It’s easy to forget that after the United States, China and the Eurozone, Japan still represents the next most important major economy. The news has been pretty good recently, stunning upwardly revised GDP data, and then yesterday a stronger than expected Tankan report, it looks like the Bank of Japan (BoJ) won’t be pressured into easing monetary policy further for now. The Tankan report is especially cheering with large manufacturers showing positive sentiment versus the expected decline. This implies that Japanese corporates are shrugging off the weakness in China and sluggish demand at home. Whether the better than expected sentiment turns into positive activity down the line is still open to question, but we note this more for the implications to near term BoJ monetary policy.

Yesterday we got some solid industrial production data from the Eurozone, with a much better than forecast +1.9% year on year industrial production number to October. I’m not going to get too excited and start calling these 2 bits of solid data as a major turnaround, but it’s encouraging stuff nonetheless. Couple that with marginally stronger than expected inflation in the UK, it’s and it looks like a veritable smorgasbord of good pre-Christmas macro data that we can feast on. Anything that isn’t harmful to the global outlook is merely going to reinforce the resolve the Federal Reserve appear to be showing. Please bear in mind that the FOMC has in fact already begun. It’s always a 2 day event. No doubt a more positive ZEW report in Germany later on this morning will only enhance the likelihood of an interest rate in the US, although I don’t want to over-estimate how significant these foreign data points will be to the US policymakers.

Later on today we get inflation data in the US, that will be more impactful for any rate decisions, but I daresay the FOMC board are already aware of the data before it becomes more publicly disseminated. For now G10 currency markets are trading in fairly tight ranges, and there is less pressure on emerging market currencies as the market seems to be holding its collective breath.

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I’ve said it a few times this year, so you would be perfectly within your rights to discount a repeat, but the events of this week are huge and could potentially shape how 2016 turns out for the macro world. The FOMC decision will not only impact US lenders and borrowers, but emerging market corporates, political events around the world and the economic well-being of billions of people. This all sounds very dramatic, but I can find no better analogue for the upcoming event than the interest rate rise in February 1994, which was followed by more rises throughout 1994. History suggests that this was one of the major contributory factors which led to the Mexican peso or Tequila crisis (http://www.frbatlanta.org/filelegacydocs/J_whi811.pdf). I’m certainly not suggesting disaster for Mexico this time around, but it would not be a surprise to see calamity somewhere else in the world. There are so many economies which could be classified as highly vulnerable to a US rate rise: Nigeria, Russia, Brazil and even China are but a few of the larger, systemically more consequential emerging economies, but they are far from alone. If this is the case, then why would America’s Federal Reserve risk such disaster? Well.. for a start, looking after mismanaged economies around the globe is not a part of their mandate! Furthermore, there is the other risk… what if they don’t start hiking now and inflation rears its ugly head? In this scenario, the terminal rate for the hiking cycle would be much much higher than it needs to be. No.. in my view, a rate rise now is a good thing. Quite apart from the completely distorted signals businesses currently face in determining their cost of capital, action now will virtually guarantee that the terminal rate at the end of a tightening cycle will remain fairly low.

I would guess-timate the likelihood of a rate rise on Wednesday to be in excess of 90%. The Federal Reserve could quite easily have hiked in September, but they held off largely because of significant China related market volatility. There is no such excuse this time, and indeed the US central bank would be at risk of losing its credibility if they took no action after continually warning the markets that a rate rise is imminent. What happens afterwards in the currency market is now the subject of considerable debate in the macro community. As we approach Wednesday the dollar has stalled somewhat, so it is entirely understandable for some traders to expect a counter-trend move, dollar weakening, to follow any rate rise. But there is also a risk that the Federal Reserve will state its intention to persist with more tightening rounds in 2016 following this first hike. If that happens then expect the dollar to rally strongly. The conditions have been created for this because positioning has been reduced dramatically following the disappointing ECB monetary policy meeting. This is the key thing to watch for on Wednesday, not the hike itself, but what the FOMC says about its future plans. If you have dollars to trade, don’t gamble either way, the moves could be quite large, the best way to mitigate the risk of being caught on the wrong side of a big dollar move is to do some of your transaction now and hope for a move that improves your average. Good luck!

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Good morning

TOTSIENS LEKKER DAG (Afrikaans) or translated into English, GOODBYE HAVE A NICE DAY. What am I talking about, USDZAR.

