20160229 – DAILY FX COMMENT

Good day

  High Low     High Low
EUR/USD 1.0960 1.0911   USD/ZAR 16.2700 16.0500
GBP/USD 1.3916 1.3840 GBP/ZAR 22.54 22.23
EUR/GBP 0.7898 0.7870 USD/RUB 76.84 84.05
GBP/EUR 1.2706 1.2661 USD/ILS 3.9390 3.8890
USD/JPY 114.03 112.76 S&P 500 1949 1929
GBP/CHF 1.3862 1.3795 Oil (Brent) 36.02 35.17
GBP/AUD 1.9523 1.9404 Gold 1231.0 1215.0

 

Another day another GBP sorry day. GBPUSD opens at 1.3900 having dipped to 1.3840 in Asia. I find it strange in a way as all the current polls show the STAY camp winning. Obviously there is more than meets the eye and the problems facing the UK are deeper than simply the referendum. We know the Gov of the BoE sees UK rates staying on hold for longer than anticipated given the state of the UK economy. Talk of decreasing government spending has added to the UK woes. All in all the “ides of March” seems to be rearing its ugly head. In my humble opinion I think despite Boris joining the OUT camp, the STAY camp will win which could very well see the GBP mount an impressive recovery. So while things are looking rough at the moment come June 23rd, if STAY does in fact win, we could see EURGBP back towards 0.73-0.74 levels and the GBPUSD up a few hundred pips.

An article published over the weekend in the German magazine Der Spiegel states that Greece will face great difficulties servicing their debt in March. No doubt the migrant problem is an unwanted problem which is now starting to weigh heavily on the Greek Central Banks coffers. “The IMF insists on the promises of the Greeks regarding the reforms and puts obstacles on the pending programme review, which would give the green light to the participation of the fund in the third bailout programme”. The EU do not know what’s hit them. With talk of an extra 1,000,000 migrants heading West over the summer, the EU faces immeasurable hardships over the coming years. We have seen borders fenced up with the likes of Austria, Slovakia and Bulgaria all erecting fences to keep migrants out. The migrant issue will in my opinion see governments topple and right wing parties have more say in their respective countries. Not for one minute did politicians think it would get so bad. Crime has gone Bezerk in Austria and Germany and it is no wonder the UK is trying their best to keep the borders closed and in so doing avoid the problems that the aforementioned are witnessing.

 

The ZAR has seen last week’s gains (pre budget) given up and traded above 16.00 (unfortunately). The Finance Minister did the market no favours in last week’s budget and even the 0.75% rate hike in recent weeks has not helped matters. Now the FM together with the SARB governor will be thinking will they have to raise rates again. I know inflation has topped 6% (6.2% recent) but will the rate hikes bring inflation down below 6% and back into the range? I am not sure. S.Africa are importing inflation, so rather than raising rates, why not let the ZAR depreciate further and slow down imports and make exports more attractive? Surely that is a better short term plan? With global markets slowing down (China, US, UK, EU) I think the S.Africans should withstand hiking rates which could damage the already fragile economy and rather use external means to fix the problem.

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20160226 – DAILY FX COMMENT

Good day

  High Low     High Low
EUR/USD 1.1069 1.1004   USD/ZAR 15.6800 15.5000
GBP/USD 1.4020 1.3951 GBP/ZAR 21.93 21.66
EUR/GBP 0.7923 0.7852 USD/RUB 76.06 74.61
GBP/EUR 1.2736 1.2621 USD/ILS 3.9128 3.8921
USD/JPY 113.22 112.55 S&P 500 1966 1950
GBP/CHF 1.3906 1.3789 Oil (Brent) 36.09 35.05
GBP/AUD 1.9419 1.9261 Gold 1240.0 1228.0

