  • August year on year Chinese retail sales was both better than forecasts and the previous reading.
  • Month on month Japanese industrial production was worse than forecasts and the previous reading
  • July year on year industrial production in the Eurozone was much better than forecasts and the previous reading
  • This morning, the Bank of Japan declined to unleash further monetary stimulus for the moment, but the central bank identified slowing emerging market demand as a strain on the Japanese economy.

As we have mentioned before, there are headwinds in East Asia which will impact on the global economy, the Eurozone however represents some potential for some upside. There haven’t been many times in the recent past where that could have been said! But all of this information pales into insignificance as the markets wait for the Federal Reserve. The FOMC interest rate announcement is expected on Thursday and it is clear that the recent turmoil is causing experts to pull back from previous expectations of a rate hike. I suspect they are correct, but it saddens me. It might seem counter-intuitive but what better declaration of confidence would there be right now than a 25bps hike by the US central bank? To dally now would only confirm fears that the global economy is going through a bad patch. Confidence is everything in markets, it would be an easy win in my view. Rates must start to go higher at some point, why not now?

 

Today we see a raft of data coming out of the UK, the most important being inflation a bit later this morning. We will also get a look at Eurozone labour market data, US retail sales and the Empire sentiment data as well from the United States. All interesting stuff, but my guess is that the market will shy away from over buying dollars as we head into the big decision. We expect relative calm in the currency markets for the next few days, but for choice I continue to believe there is a fair chance the euro continues to recover against the pound, that view will be tested however, if inflation surprises to the topside when the UK data is published shortly. That really would be a surprise.

 

 

 

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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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20150914 –DAILY FX ANALYSIS

Good morning

High Low High Low
EUR/USD 1.1373 1.1327 USD/ZAR 13.6240 13.4910
GBP/USD 1.5472 1.5422 GBP/ZAR 21.06 20.83
EUR/GBP 0.7360 0.7325 USD/RUB 68.53 66.41
USD/JPY 120.85 120.10 USD/ILS 3.8986 3.8581
GBP/CHF 1.5022 1.4934 S&P 500 1,975 1,957
GBP/AUD 2.1874 2.1660 Oil (Brent) 49.27 48.28

The much-awaited September 17 FOMC meeting is finally here. Market consensus (although extremely divided) expects the FED to hike US interest rates by 0.25% according to a Bloomberg survey and ParityFX, while the FED Funds futures are noting only a 1/4 probability of a hike. We continue to see economic activity in the US as solid and justifying modest rate hikes, however the recent turmoil in China has led to many commentators to question whether the FED will hike preferring to wait perhaps until December when the markets have calmed down somewhat. I fear that if the FED does wait the market will view this badly in that the solid US economy is being overshadowed by events globally. As I wrote last week I think the FED must play their card and hike rates now which will show just how confident the FED are that the hike will NOT disrupt the events/stimulus is China and the EU. I think the FED must act now as this will boost sentiment and while initially the USD will appreciate (considerably) FX traders will slow that appreciation down because they will then question how much further the FED are likely to go in their rate hiking. The FED will “give it time” and see how the hike filters into the market and more importantly how it affects economic data out the US, EU and China. If there is no marked change in the data then the FED will have known they made the right decision and they can continue hiking in December.

As the strains in financial markets have eased somewhat, a recent sharp contraction in imports (and lower contraction in exports) into China underscores the risks of slowing Chinese domestic demand. A slowing China remains problematic for growth in many EM economies as we have noted several times, and the recent downgrade of Brazil is a key reminder that the BRICs face several issues as a result of events in China.  Regardless of the outcome of the FOMC meeting, EM performance should be weighed down by China uncertainty, slowing growth, & capital outflows.