Absolutely battered and splattered. Making new lows every day as President Zuma’s shock announcement on Wednesday (fired the Finance Minister) continues to plague the ZAR. A coffee in London will now set a S.African visitor R67 (R23 back home) while a steak at Gaucho Grill will set them back R705 (the cost of a meal for 4 back home). That gives you an idea how expensive it is now for anyone travelling from SA to the UK (not to mention US and EUR). I guess the FM’s and SARB’s CRAZY decision to hike rates a couple weeks ago did nothing to stop the rout. In fact it has made it worse! We all have our own opinions about what constitutes the right time to hike rates, but the SARB hiking rates in my opinion (and in the opinion of MANY bankers in SA) was simply barmy to say the least. The ZAR deval was doing its bit to prop up the economy (> export earnings & > import costs). The strange thing is, as you know SA biggest trading partner is the EU and therefore a strengthening EUR normally generally gives the ZAR a boost. The opposite has now happened and the recent EUR strength and actually seen the ZAR weaken further forcing EURZAR, GBPZAR and USDZAR to new ZAR lows. The new FM is an unknown which has led to a flight to safety by foreign investors and which has seen SA bonds trading at their weakest levels since the start of the global recession. It continues to amaze me in this day and age how politicians continue to make the strangest decisions. This is S. Africa after all, quite possibly the most investor friendly country in Africa. Last point on SA, your steak at a top local restaurant costs under £6.00 – and a meal for 4 including copious amounts of wine will set you back between £30-£40…happy days for those heading to SA for the summer 🙂

Staying in Africa, Nigeria’s NGN weakened further in the parallel market on Thursday, down 0.60% after the central bank’s exclusion of some bureaux de change operators from its USD sale on Wednesday created a shortage of dollars.

Strange price action in the EURUSD. The USD got sold off aggressively post ECB announcement on the 3rd December. It managed to claw back some of those “losses” at the beginning of the week but has since encountered resistance forcing the currency back up to over 1.0950 – as a conspiracy theorist and in my humble opinion I think the Central Banks are colluding by forcing the EUR higher. The reason, simple, ahead of the FED’s much anticipated rate hike next Wednesday and the potential USD rally (you would think) post announcement the CB’s are probably thinking its better to buy the USD at these inflated levels than at 1.0450 and risk breaking Parity.  Whether or not we have seen the high of the USD for the year remains to be seen, and on the face of it I think we just might have. The cat is out the bag, the market knows what’s coming next week so confirmation of the fact should see a muted response to the hike. The only caveat and where we will see volatility is if the FED do nothing. Then we off to the races!!

EURGBP continues to trade at the week’s lows after the EUR rally. The currency weakened on the back of the EUR rally rather than the GBP weakness. I for one am not expecting this short term EUR strength to last much longer post FED/FOMC meeting next week and expect the GBP to enter another bull phase vs the EUR then.

Have a good weekend

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Currency markets have had an interesting few days. In a larger sense the dollar retreating again is the biggest news and we’ll come to that shortly. But first it’s hard not to notice the tough trading conditions for emerging market currencies. Despite the stories being seemingly country specific – like the South African rand blowing up after President Zuma’s sacking of the Finance Minister; or the technical weakness being inflicted on the naira because the central bank of Nigeria (CBN) is tightening the AML compliance of local bureau de changes; or the impeachment circus in Brazil – the fact that so many currencies are under pressure against the dollar is painting a picture. The narrative is that the dollar is strengthening, and a sell off against its g10 peers is not enough to hide that fact.

In speaking with a trader whose skills and success in the currency markets merit the highest respect, I have begun to dampen my enthusiasm for the bullish dollar case. There is clearly still a fear amongst currency traders that the capitulation out of dollar longs, precipitated last week by Mario Draghi’s disappointing revelations about what the ECB plans to do to about the quantitative easing programme, is not over yet. My trader friend believes that the market is still long dollars versus g10 peers and these bouts of dollar selling might persist for some time. That may well be the case, but from a technical perspective I would still contend that dollar selloffs are counter-trend moves and only a rally above 1.5340 in GBP/USD or perhaps 1.1090 in EUR/USD will dissuade me of that. We will know either way next Wednesday evening when the FOMC announces its decision, and we can observe the price action that ensues.

