Good morning

Pretty quiet start to the day. Some position squaring likely during the day and traders try leave the office “flat”.

No change to what I have been saying all week really, the USD will rebound into 2016 especially vs the EUR which has been stuck in a range all week.

GBPUSD remains heavy as does EURGBP, however if I am right about the moves expected early January, we could very well see the GBPUSD fall to 1.4565 lows from April, EURGBP back towards 0.70 (1.4285) and EURUSD FINALLY trading towards PARITY. So volatility is expected and coming.

In addition to the EUR, GBP and other major currencies suffering at the hands of the USD, Emerging Currencies too will be hit. Already we have seen the ZAR, TRY, INR, CNY, MYR, MXN, BRL and NGN hit over the past few months as investors seek to exit EM and enter other underlying’s. Remember any investor in EM has to buy local currency, and given the losses we have seen in recent months any gains from investments have been dented (and then some) by the losses on the currency. So expect this to carry on into 2016.

WE AT PARITYFX WOULD LIKE TO WISH ALL OUR READERS A HAPPY NEW YEAR. MAY 2016 BRING YOU MUCH HEALTH, HAPPINESS AND PROSPERITY. THANK YOU ONE AND ALL FOR YOUR SUPPORT

HERE’S TO 2016 – CHEERS 🙂 

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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

What a day for a day dream….or not if you were the GBP FX trader. Only yesterday I wrote how we were likely to see GBPUSD trade in a range over this quiet festive period, only to see the GBP fall like a stone through the day. The GBP was hit over the uncertainties surrounding the EU referendum that is likely to happen over the coming year. The referendum is going to give (BoE) Gov. Carney some food for thought and potentially delay any rate hike, though you could argue that the BoE’s independence will and should give it the freedom to act independently of the EU referendum. To add to Carney’s woes, the low UK CPI levels and oil/commodity prices are not helping matters. With this backdrop in mind, my comments on the GBP dropping to the years low in April of 1.4565 is becoming stronger by the day. We know from previous comments from Carney that the basis for any UK rate hike are (1) increasing CPI and (2) wage growth. Neither are doing anything and as things stand that is unlikely to shift much. For this reason and this reason alone, the BoE will simply have to ride the storm and wait for market conditions to shift before considering a rate hike.

FX traders are still hesitating to “place their bets” on the USD for the moment. The main question on everyone’s lips remains the pace of US rate hike in 2016. More solid and continuous positive economic data is needed to give the FED policymakers the reason to hike. So for the coming weeks you are likely to see the USD (v EUR) range bound. On the 8th January we get NFP out the US and that number (which I expect to be solid) should support the FED’s decision to hike earlier this month and support further rate hikes over the coming year.

EM currencies remain shell shocked. India’s INR fell over 4% in Asia trading while China’s CNY was down a further 0.75%. Cast your mind back a couple months, I said categorically that the PBoC will “devalue” the CNY to help boost the economy. Granted they have not come out and said it, rather they have probably had a  quiet word with global banks and “told” them – let it go, let go. Oh, and have you heard or read anything from the FED regarding this recent weakness….erm no. What does that tell you…the US want and need a strong Chinese economy and therefore are standing back and letting the currency fall in the open market in the hope that it supports the economy over the medium to long term. You got to love international diplomacy.

Have a good day

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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

I hope you had a super Xmas break.

Quiet start to the week and probably quiet week altogether. FX traders have been pretty much side-lined over the festive break and not willing to put on any new positions given the lack of data and event risk. As I wrote last week, there was a chance with the US open that investors and traders would use the lack of liquidity to put on new positions and test the high and low. However this was not the case and the FX market remains pretty subdued. It looks likely that this trend will last into the new year as traders do not want to risk dampening their “year” (end). So expect tight ranges for the coming week.

My sentiments overall remain the same. The USD will remain king of the castle and while I came close for the 2nd year running to predict where the currency would end on the 31st December, I believe I probably missed it by a couple weeks tops. In other words I will be looking for the USD to mount an attack on PARITY (EURUSD) within the first few weeks of 2016. Furthermore I expect the GBP(USD) equally to mount an attack on the years lows 1.4566 (ish) we saw on the 13th April. As I have notes previously, the FED’s decision as to when next to raise rates will be DATA DEPENDENT so over the coming weeks as more and more data is released we will have a better idea on when we will see the next US rate hike…FX traders will be watching this carefully and looking for signs for when this is likely to happen. What we do know for certain is rates are going higher, therefore the USD will remain the currency to buy.

Have a good week ahead

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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

Quiet open on the FX markets in Europe ahead of the long Xmas weekend.

No change in my sentiment from yesterday. I am looking for the USD to resume normal operations in the coming days/weeks as traders return from their holidays and put on positions. As long as the US economy continues to grow and expand the likelihood of further US rate hikes will be a matter of how soon rather than when. That will give the USD a further boost and see the greenback finally break PARITY (EURUSD 1.00/1.00). 