Jeremy Corbyn’s Labour leadership victory will be a “major issue” for global investors and his economic policies would be “detrimental” to Britain’s pro-business reputation, according to MOST  UK newspapers, economic pundits and the Labour MP’s who have stepped down. As Nigel Green chief executive of independent financial adviser deVere Group aptly wrote, “The victory of this hard-Left socialist as Leader of Her Majesty’s Opposition is, I suspect, going to prove to be a major issue for global investors. Corbyn’s economic policies fly in the face of the message that ‘Britain is open for business’. They would be detrimental to Britain’s hard-earned and invaluable pro-business reputation. He seems utterly determined to drag Britain back to the 1970s, an era in which the UK was strangled by high taxes and an inflexible labour market.” Green urged that if Corbyn thinks high taxes and inflexible labour is the way forward in today’s world, he suggests that he looks at France in the first years of Hollande’s presidency. Green continued “So-called Corbynomics, whereby everyone would pay more tax to pay for hugely increased public spending, would backfire spectacularly. Mr Corbyn seems so far removed from reality that he is unwilling or unable to accept that if you significantly increase taxes and disincentivise work and investment, people will change their behaviours.” Green anticipates that if taxes are excessively increased, many of Britain’s most successful wealth and job creators and investors, who also support the Revenue through their significant UK income tax receipts and personal spending, will simply move to lower tax jurisdictions given that these individuals have the resources to do so and will do so. He added that ramping up taxes is going to make Britain a less attractive place to work for top international talent, again meaning lower tax revenues. “Global investors have been monitoring the UK political landscape carefully in recent times and that scrutiny will be intensified further due to Corbyn’s victory.”

And to ADD FUEL to this fire, the SNP announced they are putting forward the framework to have another Scottish referendum on leaving the UK. Cast your mind back to the last referendum and how badly UK stocks and the GBP fared and you wonder what air they are breathing up in Scotland. England, Wales and N.Ireland will survive. Scotland will go bust overnight when oil already at $48p.b sinks even further (as per Goldman Sachs to $20). Good luck with that.

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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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20150911 – DAILY FX ANALYSIS

Good morning

High Low High Low
EUR/USD 1.1307 1.1271 USD/ZAR 13.7000 13.6000
GBP/USD 1.5462 1.5434 GBP/ZAR 21.16 21.00
EUR/GBP ` 0.7297 USD/RUB 68.31 66.52
USD/JPY 120.97 120.41 USD/ILS 3.8996 3.8748
GBP/CHF 1.5055 1.4996 S&P 500 1,960 1,943
GBP/AUD 2.1930 2.1790 Oil (Brent) 49.84 48.86

Between now and next Thursday when the FOMC announce whether or not they are going to raise US interest rates you can be sure of one thing – VOLATILITY and UNCERTAINTY. As I mentioned in our comment this past week, the RISK ON-RISK OFF trading directions continue unabated. It is not that the market is enjoying the volatility, rather it is the uncertainty of what will happen in China and what will the FOMC decide. As far as I am concerned (and a friend at UBS indicated they too are in my camp) the FED will raise rates next week. The general consensus has dropped to 23% for a rate hike, but traders being traders are gambling that the hike is coming. Whatever the result, next Thursday is quite possibly the most important event in the past 6 years…..purely because of the resulting play when the announcement is made and how the market will then perceive the future intentions of the FED. I expect every trader to be at their desk when the announcement is made. Trillions of USD/EUR/GBP/JPY etc will trade as the announcement is made with traders either taking profit or stop losing & get out.

Interesting interview with the China Business Report overnight from a Chinese C.Bank advisor Huang Yiping, who said “intervention in the FX market over many years doesn’t meet fundamental goals of the PBOC’s CNY rate reform”. Huang said “he doesn’t agree that China will use up its forex reserves if the PBOC were to intervene in the currency market for 5-10 years. PBOC is moderately intervening at the moment because it’s concerned about excessively large fluctuations in CNY rate. PBOC’s ultimate goal is to let the market play a bigger role in CNY rate determination. CNY faces depreciation pressure in short term but has appreciation room in longer term. It’s a good time to consider further opening of the capital account as the economy faces downward pressure and country is cautious”. While I do agree in part with his comments, the reason for the recent devaluation was not thought of as early as Q1 2015. Hence with the deterioration of the economy since Q2, the PBoC has simply HAD to act and act aggressively in order to stop the rout. The FED did it, the ECB did it, the ECB is doing it, and the RBoA got involved too. These Central Banks were and are well aware of the consequences of currency devaluation and for that reason they are pleased to see it happen. As the CNY is still “controlled” by the PBoC they had to devalue, the only difference is the devaluation was driven and executed by the PBoC rather than by market forces. Either way it achieves the same results. I applaud the PBoC’s decision and would not be surprised in the coming months to see another devaluation should the economy not show signs of growth.

So for today it’s RISK on, with stocks all in the red (albeit smalls) and the USD on the retreat.