GBP – All that doesn’t shine. Having traded below 1.39 only yesterday, we have seen the “mighty” Pound bounce back to trade over 1.40 this morning…albeit (I think) not for long. I am afraid the referendum on the 23rd June is playing havoc with the Pound and this is only likely to get worse as we get closer to the date. Boris, you have not done us any favours. While the exit polls are currently showing a win for the STAY camp, you can be rest assured this will change as the different polls predict a different winner. One thing is for certain, if the LEAVE camp win, the Scots will call for another referendum to gain independence which will add insurmountable pressure on the beleaguered Pound. Already we have seen (vs the EUR) the GBP suffer immense pressure trading below 1.2650 and looking bleak. Amazing that only a month ago we traded above 1.42 ….how the mighty Pound has fallen!!! They should write a book, GBP has fallen (rather than London). Honestly if you asked me right now what I thought going forward my answer would be, it’s going to be a bleak period for the GBP, so best to get your hedging in place or face the risk of having to pay more GBP for your foreign currency. It’s inevitable.

I mentioned only a few days ago that Central Banks globally are facing crunching times ahead as the global economy hits the skids. Mark Carney of the BoE has warned that Britain and other countries risk becoming trapped in a world of low growth unless governments implement vital reforms. The Governor of the Bank of England warned that “sizeable downside risks” were currently “plaguing” the global outlook. While China has (gladly) been out the news over the past few weeks, the market still anticipates bad news is around the corner.

San Francisco Fed President Williams said Thursday that with the economy strengthening, “it just makes sense” to continue gradual policy tightening. At the same time, he acknowledged that overseas headwinds had grown since the central bank increased rates in December for the first time in almost a decade. “There are big movements going around in the global economy and inflation that we have to adjust to.” Interesting comments considering FED chair said in January the time to increase rates had passed for now given the disappointing US data and global economy. I guess Williams was trying to “talk up the US” as being better than it looks. As far as I am concerned as things stand we should expect 2 US rate hikes this year, rather than 4 expected in December.

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20160224 – DAILY UPDATE

PRICES

GBP/USD has dipped below the key 1.40 level, and the question now is how much further can it go? As I wrote in yesterday’s blog I am struggling to identify a likely near term support area other than the 2009 reaction lows in the 1.3498 – 1.3653 a. I’m not saying we get there, I just struggle to find a reason why we won’t. It is certainly reasonable to assume that the pound will remain under severe pressure as long as the UK’s membership of the European Union remains in question. I would point out that this doesn’t mean that the pound sterling needs to continue its decline right up until the referendum date in June, because if it becomes clear that there is strong support for continued membership or indeed exit, then certainty will return to the market one way or the other. In many ways the unknown scares the market even more than the actuality, and this will be the main problem in the weeks ahead.

 

We got some positive data out of Singapore last night, Q4 quarter on quarter GDP was much better than expected and in fact better than the data from the previous quarter. Why is this a big deal? Well… maybe not a big deal, but I tend to think of Singapore as a ‘canary in the coal mine’ type of economy. It’s extremely open, and it’s very exposed to the global economy. If Singapore is starting to perk up it’s more than likely to be due to improvements in the global economy rather than something specific to the tiny domestic market. At least that’s my thinking. Anyway, one data point is not sufficient to say anything definitive, but perhaps it’s an alert for us to start keeping an eye out for more positive data to come out of larger more globally impactful economies.

 

A couple of FOMC members will be giving speeches later on today, I’ll be keeping my ears open in case they reveal new insights to current Federal Reserve thinking on monetary policy. For me though, more interesting will be the Bundesbank President Weidmann’s speech. I don’t believe his public talk will be related to monetary policy, but it’s not beyond the realms of possibility for the press to ask questions related to Draghi’s recent utterances regarding extending quantitative easing. Needless to say we will let you know if anything is said that could impact the major currencies.