Markets are limping their way to the end of 2015. The S&P 500 is now flat, perhaps even a few points down for the year. Obviously the FOMC decision represents a significant twist in the tail for the story of 2015. It would be unwise not to expect large moves either way, based on the interest rate decision to come. The same will apply for currency markets as well, but the travails in emerging market currencies reminds us that there are other important stories out there that will have a role to play.

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Morning

Emerging market currencies are simply getting obliterated. How else can or could I have said it. S.African ZAR hit a new low vs the USD after falling 1.20%, while vs GBP it broke 22!!! For all your lovers of SA wine and beer, a Windhoek Lager costs £0.80 while a steak at the Butchers Grill will set you back a mere £4.00 which for those of you who have been there will know they serve a mean lean piece of meat!!! In fact a 5* hotel room will cost you £100 – it is no wonder BA and Virgin rate Cape Town in the top 3 destinations. What the SARB were thinking last week when they raised interest rates is beyond me. What they were trying to achieve has and will backfire. You CANNOT and SHOULD NOT raise interest rates at a time when the economy is faltering and your currency is in freefall. Stocks have been battered, the current account has widened further and talk is they will have to import 4m tonnes of maize after successive droughts dented their export capabilities. Trust me when I say there is still more to come.

USDNGN (Nigeria, and Africa’s biggest economy) has seen the currency fall from 232 to 252 in just 2 weeks – a near 8% drop. With President Buhari instituting fiscal change since he came to power, the NGN has been sold off in spectacular form. Demand for USD has risen, but supply has been cut to stave off speculators. Needless to say, the speculators might have taken a break but the corporate demand from importers and travellers remains steady.

With oil producing nations continuing to pump the black stuff out the ground, and demand mostly unchanged, prices have collapsed. I have not as yet seen my petrol price come off but hopefully that should filter through soon enough. The fall in oil prices is not really a surprise to many. The combination of tepid demand and growing surplus has plagued the oil industry since the OPEC opted to defend market shares over prices a year ago. You cannot have your cake and eat it. Over-pumping will simply send oil even lower and with it risk the livelihood of millions of workers (perhaps SNP leader Sturgeon should give this A LOT OF THOUGHT when she calls for another Scottish independence referendum, given that over 400,000 Scottish people work in the oil industry, not to mention their dependents).

With just a week to go before what is quite possibly the most eagerly awaited FED meeting, there are still some doubters who think it is too early to raise US interest rates. Jeffrey Gundlach said the Federal Reserve may come to regret raising U.S. interest rates amid signs of a fragile economy and a crumbling credit market. The Fed is likely to find itself in a “conundrum” in a year or two if it raises rates amid economic trouble. The central bankers appear “hell-bent” on lifting rates despite weak economic signals such as gross domestic product, he said. “We’re looking at some real carnage in the junk-bond market,” Gundlach said. “This is a little bit disconcerting that we’re talking about raising interest rates with the credit markets in corporate credit absolutely tanking. They’re falling apart.” The debate over whether to raise or not will continue for the next week ….if you asked me what I THINK (my opinion personally) I think it is too early to raise rates (while Ossie thinks it is time to raise rates). The majority agree with Ossie, it is time and they will raise 0.25% (which in truth is neither here nor there but shows intent). Time will tell

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It’s just over a week before the big decision, will the FOMC hike the Federal Funds rate? At this stage, it’s hard to imagine them not doing so. It’s been well flagged, the data proximal to the decision has not disappointed, and call me a cynic, but the ECB’s Draghi not going as far as he had hinted he might, may just have been another clue. What I mean is this, we all know that once you’re at the zero bound further attempts to ease monetary conditions are largely an exercise in weakening your exchange rate. On that basis, Draghi’s signalling that there would be an expansion in the Eurozone’s quantitative easing programme before Thursday’s announcement led to a lot of disappointment and mangled the year to date profit and loss for traders around the globe. Why would he do this? After all the net result has been a stronger exchange rate than before the ECB meeting, and European equities have been crushed. I suspect that knowing that the Federal Reserve is definitely going to hike, he decided at the last moment to appease the Northern Europeans on the council. After all EUR/USD he would assume will drop again following a Federal Reserve hike. This is all just my speculation, and I could be completely wrong. But one thing is for sure, the extent of long dollar positioning following the ECB’s meeting is a magnitude less than before. Couple that with the closeness of the Christmas holidays, and you start to imagine that there’ll be fewer people trading come next week. It is entirely possible that EUR/USD will now react much more negatively than it would have to a Federal Reserve hike. There might be genius in the strategy, but then again, this is just me speculating, we will find out one way or the other next Wednesday evening.

