20161129 – DAILY FX COMMENT

  High Low     High Low
EUR/USD 1.0622 1.0588   USD/ZAR 13.88 13.69
GBP/USD 1.2422 1.2387 GBP/ZAR 17.24 16.98
EUR/GBP 0.8561 0.8537 USD/ILS 3.8505 3.8313
GBP/EUR 1.1714 1.1681 S&P 500 2205 2200
USD/JPY 112.36 111.61 Oil (Brent) 49.21 48.56
GBP/AUD 1.6620 1.6546 Gold 1195.0 1188.0
        USD/NGN yesterday’s close   472
             
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FX markets have been somewhat subdued (if I can use that terminology) over the past week or so as event risk continues to dominate the markets. With the Italian referendum, French elections and OPEC meetings looming, FX traders have and are positioning themselves for further bad news (which you could say all favour the USD).

OPEC: Well we all know what oil companies are hoping for, a cut in production to help stabilise and raise prices. Oil companies small and large have been cutting investment, piling on debt and slashing jobs to keep their heads above water. A cut in production will go a long way to helping these companies as demand and supply begin to “equalise”. Oil is still hovering around the $50p.b mark and while we don’t expect a sudden spike in prices, we do however expect stabilisation which will help create a sense of calm. Winner, the USD.

ITALY: The referendum in Italy takes place this weekend with the current PM Renzi citing even if he wins he will resign and seek to create a new government. Fighting talk, but with the current polls (ah the famous polls) showing he is likely to lose and lose big, I guess you could assume either way, win or lose, Italy will be looking to elect a new PM. Once again the electorate will be voting against the establishment. Basically Renzi is trying to change Italian laws allows political parties to amend and change laws quicker and easier. Seems though the Italian electorate is against this as they fear these same laws that “protect” them will now be able to change without having to go through the elaborate and complicated Italian political and legal system. Winner, the USD.

FRANCE: Francois Fillon has won the right to contest next year’s French election by a majority of 66.5-33.5 (vs Alain Juppe).  Current polls (ah the famous polls) suggest he would “easily” beat the far right party of Marine Le Pen. Don’t count your chicken just yet Mr Fillon. There is a long way to go and anything can change. Another terror attack will help Le Pen no doubt. Mr Fillon is proposing dramatic economic reforms which include slashing half a million public jobs (he loses their vote), ending the 35-hour week (he upsets these folk), raising the retirement age (loses the over 60 vote but wins over the youth), and scrapping wealth tax (wins the 1% well off). Be careful what you wish for Mr Fillon, because as we all know the French electorate are fickle and can change their views very quickly. Winner, it’s a tie.

USA: We are all expecting the FED to raise US interest rates on 14th December. By how much well, that’s the million USD question. Today we will see how Q3 GDP faired with analysts expecting 3.00% from 2.90% Q2. A strong number today and strong NFP number on Friday will certainly help the FED’s position. I have recently said while 0.25% is widely anticipated and expected, I would not be surprised at all to hear the FED raising by 0.35 or 0.50% and killing 2 birds with 1 stone. However caution is probably best and with Trump winning the elections, Pres. Yellen will in all likelihood take the cautious route and hike 0.25% and wait and see. Yellen and Trump are known not to see eye/eye, however unlike Gov. Carney, Pres. Yellen will see out her term. I shudder to think who will take over from her. Given Trumps recent hiring spree, I can only think that person is going to be someone who he can “control”, perhaps his accountant? Either way the USD will be the winner here.

And so to the GBP….oi vei. Nothing good to say really. Vs the USD and EUR these past few weeks, the GBP has held up well. However I believe that could all be coming to a bitter end, at least vs the USD that is. IF as above Q3 data and NFP exceed expectations and a rate rise is indeed a foregone conclusion the USD will rally vs all the majors (EUR, GBP, JPY, AUD, etc.) leaving the GBP to lick its wounds and head towards the psychological 1.20 barrier. However strangely vs the EUR we expect the GBP to fair better as the USD rallies more vs the EUR than vs the GBP. Time will tell… but things are about to get nasty.

