20150721 – TICKING BOXES

High Low High Low
EUR/USD 1.0835 1.0811 USD/ZAR 12.4702 12.4013
GBP/USD 1.5584 1.5555 GBP/ZAR 19.42 19.31
EUR/GBP 0.6962 0.6946 USD/RUB 58.23 56.17
USD/JPY 124.48 124.21 USD/ILS 3.8373 3.7882
GBP/CHF 1.5021 1.4986 S&P 500 2,132 2,126
GBP/AUD 2.1208 2.1070 Oil (Brent) 56.76 56.50


The steady and persistent gain in dollar strength continues. Even after yesterday morning where it seemed that a recovery of some sort from last week’s dollar appreciation trend might see the greenback end the day weaker, it still closed marginally stronger. That’s not to say that yesterday wasn’t what I would describe as an indecisive day, it was, but it’s notable that booking profit (if that was indeed the cause of the recovery) wasn’t enough to stem the tide. From a technical perspective, EUR/USD looks like it’s grinding its way to a trend-line formed of the April and May lows. Already the lows of June have been breached, and the set of boxes to confirm the commencement of a new period of dollar strength are being ticked one by one. I see the trend-line coming in around the low 1.07s, below that and the path is clear for a test of the year to date (and multi-year) lows. After that… parity.


Normality has started to return to the Greek economy as banks opened for the first time in weeks yesterday, at least on a limited basis. In addition the Greek government was finally able to repay the IMF loans that had been due in June, the ECB’s bridge financing also allowed the Greeks to repay loans due to the ECB itself. You have to love it, giving someone a loan, to be able to repay a loan owed to you! I call it normality, you come up with whatever name you’re comfortable with. The bottom line is that some of the crisis element that has been a haze around markets is lifting, and so indeed are the equity markets. The S&P 500 in the U.S is just a few points away from new record highs and the recovery in European equities over the last few weeks has been nothing short of stunning. So much for summer doldrums this year.


It’s not all cheer though. Resource rich economies must be suffering as commodity prices are generally under tremendous pressure. I’ve talked about the specific currency technicals supporting the case for renewed dollar strength, but from a cross-asset perspective the general fall of commodity prices which seems to have accelerated in recent days, may well be another sign that the greenback is regaining its mojo. Attendant to this is the fact that the currencies of commodity rich economies are likely to come under even greater pressure, whether it’s Brazil, Russia, Indonesia or Nigeria, keep an eye out for it, I don’t think it would be that great a surprise.


There is really not much macro data to speak of today, nor was there yesterday, so I’ll finish with a brief observation about Nigeria. The new President, has still not named individuals to lead his ministerial portfolios. It seems that the legislature is the political pillar that has organised quickly to identify its leadership. How this is going to affect policy is as yet uncertain, but it cannot be a good thing. There has been ample time before the changeover, and since, for key executive posts to be assigned, but yet the world waits to see what direction policy will take. We can only hope this situation is resolved sooner rather than later. There are historic opportunities that the giant of Africa can grasp, and the geopolitical consequences of a backward step are too depressing for us to consider yet. For now the naira is bearing the brunt as there is a reluctance to buy the currency. Why would you when there is no transparency, no direction. Food for thought…






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