Have a great weekend

20150910 – DAILY FX COMMENT

Good morning

High Low High Low
EUR/USD 1.1245 1.1181 USD/ZAR 13.9777 13.7779
GBP/USD 1.5378 1.5338 GBP/ZAR 21.46 21.16
EUR/GBP 0.7320 0.7276 USD/RUB 69.32 66.72
USD/JPY 121.34 119.97 USD/ILS 3.9118 3.8819
GBP/CHF 1.5040 1.4950 S&P 500 1,958 1,934
GBP/AUD 2.2112 2.1745 Oil (Brent) 48.57 47.55

As I have been saying over the past few weeks, expect more and more market volatility and that’s exactly what we got yesterday. The bulls lost to the bears as a deterioration in market sentiment sent shares lower across the pond. Bond markets were in play as yields on US Treasuries fell, and equities closing sharply weaker. Additionally the oil price came under renewed pressure once again, in line with the changing sentiment. These moves were compounded by disappointing data out of both China and Japan sending Asian equities weaker overnight. Chinese inflation data showed a higher than expected CPI to 2.0% (1.8% expected) but the concern is that the PPI fell to -5.9% which was much weaker than -5.5% that had been expected. The PPI is a concern as it shows the deflationary forces on the corporate sector and a concern for the continuing slowdown in China. European stocks fell at the open with most markets down on average 0.50% at the time of writing. You have to keep in mind these moves will happen daily, especially leading up to the FOMC meeting next Thursday and more importantly the tipsy turvy data that’s coming out of China. I am still of the opinion that with time, the PBoC stimulus package will bring the Chinese economy back to the levels they are looking for. Time is something we have, so patience is something we need to work on.

At noon today, the BoE publish their interest rate decision and minutes (including the vote). There is no change (to rates and voting numbers) expected but the minutes  could contain some interesting clues. An 8:1 split on holding rates is expected with nobody expected to join Ian McCafferty in voting for a 0.25% rate hike. Disappointing data out of the UK still persists and therefore Gov. Carney and the MPC are in no rush to hike rates and ruin all the good hard work that has been done over the past 6 years. The economy is finally on a strong growth path and that needs to be kept in check. The MPC must take care not to upset the apple cart by raising rates too early. There is still work to be done. As such I am still of the opinion that the GBPUSD will weaken (towards 1.50) as a result of a stronger USD, low inflation, and disappointing data.

The big news out of Africa yesterday reported that JPMorgan Chase & Co. has excluded Nigeria from its local-currency emerging-market bond indexes tracked by more than $200 billion of funds, after restrictions on foreign- exchange transactions prompted investor concerns about a shortage of liquidity. The first phase of removing Africa’s biggest economy from the Government Bond Index-Emerging Markets, or GBI-EM, will take place at the end this month followed by a full exit by the end of October, the New York-based lender said in a statement sent to Bloomberg on Tuesday by spokesman Patrick Burton. Nigeria’s central bank under Governor Godwin Emefiele introduced several foreign-exchange trading restrictions from December to stem the drop of the naira amid weaker oil prices. The country is Africa’s largest producer of crude, which accounts for about 90 percent of exports and two-thirds of government revenue. JPMorgan placed Nigeria on index watch in January, saying the foreign-exchange measures made it more difficult for foreign investors to replicate the gauges. The Naira in reply has remained static trading on the secondary market between 230-233 …..

Have a good day

DISCLAIMER

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

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

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20150909 – DAILY FX COMMENT

Good morning

  High Low     High Low
EUR/USD 1.1217 1.1146   USD/ZAR 13.7394 13.5321
GBP/USD 1.5405 1.5368 GBP/ZAR 21.15 20.85
EUR/GBP 0.7285 0.7249 USD/RUB 69.05 66.40
USD/JPY 120.56 119.80 USD/ILS 3.9105 3.8695
GBP/CHF 1.5111 1.5046 S&P 500 1,989 1,964
GBP/AUD 2.1950 2.1769 Oil (Brent) 50.75 49.85
             