 

I think it’s worth pointing out that sterling has not been on its own in its recent lurch lower. While for obvious reasons the British currency is capturing the headlines, the euro has been steadily weakening against the dollar as well. In the last two weeks EUR/USD is 3.5% weaker. I wouldn’t call this a dollar move though, as the likes of the Japanese yen and Australian dollar have been on an appreciation bias. This is the type of market where traders need to earn their corn and identify the themes driving the market. Is it country specific, related to rates markets, commodities etc. I have nothing wise to say in that regard at the moment, but I’ll expand on my thinking and communicate that to you in coming blogs.

 

 

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20160223 – DAILY UPDATE

PRICES

The big story this week remains the unfolding drama of the British EU referendum and there’s not much that’s likely to shift that off the top spot this week, looking at the data front. Of course we did get German Q4 GDP numbers this morning which were in line, and frankly at 2.1% looking pretty solid to me. Later on this week we’ll get some CPI numbers for the Eurozone as a whole, as well as GDP data for the UK, but as with the UK general election last year there are few things with the potential to affect the major currencies like the referendum and that’s all the way in June. Truth be told, after a while we’ll all become used to the noise and pay less attention to it, barring new impactful revelations, until perhaps the last few weeks before referendum day, when investors will start to pay closer attention to the polls. Whether we assign as much credibility to the polling firms as we would have in the past, before last year’s disastrous pre-election analysis is a difficult question to answer. After all, are the ‘ins’ more likely to be targeted for polling than the ‘outs’? What impact will such things have on the accuracy of the predictions? I’ll let the polling firms sweat over those questions. The bottom line is that the outcome does have a significant potential to impact the destiny of not just the British economy but the political future of the European project. That should not be underestimated. We might focus on the pound sterling for now, but if Brexit did occur, mark my words the euro would likely come under fire as well.

 

GBP/USD is as weak as it’s been for 7 years and perhaps more importantly the path opening up for a test of the 2009 lows which are just below 1.35. I’m not saying that we get there, but from a technical perspective there’s nothing really stopping the move. In fact looking at longer term charts it’s difficult for me to visualise a pattern which doesn’t see GBP/USD substantially lower than where we currently sit. Something to ponder….

 

It looks like the naira is stabilising for now, at a new normal around the 370 level (vs USD), a harsh lesson for those who may have sought to hold on in the hopes that sub-300 levels will soon be realised again. As things stand there is no new economic news, no constructive policy initiatives that point towards a strengthening of the Nigerian currency. In any case, such a thing would require a significant amount of time. The situation is certainly not helped by the fact that even as imported inflation must be rampant, the CBN has if anything lowered treasury yields. All in all, it’s not a great time to have cash sitting on deposit in a naira account.

 

Elsewhere risk sentiment continues to recover with the S&P very close to confirming a double bottom (see below) in recent sessions, and firmly move away from the wailing and gnashing of teeth that was the start of 2016. 1947 is a key level to watch on the S&P 500, a move above there should see the main US index rally comfortably back above 2000. It will be like the panic never happened. In conjunction with this equity market rally it is interesting to see that EUR/USD is also moving lower. The paradigm of positive risk sentiment and a strengthening dollar remains in force

20160223_spx

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20160222 – DAILY FX COMMENT

Good morning

  High Low     High Low
EUR/USD 1.1135 1.1108   USD/ZAR 15.4700 15.2700
GBP/USD 1.4413 1.4153 GBP/ZAR 22.29 21.36
EUR/GBP 0.7836 0.7721 USD/RUB 78.10 75.01
GBP/EUR 1.2952 1.2762 USD/ILS 3.9361 3.8849
USD/JPY 113.06 112.40 S&P 500 1939 1911
GBP/CHF 1.4273 1.4037 Oil (Brent) 34.34 33.26
GBP/AUD 2.0163 1.9691 Gold 1226.0 1205.0