The Pound though will fair somewhat differently given the “strength” of the UK economy (despite yesterday’s disappointing Q3 GDP numbers). While UK rate hikes have been pushed forward to the latter part of 2016, should things turn around and we see growth in GDP, wages and CPI – that decision to raise could very well be brought forward. The EU referendum is a thorn, but its too far away for now to cause real damage to the GBP. Further down the line I see the GBP staying in the 1.40-1.52 range for 2016 while vs the EUR I believe the GBP will break 0.7000 (1.4285) and trade sub this level for the year.

To all our readers, we hope you have enjoyed reading our daily comments as much as we enjoy writing it.

WISHING YOU AND YOUR FAMILIES A MERRY XMAS

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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

After a quiet start to the trading day yesterday, the GBP roared to life and fell like a stone to trade just shy of breaking 1.48 after the UK data agency published the government’s borrowing figures.  The UK’s public finances data showed the government had borrowed £66.9bn in the financial year. But the Office for Budget Responsibility forecast borrowing of £68.9bn for the year, only £2bn more than the latest figure. As I wrote in yesterday’s blog, the GBP is looking weaker by the day, and further losses to 1.4569 are a matter of when not if. Yesterday was all about the GBP which meant (again as I wrote first thing yesterday) vs the EUR the GBP also fell from 0.7330 (1.3640) to 0.7416 (1.3485) as a result. The GBP (EUR) has since recovered to 0.7355 (1.36) at the open today. I had mentioned yesterday the GBP was likely potentially to fall to 0.7450 (1.3422) but thankfully that was not reached, but close enough you could say. Later this morning the UK data agency publishes the UK 3Q GDP numbers with the number on the right below, Q2,  and left the prediction for Q3. Truth is the UK economy is healthy and should the number come in line with expectations I would expect the GBP to rally somewhat. That is already evident with the rally this morning to 1.4860 (USD) and 0.7350 (EUR).

With the US 3Q GDP numbers coming in at 2% YoY the US economy stays on track for now. As I mentioned above, the USD did not react (vs EUR) when the GDP numbers were published and it is my opinion that with 36 hours to go before the start of the long weekend in Europe, the USD is likely to have a sleepy run in. Or not! I have a feeling FX traders might be tempted by the lack of liquidity to test the EUR’s resolve and try push the USD higher. Remember the US is working both Friday and Monday so the reduced liquidity could see the USD rally with little input from the Europeans to quell the rally. Then again, traders are not robots and generally use the time to put their feet up and play scrabble.

Have a good day ahead

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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

Exceptionally quiet day on the FX markets with high lows restricted to a mere 20 pips. December is generally (believe it or not) quite a volatile month as a result of the reduced volatility, however this time round we had the FED raising rates which has put a dampener of moves.  If one has a look at FX volatilities this lack of volatility is quite evident. EURUSD 1m 9.20/9.55 – 3m 9.95/10.25 – 1y 10.05/10.25 while in GBPUSD, 1m 6.95/7.25 – 3m 7.80/8.00 – 1y 9.85/10.20. You can see from the latter how “steep” the curve is as a result of the anticipated rate hike that’s coming in the UK during the latter half of 2016. With the upcoming holiday season and 4 day holiday, traders are reluctant to pay “time decay” and therefore happy to sell front end “gamma” to earn decay – premium over the coming days. While the market still expects the USD to come out fighting and rally towards PARITY (EUR/USD) and 1.45 handle (GBP/USD) for now the mood is sombre.

The most important data release of day comes out the US with the release of 3Q GDP. The release is at 1.30pm Ldn time. As you can see below, last Q the US grew at 2.1% with the market now expecting Q3 to show growth at 1.90% – which again takes me back to yesterday’s commentary when I noted the FED will be eagerly awaiting the release of this number as they have clearly stated last week, further rate hikes will be DATA DEPENDENT. So we await today’s numbers for confirmation just how steady the US economy is and whether FED chair Yellen and her colleagues were spot on by raising rates last week.

