Good morning

  High Low     High Low
EUR/USD 1.0942 1.0874   USD/ZAR 17.0200 16.6000
GBP/USD 1.4300 1.4247 GBP/ZAR 24.22 23.64
EUR/GBP 0.7678 0.7610 USD/RUB 79.41 77.04
GBP/EUR 1.3141 1.3024 USD/ILS 3.9914 3.9275
USD/JPY 117.33 116.55 S&P 500 1892 1867
GBP/CHF 1.4387 1.4242 Oil (Brent) 29.39 27.85
GBP/AUD 2.0886 2.0610 Gold 1093.0 1087.0

OIL – its a slippery slope downwards. Iran sanctions lifted, billions of USD’s freed up and talk of an additional 500k bpd to flood the market sent prices tumbling through $30 (as you can see from the table above). No respite for oil right now and as a consequence the USD is on the back foot unable to rally. EURUSD seems to have found some traction and rallied to 1.0942 before profit taking set in. Currently trading at 1.0885 it is hard to see a sustained USD rally setting in. Very different though vs the GBP, with the latter getting BATTERED and BRUISED. Hope you been reading our daily comment as spot hit our “short term” target of 1.4250  (low 1.4247) and has since bounced back to 1.43 handle as I write this. Unfortunately vs the EUR, the GBP has been quite simply obliterated. Over the past 2 weeks the GBP has fallen from 0.7050 (1.4185) to 0.7610 (1.3140). 2 simple reasons; (1) EU referendum taking its toll (weekend report the NO (leave) camp opened a 7 point lead over the YES (stay in) camp, and (2) No rate hike due anytime soon given the economic situation. Don’t be fooled by the pull back – the GBP is on a slippery slope and further losses are expected.

Emerging currencies such as ZAR, TRY, ILS, NGN and INR continue to be plagued by investor flight to safety. 2016 promises to be a horrible year for EM especially as the “carry trade” has now all but disappeared. Too much volatility and uncertainty makes investors edgy. Not to mention of course the local economies which have been plagued by the slowdown in China and (decreased) demand for local goods.

(From a friend at a large Swiss Bank): According to Bloomberg the PBoC will impose required reserve ratios on yuan (CNY) deposits of offshore participant banks in the mainland in a bid to stabilize the currency. The move will take effect from Jan. 25, according to four people familiar with the matter, who declined to be identified because the information isn’t public. The reserve ratio was previously at zero percent on offshore banks’ yuan deposits in the mainland. The deposits will now attract the same ratio as applicable to Chinese banks.

I guess by now you know VOLATILITY is firmly with us. Prepare yourself for wild swings over the coming months.


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