The EU Council meeting concluded with an agreement between the UK and its European partners on a reformed EU, which improves on the terms proposed to the UK in the 2 February draft proposal from EU Council President Donald Tusk. Following the successful meeting, PM Cameron announced that the referendum on the UK’s EU membership will take place on 23 June, as widely expected. With Mayor Johnson opting to join the out campaign, GBP has opened weaker this morning. I will not get into a political debate here, but in my humble opinion Boris has just scored an own goal and we are unlikely to see Boris PM anytime soon. It looks like while the yes camp still holds a lead, in the run up to the referendum you can expect wild moves in the GBP (similar to what we saw during the Scottish referendum. Furthermore, it looks like if the out camp wins the Scots will most probably try and call for another independence referendum. Expect volatility in the GBP therefore to remain with us for the foreseeable future.

Cleveland FED Bank President Mester made optimistic comments on the US economy. She stated that while market volatility poses a risk to the Fed’s moderate growth outlook, she expects the economy to “work through” and “regain its footing.” She pointed to firmness in core inflation as she downplayed worries that falling commodity prices were emblematic of a deflationary trend. The comments help offset St. Louis President Bullard’s Thursday comments that it would be unwise to continue policy normalization. FED president Yellen’s recent comments about rate hikes though makes me think that while other members try to downplay her comments, the reality is the FED will be in no rush to hike rates until the US data has shown to be solid and growing. Right now this is not the case. The USD as a result is likely to trade sideways in a range until such time we hear the FED change their rhetoric.

G20 Finance Minister (FM) and Central Bank (CB) Governors Meeting this week. Markets, however, have become increasingly sceptical of policymakers’ ability to stimulate growth and inflation, particularly with many policy rates already negative. Furthermore, with the prices of oil and food (and commodities in general) falling you wonder how the US, UK and EU can “import” inflation. Perhaps the FM’s and CB’s should accept that rather than try change policy to increase inflation, they should let market forces do it for them. There are perils to trying to force something in that things can go horribly wrong if your policies end up doing the opposite. It is for this reason the ECB have adopted negative rates to name but a few. Banks will no doubt recover their costs through unfavourable offers to their clients, after all someone has to bear the cost.

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20160219 – DAILY FX COMMENT

Good morning

  High Low     High Low
EUR/USD 1.1139 1.1098   USD/ZAR 15.4900 15.3100
GBP/USD 1.4348 1.4296 GBP/ZAR 22.20 21.94
EUR/GBP 0.7779 0.7735 USD/RUB 77.32 75.62
GBP/EUR 1.2928 1.2855 USD/ILS 3.9206 3.9010
USD/JPY 113.38 112.70 S&P 500 1926 1916
GBP/CHF 1.4265 1.4181 Oil (Brent) 34.85 34.12
GBP/AUD 2.0186 1.9994 Gold 1233.0 1220.0

I’ll start off with the ZAR. Local markets seem to be in a good mood these days as the ZAR recorded another super day trading as “high” as 15.25 vs the USD. Basically inflation came out at 6.25% (Wed) above the SARB’s target of 6% which led to traders assuming the SARB could well raise rates again (March) to stem the rise in inflation. Higher ZAR rates =  stronger ZAR. Keep in mind the Finance Minister is addressing parliament next Wednesday, so all eyes will be on that speech (especially considering the changes we have seen in recent months at the FM offices).

The GBP is certainly enjoying some volatility with the PM trying to negotiate a deal for the UK. Over the past 72 hours the GBP has dropped from over 1.44 to sub 1.43, and has since rallied slightly to 1.4325 as I write this. Regardless of the outcome I think the GBP is facing a bleak future. If there is to be a referendum in June, the UK needs an agreement in place with the EU. Should the PM succeed we view this as GBP positive initially. However as we saw when the Scottish referendum took place, the GBP was battered and I see no differences here (EU referendum). Short term then a positive outcome in Brussels will see the GBP rally vs the USD and EUR…until reality sets in and a date for the referendum is announced. A failure in Brussels will have the opposite effect and see the GBP fall vs her trading partners. It really is all or nothing.