Risk on Risk off the seesaw continues. Overnight it was the risk ON that captured the markets attention with strong gains on the DOW and S&P (it started with a rally on the Chinese boUrse). The talk now is the stimulus package that the PBoC is throwing at the Chinese economy is seen as a real boost to achieve the long term objective of growth in excess of 7%. From selling off to 1835 (2 weeks ago) the S&P for example has rebounded to 1987 at the time of writing giving a boost to UK and European stock markets this morning. The major talking point and what just about everyone is waiting for is clarity from the FED next Thursday and whether they are willing to risk it and raise rates, or prefer to wait for China to settle down and delay the hike to December or early 2016. The World Bank has come out (like the IMF) and said they believe the FED should DELAY the hike as the repercussions could unsettle the work that is being done in China and the EU. Personally and as I have said many times, I am of the opinion that the FED/FOMC members should make their decision based on how the US economy is faring and based on this and this alone, the time is right for a hike NOW. Pundits have been split in recent weeks since black Monday with the % (if those predicting a hike) dropping from over 50% to the mid 20’s. The US economy is growing at an impressive rate and all the signs point to years of lean growth as the US economy cements its place as the world’s greatest economy. China no doubt are delighted with this as demand in the US for Chinese goods and services increases (we saw yesterday Chinese imports fells while exports, while still negative, were better than expected). It will take time, patience and a great deal of help from the PBoC to get the Chinese economy back to GDP numbers well in excess of 7%. In the meantime the stimulus package that has sent high fives across the pond is for the time being been greeted favourably.

Adding to my comments above from the World Bank’s economist, “The US Federal Reserve risks triggering panic and turmoil in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing. Rising uncertainty over growth in China and its impact on the global economy meant a Fed decision to raise its policy rate next week, for the first time since 2006, would have negative consequences”, Kaushik Basu told the FT. I have great respect for the World Bank but at the same time I do believe the FED should make their decision based on what is good for the US economy rather than what impact the hike would have on EM countries, China and the EU. It is up the individual economies to get their house in order and we have seen only too well what the EU/ECB (€1trn stimulus) and China (cut RRR and ccy devaluation) have done to prop up their regions. Based on this and this alone, the FED should act and then wait and see. A 0.25% hike is really neither here nor there, but what it does is show INTENT and CONFIDENCE and so the fallout in my opinion would be positive rather than set the EM on fire.

Talking about EM currencies, the ZAR has recovered from 14.00 ag the USD to trade at 13.60, while the TRY is now trading under 3.00 while the CNY has also stepped back from the cliff with the current level of 6.3700 vs the USD. Sadly I still predict EM currencies (ZAR, TRY, MXN, BRL, CNY) will devalue over the coming year as the USD reclaims her place as the leading carry currency (from the EUR currently).

I CANNOT STRESS THIS ENOUGH – IF YOU HAVE ANY FX HEDGING TO DO AND YOU ARE LIKE THE REST ARE UNSURE AS TO WHAT THE FED WILL DO, BEST YOU HEDGE AT LEAST SOME OF YOUR REQUIREMENT AND THEN WAIT AND SEE. NEXT THURSDAY QUITE SIMPLY IS THE MOST IMPORTANT CENTRAL BANK MEETING SINCE THE START OF THE FINANCIAL CRISIS IN 2008. IT IS GOING TO BE M-O-N-U-M-E-N-T-A-L AND WILL SET THE STAGE FOR THE COMING YEARS.

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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20150908 – DAILY FX COMMENT

Good morning

High Low High Low
EUR/USD 1.1230 1.1152 USD/ZAR 13.9977 13.8922
GBP/USD 1.5389 1.5269 GBP/ZAR 21.46 21.28
EUR/GBP 0.7331 0.7287 USD/RUB 70.30 67.93
USD/JPY 119.80 118.84 USD/ILS 3.9479 3.9147
GBP/CHF 1.4954 1.4844 S&P 500 1,947 1,931
GBP/AUD 2.2113 2.1920 Oil (Brent) 48.84 48.29
 

Some GOOD and some BAD data out of China overnight,  Imports -13.80% (from -8.1%) BAD, Exports -5.50% (from -8.30%) GOOD and August Trade Balance 60.24bn (from 43.03bn). As I mentioned yesterday we will continue to see some good and bad data coming out of China until things stabilise to the extent that the numbers no longer get worse and start to recover towards the black.

Japan GDP -1.20% from -1.6% strangely has not had that much of an impact given the currency has only traded in a 1 JPY big figure o/n. The cat was out the bag long ago and thus the better GDP number failed to lighten up the JPY. Bloomberg has reported that BOJ officials said to waver on confidence in underlying growth making them cautious about the outlook for a rise in inflation.