EURGBP has been having a torrid time of late, falling from 0.7050 (1.4185) to 0.7335 low (1.3630). The losses have been compounded in recent weeks by the ECB announcement that QE extension (or not) and the reduction in EUR depo rates by “only” 0.10%. Further austerity measures in the UK and delays in rate hikes have not helped the GBP and as things stand there is a “good chance” the GBP could fall further towards 0.7450 (1.3420) before starting the recovery. I have noted previously I think the EUR (v USD) is starring down the barrel of despair and while my prediction for the EURUSD to hit PARITY by 31 December 2015 seems to have all but disappeared, I will still get my wish in early 2016!! When this happens the moves will be EUR led (rather than GBP strength) and so I expect the GBP to recover these losses in early 2016. Furthermore, vs the USD, I think the GBP will fair better (than the EUR) with losses initially contained to 1.45 (circa) which should all mean EURGBP (GBPEUR) sub 0.7000 (1.4285) – here’s hoping

Have a good day

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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

Quiet start to the shortened week as the euphoria surrounding the FED rate hike settles into the market. Stocks in the US have been disappointing while the USD has failed to rally following the FED’s rhetoric. What is now clear is rates in the US are heading higher given the superior economic growth, albeit at a slower pace and once again DATA DEPENDENT. The FED will be keeping a close eye on CPI, wage growth and NFP data over the coming months in making their decisions on when next to raise rates. The 0.25% hike is unlikely to have a marked impact on the US economy short term, with the USD likely to find support as a result. All eye’s now on the path of the US rates hikes and how quickly (or not) the FED believe the US economy can sustain and absorb these further rate hikes. As long as the data is positive and growing the FED will remain confident that they are doing right by the economy and further hikes can be made. One thing is for certain though, as long as the data is positive and growing, the USD will tend towards PARITY and beyond. The US economy continues to outshine both the EU and UK and this superiority is what the FED want to maintain. The FED will be keeping close tabs on whether the Chinese economy can grow back above 7% (psychological level) – a strong world economy is good for the US for obvious reasons. Over the coming couple of weeks I have cautiously optimistic about the USD and look for further gains as we approach year end. 2016 no doubt (if things stay on course) will be all about the USD (to the detriment of EM) and I fully expect us to be trading well below PARITY (EUR/USD).

Talking about Emerging Markets (EM) countries like S.Africa, Turkey, Malaysia, Mexico, Brazil (etc.) who run large current account deficits will however suffer most as a result of the continued USD strength. The ZAR had a shocking week last week with the firing/hiring of 3 Finance Ministers over 4 days and while the ZAR has recovered (and then some) most of the losses following these crazy days, the future remains bleak to say the least. As an exporter the S.African authorities will certainly not be sad to see the ZAR depreciate in the face of falling commodity prices. Reducing imports and expanding exports is the antidote to improve and expand the SA economy.

Data wise, tomorrow sees the publication of US GDP numbers (Q3). The market expects circa 1.9% from 2.1% last quarter. Following this, on Wednesday we will have the UK’s GDP numbers with 2.3% (YoY) and 0.50% (MoM) expected. I for one cannot get excited about the Pound’s near term prospects as fiscal tightening and the upcoming EU referendum (risk) continue to take their toll. I am not alone in thinking over the coming months the GBP will come under renewed pressure heading towards 1.45ish (short term) before consolidating and then heading lower again. Interest rate hikes are on the burner for now therefore GBP spot traders will be looking to short the GBP.

Have a good week

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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 world is adjusting to the new realities, following Wednesday’s interest rate rise in the United States, its southern neighbour Mexico has followed suit with a quarter percent hike to 3.25%. When you consider the fact that inflation has fallen for seven straight months, you might consider the decision strange, but I believe Banxico’s concern relates to the 15% decline in the Mexican peso, and fears that this could accelerate if a firm stance isn’t shown in public. I doubt the Mexicans will be alone facing this type of dilemma. The larger more advanced economies are still able to plough their own furrow, and we can see that happening with the Bank of Japan, who seem to have made a complete fool out of me, it was only a few days ago where I remarked that the BoJ, following solid Tankan data and some other good data, would be in good position to resist calls for further easing. What did they do? They just effectively eased policy by agreeing purchase longer dated bonds and to spend more money buying equities. We’re not talking about a huge increase in stimulus, but it’s the symbolism that matters here. The Japanese central bank is keen to emphasise the seriousness of their attempts to spur investment and wage growth.

So we have a huge policy divergence shaping up in the macro world. On the one side we have the US Federal Reserve tightening monetary policy, with the Bank of England (despite current protestations) sure to follow at some point in 2016, albeit probably after what I’m guessing will be a serious weakening of the pound sterling. And then on the other side we have the ECB, the Bank of Japan and the Peoples Bank of China all easing monetary policy. This is a scenario that is fertile ground for substantial currency moves, and generally disruptive markets in 2016, and it’s clear that emerging market economies will be caught in the cross-fire. When you consider that 2016 will also be an election year in the United States combined with the disruptions in the Middle East, the slow boiling crisis in the South China Sea and any number of issues that could grab headlines, next year is shaping up to be one for the history books.

This morning at least we are seeing a small dollar reversal, but the trend is still clearly in the greenback’s favour. We continue to expect new highs for the dollar in the coming weeks and months.