Have a good day

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20161118 – DAILY FX COMMENT

  High Low     High Low
EUR/USD 1.0630 1.0581   USD/ZAR 14.57 14.39
GBP/USD 1.2426 1.2382 GBP/ZAR 18.05 17.85
EUR/GBP 0.8564 0.8541 USD/ILS 3.8799 3.8581
GBP/EUR 1.1708 1.1677 S&P 500 2188 2182
USD/JPY 110.79 109.96 Oil (Brent) 47.09 46.62
GBP/AUD 1.6797 1.6730 Gold 1218.0 12.1
        USD/NGN yesterday’s close   465
             
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Firstly, apologies for not writing this commentary over the past few weeks.

So….shock (1) BREXIT soon followed by (2) TRUMP…and as you know things happen in 3’s so could (3) be the start of the EU breaking up as we know it. As you are aware Italy is holding their own referendum (constitutional reforms) on the 4th December. The vote is centred on complicated legal changes to Italy’s constitution that would, in effect, make it easier for any ruling party to pass laws and weaken the power of the senate, the upper chamber of parliament. Those in favour of the changes say the change is necessary to allow Parliament to pass large and necessary economic and political reforms which to date have proved an almost impossible task. As things stand the no camp is leading but as usual it’s the undecided voters that will sway the result. As far as the polls go, well you know what the polls predicted for (1) and (2) and how badly they got mauled. Current Italian PM Renzi has stated he will resign if he loses, though he has since retracted this statement for the good of the referendum. I guess he saw what happened to ex-PM Cameron who made the same comments. A loss for Renzi could trigger an early general election (elections are in 2018), delay crucial reforms and set in motion advanced political chaos at a time when the Italian economy is still gloomy and investor confidence and public debt (not to mention the precarious banking system) battered. In other words dear friend, dark clouds are looming over the horizon and another battering for the “establishment” is looking more likely.

 

Brexit: nothing new really apart from the Supreme Court ruling and the EU saying much of the same, if the UK want free trade they must in part allow free migration. In other words, nothing new though the ruling by the Court will be a major factor on how easily or quickly for that matter the Conservatives and PM May can get Brexit started. Was it a surprise to learn from Sky News re the leaked memo that the Government don’t have a clue how to proceed with Brexit? Absolutely not. After 40 years of being in the EU how does one start to untangle the web of laws that are so ingrained and entrenched in our daily lives. I was not surprised either to read the +- £100bn black hole that the Treasury will have to plug post Brexit. I am afraid that those people that voted YES didn’t really take into consideration who and how the government was going to cope with the reduced income. Tel you what, cut benefits, cut foreign aid, cut building projects (HS2), cut spending and turn the UK into an economy like Benin. That will stop people wanting to come over and work and invest. Job done.

Lastly, in case you have not seen the USD has had a monumental rise since the US elections rising to trade at EUR1.0600 … seems Trump is not such a bad guy. The FOMC hold their final meeting on 13/14 December and following up from Pres. Yellen’s comments on 2nd November the financial markets are preparing for a rate hike (+0.25%). I have written previously I think they could actually raise rates more than 0.25%, but then again I was also assuming that Ms Clinton was going to win. With a Trump win, the FED are likely to take a more cautious approach and thus 0.25% is the more likely scenario. As regards the coming months we are now fully expecting the USD to break through PARITY and continue its merry way.

As for the GBP … holding up around 1.24 vs the USD but for how long. At some stage the bottom will open up and like the EUR, the GBP will start to weaken. However we are likely to see the GBP (potentially) remain buoyed vs the EUR and the 2 fall in unison vs the USD. USD is king, long live the USD.

Have a great weekend

 

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.

Follow our tweets @parityfxplc

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