The show must go on!!! I have been talking relentlessly about the strength of the GBP vs EUR & USD & CHF (mainly) and this trend is continuing unabated. We have touched on why I feel this trend is strong and why I feel it could carry on for the time being. Anticipated interest hikes (May 2015) and strong numbers all point to the UK being the “place to be” or should I say the currency to hold. I have been telling everyone who will listen to me (and there are a few), how they should WAIT if they are BUYERS of EUR and on the flip side importers needing foreign currency (SELLING gbp). Let me put it this way, if you need to hedge NOW if a great time to do it. While I nor anyone else i know can predict what will happen next, there are certainly signs that give us a good idea. So on Monday I tweeted with EUR/GBP at 0.8090 to stay short eur’s and follow the trend. Opened this morning at 0.8040 (0.5%) move in your favour while GBP/USD has appreciated around 0.25%. I STILL FEEL strongly that the Pound will make another attempt on 1.7000 (vs USD) and that will potentially see EUR/GBP sub 0.8000 (1.2500). So for now my advice, as an importer (sell £ vs buy $ etc) you are looking good. As an exporter (buying £) I would bite the bullet and hedge now. I guess there is no time like the present. Lastly as a buyer of EUR (sell £) again I like the trend lower and as I write this spot has already fallen 10 pips….
For the third time in a row, the Central Bank of NZ (RBNZ) raised the cash rate 25bp to 3.25%. After hiking rates by 25bp to 3% in April, the RBNZ has raised the cash rate by a further 25bp to 3.25%. This is the highest cash rate since early 2009, although financial conditions are a little tighter than this would indicate, given that the RBNZ had estimated that the loan controls introduced late last year to take the heat out of the housing market had the same effect as a 30bp rate rise. I would assume Mr Carney at the BOE is looking and thinking, is this what I will have to do to stem the rise in the Housing Market!!!The RBNZ trimmed its forecast profile for short rates a little, but is still forecasting several more rate hikes, as early as July!!!
The rally in stocks slowed down overnight with S&P down 0.35% and Dow down 0.60%. Do I fear this is the start of something else, absolutely not. Ask any seasoned trader and they will tell you, sometimes it’s good to cash in profits let the market settle back and jump back in. It is for this reason I think the day traders in all likelihood cashed in and are now looking at when next to get back in.
O/n the World Bank cut its global growth forecasts and some corporates downgraded their profits outlook. This added to the pressure we say in late NY trading. But keep in mind what I have been saying recently, the Central banks MUST WALK ON EGG SHELLS!! if they jump the gun and start raising rates (when they should have waited) it will all end up going back to 2010 and recessions. Keep a cool head and let corporates grow their finances and profits and then look to hike.
Keep an eye in Iraq and the security situation there. oil will be affected if matters take a turn for the worse, and that will be a real pain in the ear for corporates and the like as it cuts into their earnings. Also a rise in oil for net importers will add some negativity to GDP and raise inflation.
EUR/USD: still looking for test below 1.3500
GBP/USD: still looking for test of 1.7000
EUR/GBP: still looking for test below 0.8000 (1.2500)
AUD/USD: Needs to close above 0.9410 for test of 0.9450
USD/JPY: out the spot light to side trading really, gap higher?