I’ve had another look at the chart for EUR/USD following the meeting last Thursday. One thing which has become evident, is that the currency pair bounced off a support zone, and then subsequently failed to breach a former trend-line support which has now become a resistance area. To my mind, the possibility still exists, and indeed it is still my preferred outcome, for EUR/USD to re-test the year to date lows in the not too distant future. This view will be fatally damaged if we make a new post ECB meeting high.

Big news overnight, it turns out the Japanese economy did not in fact dip back into recession in Q3 after all! The data has been revised up to +1% growth year on year for Q3, a quite stunning turnaround, particularly when you consider what large numbers in terms of GDP the error represents.

In a short time, we’ll get industrial production numbers in the UK, and provisional Q3 GDP growth data for the Eurozone as a whole. These are all significant data points, but the truth is that everything now pales into near irrelevance in comparison to the FOMC next week. The dollar has been slowly regaining strength, as commodities retreat. It is no surprise that we therefore maintain our bias for continuing dollar strength.

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Good morning

A game of 2 halves – ECB President Draghi disappointed the market massively on Thursday by “not going the distance”, while the FED were all smiles on Friday when the NFP data exceeded expectation at +211K (+200K expected). Unfortunately Thursday’s bombshell > Friday’s NFP which left the USD battered and bruised which to tell you the truth caught just about everyone wrong footed. Short-covering by FX traders globally sent the USD into freefall and left FX traders licking their wounds. What was Draghi was thinking!!! Extending QE to 2017 and lowering interest rates by only 0.10% one would have thought would be EUR negative. But it seems the combination of extended QE and smaller rates change caused the opposite to happen and the EUR rallied – truth is I think the market has been MEGA short EUR and the disappointing ECB news was the catalyst that drove the USD into freefall.

With 10 days to go before the FED (FOMC) meeting traders will now be thinking as the news is out there that the FED are going to raise rates what else can drive the USD higher again. To be honest good old demand (more buyers than sellers) is pretty much all we can now hope for. I don’t expect any positive or negative rhetoric from the FED so close to the meeting and I don’t expect anything more from the ECB either. So best case scenario now is to trade with tight stops and hedge when necessary because the future is uncertain and risk is not something you should consider.

CB rate decisions in Swiss, SNB (Thursday -no change), UK, BoE (Thursday – no change), New Zealand RBNZ (Thursday – No change), and Russia, RUB (Friday – no change) will be the focus this week. Honestly, the only rate decision that counts is the FED. The other Central bank meetings above are not likely to cause any fireworks.

As a large Bank noted in their commentary and which sums up what I have noted above; “We expect more muted market movements this week, after sharp market reactions were triggered by the ECB’s policy under-delivery, and ahead of the all important FOMC meeting on 16 December. We prefer to sit on the sidelines in EURUSD positions for now, but will continue to look for catalysts or better entry levels to re-engage in strategic short EURUSD positions. After the ECB, the market’s attention will shift to other major central banks. We expect the SNB to take a ‘wait and see’ approach that would accompany a less aggressive ECB. Nevertheless, we still see CHF weakness ahead. The BoE is expected to stay on hold this Thursday as well, with no new information coming from the minutes. Finally, we expect RBNZ to cut its rate 25bp. With the cut not fully priced by the market, NZD is vulnerable”. I do not agree with their opinion that RBNZ will cut. I think the RBNZ will prefer to wait till after the FED meeting before acting on NZ interest rates.

In summary, as per the comment above I think the USD should rally SMALL’s over the coming days as traders look for new entry points to go LONG the USD. But as we have previously noted I think the USD could potentially come under pressure POST FED meeting (if they hike as expected). Overall I am still SHORT TERM VERY USD BULLISH.