USD seems to have been hit o/n on the back of very little. More buyers than sellers – profit taking. Other than the data I reported above, there was nothing else to spook the currency. Looks like the market took the opportunity to sell the USD while the US enjoyed their long weekend. No doubt though, the strong German numbers has gone some way to lift the EUR, with EURGBP in particular dropping from  0.7355 yesterday to 0.7280at the time of writing. With the little data to work with, FX traders will alter their positions as the herd changes direction. Keep in mind EURUSD is still very much in the range (I am excluding the rally to 1.17 on black Monday) and likely to stay like this as we get closer to next Thursday’s FOMC announcement.

GBPUSD is a strange one, trading down recently to 1.5170 it has rebounded over 2 big figures to trade at 1.5355 as I write this. Ossie was 100% right when he said if we can’t break through and close below 1.5200 the currency will move back and it has done just that. Does this change my overall perception of the short-medium term outlook – NO. I am still a USD bull and happy to get whiplashed knowing my time is drawing closer.

Have a good day

DISCLAIMER

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

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

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20150907 – WE’RE INTO THE HOME STRAIGHT

Good morning

High Low High Low
EUR/USD 1.1175 1.1121 USD/ZAR 13.9830 13.8246
GBP/USD 1.5203 1.5167 GBP/ZAR 21.22 20.97
EUR/GBP 0.7358 0.7323 USD/RUB 70.36 66.85
USD/JPY 119.59 118.79 USD/ILS 3.9559 3.9000
GBP/CHF 1.4795 1.4715 S&P 500 1,946 1,918
GBP/AUD 2.1979 2.1857 Oil (Brent) 50.27 49.41

With just 10 days to go before the FOMC meeting (17 Sept) you can imagine the debates that are currently raging throughout the banks, hedge funds, pensions funds, asset managers and Mr and Mrs Smith’s kitchen. With the exit of the threat of GREXIT back in June the FED breathed a sigh of relief (and then as we have been saying repeatedly over the past few months every time more bad data from China was published that more needs to be done), bang the world wakes up and decides the China situation is in fact worse than expected. In a nutshell we are a long way away from sorting that little issue out. Getting China back to growth levels they are accustomed is a little different from getting Troika and Syriza to talk. So as mentioned previously, buckle up tight because the road ahead is going to be rocky and uneven. Expect further rate cuts and (potential) currency devaluation and more importantly expect more volatility as the markets tries to second guess what the PBoC are likely to do. In a way I bet they (China) are delighted to see the US in such a “healthy” state because the knockoffs and spin offs from  such growth will no doubt be felt in all corners of the world which in turn will aid the growth China so badly needs. It is for that exact reason WHY the US authorities have been so shtoom (quiet) when the PBoC devalued the CNY. You see no one country can live in a vacuum. They all need each other and therefore you will notice there is less rhetoric coming from the both the FED and PBoC this time round. Given what we are witnessing and have witnessed, I am going to put my neck on the line and say I STILL THINK and BET the FED/FOMC will raise rates by 0.25% next week, and then wait perhaps into 2016 before pulling the trigger again. I cannot see why the hike would disrupt what the FED are attempting to achieve and more importantly it will send a signal (and a strong one at that) that we have turned the corner and the financial crisis of 2008 is now behind us – a STRONG CONFIDENT STATEMENT that should in turn give (EM)economies the confidence to power ahead.

So its really all to play for. I would like to think the majority of the FOMC members feel and think the same way as I do and as Mohamed El-Erian recently noted in one of his daily commentaries (that the FED must not lose this opportunity of raising rates).

Overnight, the NDRC (The National Development and Reform Commission) said that it expects China’s economy to continue expanding at a steady pace, and meet the government’s annual growth target of 7%. The NDRC’s view is shared by Finance Minister Lou Jiwei, who said Saturday at a meeting with central bankers and finance ministers from the G20, that China’s growth will stay around 7% in the next four to five years. At the two-day G20 meeting in Ankara, Turkey, Chinese central bank governor Zhou Xiaochuan also said that China’s financial markets are expected to become “more stable” after the recent rout. The correction in the stock market is almost complete, while the Chinese yuan is steadying after a devaluation last month, said Mr. Zhou. Given what has been said then, I expect the markets to “give it some time” and see how the data looks before reversing the recent rout we saw on “black Monday”. Confidence is returning, but just like the events that led to black Monday, it will take time to see “happy Monday” return.