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

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Lift off! At last for the first time in almost a decade interest rates in the United States are rising. I read somewhere that the last time rates were hiked iPhones didn’t exist, crazy right!? Last night the FOMC raised interest rates from 0% to 0.25% in the United States. But as we have stated repeatedly this week in the lead up to this momentous event, it was never about the hike itself. This has been so well flagged, no doubt even sheepherders in the North Korean countryside have been anticipating this! No this was about the wording, the thought process behind what comes next. If there is such a thing as a dovish hike, this was it. The dollar sold off briefly in the aftermath, and equities rallied, then as Chairwoman Yellen began to answer questions the dollar began to recover even as equities continued higher. It’s like the risk markets have been holding their breath and they could suddenly collectively exhale. The interest rate outlook the FOMC posits is a good deal more hawkish than the market’s current thinking and indeed where the relevant assets like Eurodollar futures and the 2 year treasury yield are priced. There’s reason to believe that it’s a red herring though, given the emphasis Yellen put on monitoring actual data before proceeding with further tightening.

Watching the Chairwoman, I got the sense that this was a decision, she was personally keen to push through, and she did it for many of the reasons I have talked about over recent months. A central bank needs room to manoeuvre if things take a turn for the worse, and a starting point of 0% is no place to start! Furthermore, as Yellen kept saying, let’s not make too big a deal about this, it’s only 25bps after all. Going forward the Federal Reserve will pay especial attention to the labour market and perhaps even more focus on core inflation trends. She was quick to point out that if inflation trends, as represented by the core PCE number does not in fact start to move back towards the 2% target zone (the last print was 1.26% I believe), then they would have to re-assess their outlook. It is clear that they will be focussing on testing their outlook rigorously against the real data that is presented to them over the coming months. Other items that will factor in future FOMC debates include external demand conditions and the strength of the dollar, but to a much lesser extent clearly.

Talking about the dollar, as the post-meeting Q&A continued the initial sell off of the dollar slowed and by late evening the dollar was rallying strongly again. I reiterate our view that we are likely to see a re-test, and breach of the lows in EUR/USD and GBP/USD from earlier on in the year. We will see new dollar highs versus these currencies soon. That alone will slow the pace of future hikes but it is likely that we will see some hikes in 2016, assuming current growth trends persist. This has been a well flagged operation so it’s no surprise that emerging currencies, while weaker, are not in crisis mode this morning. Everyone expected this.

Looking at GBP/USD the recent 1.4894 low is the first test, once that goes the pre-election lows of April around the 1.46 level will be the next target. I don’t think we’ll get there this year, but I wouldn’t be shocked if it happened, because from a technical perspective an impulsive move for GBP/USD is in order. I will speculate that the Bank of England is keen to see sterling weakness for both competitive and inflationary reasons, but if it starts to feel like it’s getting away from them then they’ll make it known that interest rate hikes are coming. What I don’t know is what the trigger level is.

For now, we continue to expect steady dollar strength across the board. Keep an eye out for USD/NGN, that’s not dollar strength being reflected, that’s extreme naira weakness!

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The big day has arrived, and the dollar has already begun to rally. The announcement will be at about 7pm GMT. As discussed before the key thing to watch out for is not the expected rate rise itself but the wording of the FOMC’s statement. We believe that the FOMC will announce its intention to effect a moderate tightening cycle given the strength of the US domestic economy and labour markets. Earlier on in the week, core CPI was published showing a year on year rise of 2%, which is the rough target for the Federal Reserve. The FOMC could rightly argue that continuing strength in the labour market and growing domestic economic activity will mean that inflation is likely to rise about this target area in future if a tightening cycle is not implemented. This makes a lot of sense, no central bank would like to be caught reacting to inflation after the fact, that never ends well.

Risk markets look fairly calm at the moment, and so for now there is not much to say, the key is to observe the FOMC statement, and monitor how the markets react to it. On the other side of the pond, Bank of England officials continue to reiterate a more cautious approach to the level interest rates. The deputy governor recently indicated that she will not vote for a rise until she sees more evidence of wage growth. The sense is that the earliest a rate is likely to occur will be the middle of 2016, but once the hiking cycle begins it could well be more aggressive than that of the Federal Reserve. It’s no surprise that the pound sterling is underperforming the US dollar at the moment.

It would be wise to expect fairly large moves over the next 24 hours. The mix of uncertainty, diverging policy and the proximity to the holiday season leaves us with the potential for some decent volatility. Trade with caution, and always have in mind that risk mitigation is the sensible course to take.

Finally, in other news, the central bank of Nigeria (CBN), is imposing another restriction. Street hawkers of foreign exchange are to be banned from the beginning of next year. You know the ones, those who stand outside the big hotels, and offer to swap your dollars or pounds or euros into naira. There will be severe punishments from January 1st 2016. This is what comes of having a retail banker as central bank governor I guess. The other way to get rid of the street hawkers is to get rid of the parallel market and just let the naira find its own value, but I guess that’s not happening any time soon!

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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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