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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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Speaking at the Washington Economics Club yesterday, Janet Yellen, the chairwoman of the Federal Reserve reiterated the case for a rate rise in the United States, and the markets reacted powerfully to the statement. The S&P 500 lost 1% subsequent to her comments and the dollar strengthened against its peers. Indeed the dollar index reached a level not seen since April 2003. The case Ms Yellen makes is in line with the point I have made repeatedly, the US economy has largely achieved all of the targets set forth by the FOMC, and there is now a real risk that if interest rates do not start going up soon then when eventually the central bank is forced to act the pace of rate rises will be considerably more aggressive and damaging than it would otherwise have to be. Let’s be very clear, Ms Yellen’s intent is for gradual rate rises, my guess is that a first rate hike – increasingly likely to be on December 16^th – would be largely symbolic. No one really believes that a 25bps hike in the Federal Funds rate will have a substantive impact on borrowing decisions.

As I am wont to say, that’s one side of the ledger, Governor Draghi’s speech this afternoon will be in the more formal setting of the post rate decision press briefing, this will be the other side of the ledger. Mario Draghi is expected to elaborate on plans to expand the extent of the quantitative easing programme that the ECB has undertaken since earlier on this year. The Financial Times speculates this morning that continued German opposition might limit the scope of such dovish plans, thus disappointing the market. I am not sure I buy that, if German hawks were unable to stop QE in the first place, I highly doubt they will have much success now, after the horse has clearly bolted. But it is a point worth noting, after all this is an expectations game, it is certainly possible that anything announced this afternoon might be perceived to be less aggressive than anticipated. If that happens then counterintuitively the euro might strengthen somewhat, at least on a relative basis. I think the greenback will rule the roost at least until December 16^th. It’s also worth noting that the euro while weakening in the early session yesterday on lower than expected inflation numbers and a strong US ADP employment report did find buyers as the rumours of a less aggressive expansion of QE started to do the rounds. The main victim in the G10 was the pound sterling which suffered from unimpressive construction PMI’s. The ADP report in the US is a forerunner of what the market is anticipating will be fairly strong labour market data on Friday, everyone is guessing that Yellen who is almost certainly aware of the data in advance was so strong on US economic performance because she knows something the rest of us will only find out later.

From a technical perspective, all that we have anticipated appears to be happening. The pace of the decline in GBP/USD appears to be picking up again. As I’ve mentioned a few times, we are looking for a target of at least 1.42/45 in the next few months, but don’t be surprised if that happens in a fairly short space of time. There are potential casualties if these views come to fruition, not least emerging market corporates in general with their excess of dollar debt and the Chinese currency, the renminbi, in particular. In the case of CNY, its pseudo linkage to the dollar, will make it a victim of a strongly appreciating dollar. Given the slowdown in China, a persistent appreciation of CNY versus the Japanese yen and euro couldn’t be happening at a worse time. I am uncertain what the consequence will be, but surely something has to give? Whether it’s a substantial devaluation of CNY, or aggressive monetary easing in China next year, surely something big will happen?

Not surprisingly G10 currencies are not the only ones trailing in the dollar’s wake. In West Africa, for example, there seems to be a dearth of dollar supply which is stressing local markets in Nigeria, Ghana and elsewhere. Over the last few weeks and in the approach to the Christmas and year end period, it seems that corporates have been hunting for dollars, and this activity is getting more and more frantic. The net result is that these local currencies are being forced to adjust to current realities, and that adjustment will be lower…

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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

All eyes on the ECB meeting tomorrow where the market is anticipating Pres. Draghi to announce an extension to QE and a further cut (negative) to deposit rates. Should this be announced I am “expecting” like the rest of the market the EUR to be sold off initially (knee jerk reaction) against the major currency partners. Over the past few weeks we have seen the EUR tumble vs the USD (and GBP) in anticipation of this announcement in conjunction with the much anticipated FED rate hike on the 16th December (though nothing is set in stone). I would imagine that the FX rates have already discounted the ECB news however fact is very different to rumours and thus the moves might not be as severe as you would think. Nevertheless I think the EUR will remain under pressure until at least the 16th December when the FED announce their rate decision.