US holiday today – expecting markets to trade sideways

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20150904 – MARKETS CONTINUE TO TRADE CAUTIOUSLY

Good day

Markets continue to trade cautiously after yesterday’s ECB meeting. Initially stocks liked the news from Pres. Draghi however that confidence has been shattered today as markets have returned those gains as fears of Chinese growth still linger. Emerging market currencies got hit but worse sentiment, but regained some ground thanks to Mario Draghi. The ECB kept interest rates unchanged but Mario Draghi mentioned on the press conference that the bank is ready to act if inflation remains low in the Eurozone. What that means is that the QE program the ECB is running might get extended till 2017. That in turn means more money flowing into the financial system and good news for emerging market equities and currencies.

US Non-Farm Payroll came out weaker than expected (+220k) at +173k however the unemployment rate dropped from 5.3% to 5.1% which in turn saw the USD rally on the back of. The GBPUSD has fallen BELOW 1.5200 in early US trading as market traders square their positions ahead of the long weekend in the US.

Emerging market currencies all trading at the lows of the day and the consensus is for these currencies (ZAR, TRY, MXN, BRL, PLN) to continue their weakening stance. As i mentioned above the dire situation in China continues to reverberate amongst EM countries as the slowdown ultimately impacts the demand China has for raw materials and goods/services from these economies. So one must continue to buckle up and the road ahead will remain uncertain and volatile.

There continues to be a larger amount of banks/economists and strategists who are now calling for a delay in US rate hike due on the 17th of September. The worsening China situation and EM rout they contend will force Pres. Yellen and her FOMC colleagues to delay the hike until things settle down. While I understand and to an extent agree with their sentiments, the U.S. economy continues to strengthen, driven by domestic forces. These forces are (on the face of it) unlikely to be derailed by a slowdown in China or other emerging markets and therefore I still believe a 0.25% (less than this is a waste) is still very much on the cards.

Time will tell….have a great weekend

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20150903 – DAILY UPDATE

High Low High Low
EUR/USD 1.1241 1.1205 USD/ZAR 13.4841 13.3879
GBP/USD 1.5315 1.5266 GBP/ZAR 20.62 20.48
EUR/GBP 0.7361 0.7322 USD/RUB 71.96 66.09
USD/JPY 120.71 120.20 USD/ILS 3.9392 3.9168
GBP/CHF 1.4856 1.4788 S&P 500 1,960 1,947
GBP/AUD 2.1864 2.1669 Oil (Brent) 51.52 50.43

 

A Chinese holiday today has spared the market further ructions from the Middle Kingdom which is a good thing as there are bigger fish to fry heading in to the end of the week. On the menu is the ECB press conference later today and then the main course on Friday will be the US labour market report. Both events are highly significant as news from the 2 still most important economic blocs in the world could impact risk sentiment for some time to come.

 

With regards to the ECB press conference, analysts don’t really expect any immediate policy movement, and in my view the recent data coming out of the Eurozone has been reasonable. Still, collapsing commodity prices, the recent market volatility and the consequential rally of the euro are all issues that will have been monitored closely by Mario Draghi and his colleagues. Given the narrative that the ECB president set forth to justify quantitative easing at the start of the year, it is by no means a stretch to expect some comments about what the ECB might do if inflation continues to dip. As I’ve pointed out before this is quite a difference in comparison to the stance taken by both the Federal Reserve and Bank of England which both tend to prefer to look through the transient effects of falling commodity prices. In any case we all know that deflation narratives are just a proxy in the ongoing currency wars that are being played out in living colour. We will report back if anything comes of the press conference, and if it’s really juicy expect some tweets.

 

Equity markets certainly look like they’re trying to recover again, yesterday’s moves almost regained all of the prior days losses, and it’s possible that yesterday’s lows will have set up a new secondary reaction low which will confirm a mini-trend. From a technical perspective if that low holds for the next few days we can start talking about higher lows, and hopefully higher highs. As you’ll know from blogs earlier this week, I do expect this market to rally, and with it the US dollar should also continue to rally. Based on the monthly technicals I reviewed a few days ago, I continue to expect the euro to outperform the pound sterling over the next few weeks, perhaps months, and I similarly believe that we have seen a major low in the oil price that is likely to hold at least for the rest of the year. Some of these points should be positives for emerging market currencies, after having suffered greatly in the recent bout of volatility, but the elephant in the room remains a rise in interest rates in the United States. That could exert tremendous pressure on more risky currencies and perhaps is one of the reasons considered by the IMF which is warning major economies (read US and UK) to reconsider rate rises. I have my doubts about the IMF’s ability to influence monetary policy in developing countries not to talk of 2 such advanced nations. The bottom line is that we should expect much more calm in the market place today.

 

 

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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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