High	Low			High	Low
EUR/USD	1.0968	1.0924		USD/ZAR	12.3737	12.3169
GBP/USD	1.5626	1.5549		GBP/ZAR	19.29	19.15
EUR/GBP	0.7038	0.7006		USD/RUB	58.07	56.29
USD/JPY	123.90	123.57		USD/ILS	3.8119	3.7799
GBP/CHF	1.4964	1.4880		S&P 500	2,122	2,111
GBP/AUD	2.1112	2.0928		Oil (Brent)	57.30	56.56

Just as I opined about the inability of the currency markets to entertain even a mild correction in the dollar trend we got just that yesterday. It wouldn’t be too far from the truth to characterise the price action, after yesterday’s blog was published, as a ‘reversal day’. This is a paradigm that we have seen in markets since the great financial crisis in 2008, corrections of trends have tended to occur early in the week, particularly on Tuesdays, but sometimes on Mondays. It is hard to determine if this has any legs, or if indeed it is a correction as I have described it, and please note that this price action is most certainly not limited to the currency markets as the equity markets and even gold experienced the same phenomenon. The narrative attached to these events is the disappointing earnings numbers from Apple, but truth be told the price action in the currency markets came out earlier than that. Whatever the real reason is, gold continues its decline today, and we are now at levels not seen over the last 5 yrs. If the rise of gold since the global financial crisis has been based on its qualities as a store of value, what can we say about the observable collapse we are seeing now? To me, this is as much a sign of macro-economic normalisation as talk of imminent rate hikes in the United States and the United Kingdom. This is good news.

 

It’s worth briefly studying Apple’s earnings announcement. $66bn was wiped off the company’s market capitalisation as investors reacted adversely despite the tech company beating analyst revenue forecasts. The disappointment was in the unit sales number which was some way short of expectations, even if the average selling price was higher than anticipated. It’s worth noting as well that sales in China are surging, the economy as a whole might be slowing there, but don’t tell that to consumers! Very impressive indeed. However my key takeaway from this, is that this is an unforgiving stock market environment, disappoint even a little bit and the punishment is severe.

 

Later on today we’ll get to see the voting data during the last Bank of England meeting. I don’t think anyone is expecting any changes, with all of the policy makers expected to have had an unchanged view with regards to the interest rate decision. Any further commentary, detailing the actual decision making process, might be enlightening though. This morning we have already got slightly softer than expected inflation numbers in Australia, and later we are expecting inflation numbers out of South Africa, retail sales data from Italy, house price data in the United States and an interest rate decision in New Zealand much later tonight. In short… not much is expected from the macro front today.

 

In terms of currency markets, we need to look at how much further the bounce in EUR/USD and GBP/USD will or can go, or if it’s just a temporary correction which is our base case. As things stand we would still expect both of the aforementioned currency pairs to end the week lower than where the currently are. Euros performing somewhat more weakly than sterling though. That in our view is the path of least resistance.

 

 

 

 

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