Talking about the FED yesterday the ISM (Institute for Supply Management)November data was released and disappointed at 48.60 vs 50.1 (October) – questions are now being raised whether the FED can and will raise rates with the ISM sub 50 barrier. We have said previously that the FED’s decision to raise or not is very “economic dependent” and therefore disappointing data will not help the raise rates camp. Non-Farm Payrolls on Friday is thus critical to the FED’s decision and any fall from last month will not simply be brushed off as a “hick up”. Remember NFP fell from +280K in June to +142K in October before rebounding to +271K in November. I stated that this rise could be seen as cyclical in nature given the Xmas rush to produce extra goods ahead of the holiday season. Surely the FED need to see at least 3 months of growth in NFP before a trend is established? Then again they see the bigger picture and have a great deal more info to use in order to make their decision. Hence when I stated above nothing is set in stone, I think the raise rates camp could be disappointed on the 16th as the FED decide to hold back to early 2016 and see how corporate earnings have fared over the Nov-Jan period. You also have to keep in mind that the strong USD has in some ways hurt the FED as corporates announced lower earnings (exports) due to the strong USD. Granted a 0.25% hike is psychologically important, but in the big picture it is really a small piece of the puzzle. The FED cannot and should not jump the gun and get out the starting blocks as a false start could mean being penalised and disqualified. In other words why add salt to the wound (strong USD).

To qualify what I have written above here are some comments from FED members:

1. FED’s Brainard said in a speech that “a broad deterioration in
   foreign growth prospects, together with greater risk sensitivity
   in the wake of the crisis and changes in the rate of potential
   output growth, may be contributing to a ‘new normal’”. “The
   new normal is likely to be characterized by a lower level of
   interest rates than in the decades preceding the crisis, which
   counsels a cautious and gradual approach to adjusting monetary
   policy,” she said.
2. FED’s Evans said “I admit to some nervousness about our
   upcoming decision,” Evans, a 2015 voter on the policy-setting
   Federal Open Market Committee.
3. An ex-staff member (no name given) of the FED thinks that it’s still too early for the Fed to start raising interest rates.

The GBP finally broke through the 1.50 handle before recovering to 1.51 but has since retreated again and looking heavy. My sentiment has not changed and I am still of the view that the GBP will crumble through 1.50 over the coming days en route to 1.45 handle. However vs the EUR I think things are looking slightly different and the GBP should hold her ground vs the EUR and in fact strengthen.

Lastly, 29 days left for my prediction on the 01 January that the EUR will hit PARITY vs the USD before the year is out.

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Yesterday the IMF endorsed the Chinese reform process by including the renminbi in its basket of reserve currencies the SDR (Special Drawing Rights). What was interesting is that the Chinese currency will be assigned a greater weight than the pound sterling and Japanese yen and rightly so, given the proportion of global trade involving China. I guess the true metric is how much of these global transactions are settled in yuan, but one thing is for sure, the Chinese government is pushing to increase the proportion settled in their home currency. It is ironic that this happens at a time when I suspect the Chinese government will be happy to see their currency weaken. One of the side effects of a de facto peg to the US dollar has been that the renminbi has strengthened greatly against its trading rivals the euro and the Japanese yen.

Elsewhere in Asia, the Indian economy goes from strength to strength with GDP growth surpassing expectations at 7.4% annualised growth to the end of Q2 (data gathering clearly not the fastest!). India can certainly feel proud of overtaking China’s high growth rates, but the Indian economy is so much smaller than China’s now that Chinese contributions to global GDP growth will still continue to dwarf that of India by some margin. For now the Chinese efforts at rebalancing their economy away from a manufacturing and export driven enterprise into a more consumer focussed one continues, and the data seems to show that this is exactly what is happening. Yet again manufacturing PMI’s from China have disappointed, but non-manufacturing is delivering. It will take years for consumption to surpass manufacturing but it is good to see that they are moving in the right direction.

The dollar is in retreat this morning, seemingly across the board, I am not surprised, after all we have had some decent trends in the last few weeks and as we approach Thursday’s ECB decision some risk reduction makes sense. This morning as German unemployment falls to record lows, the Italian unemployment rate has also surprisingly declined, and both German and Italian PMI’s have exceeded expectations, all constructive news for the Eurozone, but I’m not expecting that to have much influence on any ECB decision to expand monetary easing. The case for two sides of the ledger to sustain a narrative for EUR/USD weakness remains strong, so today’s counter-trend price action is probably a good opportunity for dollar buyers. On one side of the ledger will be ECB easing, and on the other Federal Reserve tightening. This will continue to dominate thinking in the macro community.

In Nigeria the new administration will focus on cutting the cost of running the government rather than on slashing jobs next year, and will present its 2016 budget proposals by the end of the year, the new finance minister told Reuters on Monday. This has been a difficult week for the naira as foreign investors have retreated from the market and year end demands have softened the naira. If CBN continues to deny supply of dollars to the local market things will only get tougher for the naira.

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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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