With talk that the ECB could potentially lower depo rates again and add/extend QE, the EUR has found some support. Weaker US data has contributed to the EUR rally. For now I see EURUSD range bound as traders cite lack of event and fundamental risk. All eyes on the next US NFP (payroll) numbers on 4th March.

Have a good weekend

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20160218 – DAILY UPDATE

PRICES

The risk on environment is starting to bed in, but my confidence that the worst is finally behind us will only increase when we get above 1948 on the S&P 500. At that point we could confirm a ‘double bottom’ pattern which is a fairly reliable reversal signal that technical analysts like me use. Sentiment was certainly aided by the minutes of the FOMC meeting, yesterday, which showed that US policy makers were becoming increasingly concerned by the tightening financial conditions in January, (financial conditions become tighter when share prices fall) thus potentially making further rate hikes this year unnecessary. Ironically stocks rising now will make it more palatable for the FOMC to increase the likelihood of rate hikes later in the year!

 

Iran is unlikely to want to play ball, no matter what the Russians and Saudi agree to, in terms of oil production cuts. I don’t blame them, over the years that Iran has been in purgatory, other OPEC members expanded production to meet lost Iranian output. These member’s haven’t cheerfully cut back production to enable the Iranians to reclaim what they would consider their rightful place in the production rankings. So it would be highly surprising if Iran now accommodates anyone, they have their own specific objectives having been starved of cash and resources. Whether this by itself caps the oil price remains to be seen, but I suspect it will do. That said, a technical analyst I have great respect for can see the conditions being set for a decent rally for the black gold. We shall see.

 

It looks like the South African central bank, SARB, was right to get in front with pre-emptive rate hikes. Inflation in South Africa has accelerated above 6% for the first time in almost a year and a half. It’s likely that the hawkish actions of the central bank, coupled with improving risk sentiment will see the rand appreciate further as it recovers from its recent woes. Well… unless there are more political mishaps, and no one can really account for that!

 

Keep an eye on Brazil. The deteriorating situation there, whether in terms of the economy, the politics or the potential catastrophe of the Zika epidemic, has seen the South American giant’s credit rating downgraded, and placed on negative outlook which implies S&P might implement further downgrades. I still worry that Brazil could be the large developing economy that is responsible for global systemic crisis. It’s worth monitoring.

 

What I found most striking about the reaction to the FOMC minutes was that there wasn’t much of a currency market impact. It makes me think that the greenback is no longer over owned and thus any dollar positive news could result in substantial moves. I’m still thinking that we’ll see new lows for EUR/USD and GBP/USD in the coming weeks and months. Yesterday’s price action has done nothing to dissuade me.

 

Finally.. a lesson that the Nigerian government would do well to absorb. The Venezuelan government have bowed down to economic reality and devalued their currency and also raised gas prices. In recent months the Nigerian government has implemented policies which look disturbingly similar to the path Venezuela had been on, seemingly rejecting economic orthodoxy. They would be wise to see what the Venezuelans have now been forced to do.

 

 

