20160523 – DAILY UPDATE


With the politics surrounding the EU referendum in the UK heating up, the government – specifically the Treasury – continues to issue reports about the negative impact of Brexit on the UK economy. As much as the ‘Leave’ campaign rants about bias, the government is not the only one at it. Some of the top British high street bosses have also come forward to discuss the negative impact of Brexit, here’s the link.


According to Eric Rosengren, a member of the FOMC, the US is close to meeting the criteria that would justify a rate hike in June. The conditions the Fed set are:

  1. i) Additional signs of a rebound in the US economy
  2. ii) Further strengthening in the jobs market
  • iii) Inflation trending towards the 2 percent target


It’s worth noting that Rosengren, the president of the Federal Reserve Bank of Boston, has historically been a hawk, so it’s important to observe that he is becoming more hawkish. The Fed minutes published last week have resulted in a narrow majority of economists polled by the Financial Times now anticipating a hike in June. 51% of the 53 respondents now say the FOMC will announce a hike in June.


Standby for some more of the Greek debt saga. The IMF and the EU (or should I just say Germany?) are at loggerheads over whether Greece needs debt relief or not. The reality is that Greece needs debt relief, even German officials privately accept this. At 180% of gross domestic product, Greek’s public debt is unsustainable, it’s the dirty little secret of the Eurozone, but… and here’s where it gets tricky, in order to sell the bailout agreement last year, German politicians described the bailout as a loan. If they are now forced to write some of that debt off, it becomes a de facto transfer which is something the German electorate never signed up for. It’s going to be very interesting because Chancellor Merkel’s position after the Syrian immigrant crisis is not what it was last year. I’m not sure they’ll be able to wriggle their way out of this, and the great lie will be revealed to all. This will all feed into volatility for the euro in the months ahead. This fits in neatly to the technical view we have of a downward pressure on EUR/USD in the months ahead.


At the moment we continue to be in a consolidation or holding pattern, with the odds greatly in favour of dollar strength when trends re-assert themselves.





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