High	Low			High	Low
EUR/USD	1.1310	1.1234		USD/ZAR	13.5324	13.4487
GBP/USD	1.5336	1.5297		GBP/ZAR	20.74	20.59
EUR/GBP	0.7379	0.7334		USD/RUB	64.19	61.29
USD/JPY	120.12	119.62		USD/ILS	3.8724	3.8455
GBP/CHF	1.4919	1.4805		S&P 500	1,998	1,979
GBP/AUD	2.1370	2.1222		Oil (Brent)	52.27	51.65

Earlier this week PepsiCo warned that full year core earnings would take an 11% hit from FX translation effects (a global company like Pepsi generates profits all over the world and for accounting purposes is required to report the dollar value of those earnings when they publish their accounts, it is the translation of those earnings into dollars which is in question here), they will not be alone as the dollar has appreciated mightily against most currencies in 2015. For example the dollar is almost 13% stronger than the Mexican peso today than it was at the start of the year. Imagine if a US company had increased profits by 3% in its Mexican subsidiary year to date, after translation effects that profit gain would look like a 10% loss in dollar terms. This would have been less of a problem if these companies employed appropriate hedging strategies, and let’s be clear, this affects companies large and small. If your company is subject to the vagaries of the currency markets then perhaps you should give us a call and we might be able to assist you, it is after all, what we do!

 

Japanese machinery orders published overnight looked fairly horrific with a year on year decline of 3.5% versus forecasts of a 4.2% gain and +2.8% previously. That’s just plain ugly! And German trade data that came out earlier this morning isn’t doing anything to improve the beauty stakes, both imports and exports declined, but exports fell by more, 5.2% to be exact. Compare that to economist expectations of a 1.2% decline and you see the problem. It’s really tough out there right now, and Germany with its sizeable exposure to emerging markets was always going to be a victim in this sort of environment. The only positive is that the German consumer appears to be picking up the slack although the import numbers don’t exactly confirm that! The bottom line is that yet again we see signs of a tough environment for the global economy at the moment. I do however think that a lot of what we are seeing now is just a reflection of the turmoil we have seen in emerging market currencies over the last few quarters, this is a lagging indicator if you will. Perhaps we can look forward to more positive outcomes in the near future as commodities markets do appear to be basing.

 

Looking at the currency markets today, GBP/USD is correcting higher as expected, aided it seems by some strong industrial production data published yesterday. This UK data seems to have bucked the recent spate of lacklustre manufacturing news coming out of major economies, but as I mentioned yesterday I believe we are looking at nothing more dramatic than a mid-cycle slowdown. Here’s a cable chart I put together yesterday from an Elliott Wave perspective. As you must know by now I am very bearish cable.

If my analysis is correct we are at most just days away from the start of a significant fall in GBP/USD which could see the currency pair move towards 1.40ish. Given the prevailing market situation it is entirely possible that the narrative will be more about sterling weakness than dollar strength to start with, but that could easily change over time. Only if my technicals are correct of course, time will tell.

 

Early this afternoon the ECB publishes an account of its monetary policy meeting and the Bank of England votes on interest rates. No one is expecting anything dramatic from the MPC, with most looking for a vote of 8 unchanged to 1 member pushing for a hike.

 

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