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20160217 – DAILY UPDATE

PRICES

If you’re under the impression that there’s a quiet consensus at the European Central Bank in favour of extraordinary monetary policy, and in particular the use of Outright Monetary Transactions or OMT (where the ECB purchases government bonds), the German central bank chief disabused us all of that impression. It has been well known that these types of actions would be anathema to the Bundesbank. Ironically one of the attractions of the single European currency was for other countries in the Eurozone to benefit from the storied discipline of the German central bank. It has to be one of the great ironies of the last few decades that in reality the Bundesbank has been subsumed, neutered and, if anything, the ECB has become more like the Federal Reserve. I bet that Helmut Kohl didn’t see that coming when he ceded ground to the French in order to push through German reunification! Mr Weidmann, the Bundesbank chief, was speaking at a hearing for a case brought by thousands of Germans who have asked for OMT to be declared illegal. In truth this is a bit like shutting the barn door after the horse has bolted, because the ECB has moved away from OMT towards negative interest rates. His view regarding OMT is that it could ultimately involve taxpayers taking on risk, something that is not permitted in the German constitution. What does this all mean? It just reminds us that ECB monetary policy decisions are hard fought, and it might help us to understand why President Draghi was unable to meet investor’s expectations in December. It is by no means a given that his recently stated intention to stand ready to do more if necessary is not as forceful as he made out. I don’t know, I’m just spit-balling here, I still believe that we’ll see another test of last year’s EUR/USD lows in the near future, but it’s important to read the tea leaves and update one’s thinking. If after all, Draghi is unable to act as forcefully as he would like when the need arises it would be very bullish for EUR/USD, no doubt about it. I would still sway towards bearishness for EUR/USD in the near term, but I retain a bullish outlook for EUR/GBP. Of the two I am probably a little bit less confident about the EUR/GBP view, if only because the bond market is anticipating moves to more negative rates. If that is the case then the next ECB monetary policy meeting is on March 5th, which could be when it happens.

 

It looks like the Russians and Saudis have agreed an accord to try to manage oil supply. I’m sceptical about how effective this will be in light of the disparate constituents of OPEC, but it at least highlights the straits that oil producers in general are facing now. Oil has been on a tear in recent days, but I suspect that we are close to the limit of any rally at this point. Whether these oil producing giants can prevent further new lows is something we’ll have to monitor, but personally I wouldn’t be betting on it. As I’ve said repeatedly lower oil prices will be of great benefit to consumers everywhere, I continue to look for the effects of recent falls in the oil price to feed through into consumption patterns later on this year. Record credit expansion in China in January if further evidence of coming positives for the global economy. The Chinese are more afraid of a hard landing than deal with massive over-leveraging. This should be a boost for the global economy in the short term at least. Where the future is concerned I’ll keep my eyes tightly shut.

 

 

 

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20160216 – DAILY UPDATE

PRICES

ECB President Draghi in his first major speech since last week’s brutal sell off has reiterated that the European monetary authority stands “ready to do its part”, if further stimulus is required they will act. It’s very likely that, based on this pronouncement, there will be something done at next month’s meeting. Not surprisingly the euro fell significantly (1.1%) in the wake of his speech. You’ll note that, like the Bank of Japan, the ECB has already moved to negative interest rates, with the key rate at -0.3%. Personally, I find it hard to believe that investors are going to be rushing to deposit funds in Euro savings accounts when it’s only going to cost them money for their troubles, but maybe that’s just me! Yes, it’s clear that investors were disappointed with recent Eurozone stimulus efforts and this caused EUR/USD to bounce in December, but that’s a far cry from euro accounts becoming an attractive place to hold your savings, to me that was more of a trading move. Those who had shorted the euro were closing out their positions, disappointed at the ECB’s less than aggressive meeting.

 

In Japan, we are seeing the limitations of monetary policy, or at least the latest round of stimulus (the move into negative rates), is yet to have an impact on the economy. Latest data shows that the economy contracted by more than forecast to -1.4%. Domestic demand remains weak with wage growth failing to rise fast enough to encourage more consumption. Abenomics is not working as it should, but why would it? Weak wage growth is a global paradigm, the sooner we all recognise this the better the solutions we’ll come up with. Are these not the same concerns the Federal Reserve and Bank of England have repeatedly highlighted over the last year, despite solid increases in employment? It is very clear that this is not a country specific issue.

 

The unfolding disaster afflicting the Nigerian currency sees a further acceleration in the fall of the naira. Worse still, there are rumours that “China Export & Credit Insurance Corporation also known as Sinosure a provider of export credit insurance for the export of high-value added goods in China has blacklisted Nigeria on account of the difficult foreign exchange environment in the country”. This is not good news. Nigeria is heavily dependent on importing products and China in recent years has become a key supplier. I don’t know if this will have an impact on the current thinking within FX policy circles in Nigeria, but surely they’ll have to take note? Perhaps they’ll be happy, as it might stem the bleeding, but if the desires of consumers aren’t met it could also lead to instability. This is clearly something to monitor.

 

The energy markets are awaiting news of a meeting between top officials from some of the world’s top oil producers which has spurred speculation that a deal to tackle the supply glut could stabilise prices. Prices have recovered strongly over the last week and they’re 2% higher already this morning. Whether oil producing countries will have the discipline to maintain any agreements is open to conjecture, I, myself, am a sceptic! Too many of them are in dire economic straits at the moment.

 

For now the general tone of markets this week has been one of recovery. As you’ll recall, last week, I expressed the opinion that the rout might just be exhausting itself. I’m not ready to pat myself on the back, but for sure I haven’t embarrassed myself yet either. We’ll continue to keep you updated on how general risk sentiment is playing out within the currency markets.

 

 

 

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20160215 – DAILY FX COMMENT

Good morning

  High Low     High Low
EUR/USD 1.1257 1.1187   USD/ZAR 15.9426 15.6513
GBP/USD 1.4536 1.4483 GBP/ZAR 23.13 22.68
EUR/GBP 0.7772 0.7713 USD/RUB 78.98 76.51
GBP/EUR 1.2965 1.2867 USD/ILS 3.9093 3.8515
USD/JPY 114.10 112.21 S&P 500 1887 1859
GBP/CHF 1.4268 1.4148 Oil (Brent) 33.91 32.98
GBP/AUD 2.0437 2.0253 Gold 1238.0 1207.0

Day has started well. The PBoC has surprised the market and fixed the CNY stronger this morning.

I quote a good friend from an EU bank (smart FX trader): “Back from the Golden Week holidays and New year celebration, the PBOC (China’s central bank) has set the pre-opening USCNY fixing at 6.5118 which is 0.3% lower than the previous one (5th of feb). Instantaneously the USDCNY has moved from its Friday close (6,5743) to 6,4950. Such a big move down had not been seen for years. And USD/CNH has converged towards USD/CNY spot. Whatever reason lies behind that fact (china trade figures were out this week-end, the trade balance has positively improved, but both exports and imports have contracted, imports faster than exports, this is not that a great situation) it has generated a positive risk-on rally with stocks fully in the green in Asia (currently the Nikkei is up 7% and Hong Kong 3%) and long term interest rates up (10y sovereign UK is up 4bps, Germany is up 3bps)”. The PBoC have certainly surprised us this morning. After all, for the past few months I have been saying the PBoC will in all likelihood let the currency devalue. They did let it go for a while, then this. I guess only they know what and why they felt this was a good idea. Needless to say, the markets have lapped up the news and stocks in Asia and Europe have rallied from the open. Let’s hope this was indeed a super idea that gives the market the push.

US holiday today – thin markets could see unfamiliar moves once Europe closes for the day.

The USD has had mixed fortunes, rallying vs the EUR but holding firm vs the GBP. As a result EURGBP has rallied from 0.7830(1.2770) to 0.7720(1.2950) at time of writing. Please do not be under any illusion that this represents a change in sentiment for the GBP. There is still that small matter of a referendum later this year but the hope is despite the advantages of BREXIT, BRIN (Britain In) has MORE advantages and therefore it is my own opinion that voters see that the UK is better off being part of the EU than standing alone. Granted there will be negotiations to get us a better deal and PM Cameron is currently on the war path to succeed in attaining this. Germany fired a warning shot over the weekend that the UK must stay in the EU in order to avoid a trade war (given Germany’s #1 standing amongst EUR members). Having said this, I believe while the GBP is facing a tricky period (UK growth ain’t what the authorities were hoping for) perhaps things won’t turn out to be so bad. Time will tell.

 

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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