The main news this morning was that Portugal is to recieve its next €14.6bn tranche of aid under last year's bailout agreement, having passed the Troik's assessment.
The market’s response has been fairly muted but it is definitely relieving news from Portugal.
The Iberian country is clearly next on the market’s ‘hit list’ and this next tranche is essential for eurozone confidence in the short-term. It staves off fears that Portugal is destined to follow the same path as Greece.
Portugal is making the right noises in ruling out the need for further aid but the market is very much in wait and see mode now, the cynics will say they’ve heard it all before.
Ireland has shown that aggressive reforms can actually work and return countries to competitiveness, so there is a precedent to follow there.
The OECD’s research shows that the periphery are actually working hard on their reforms, the problem is it can take a long time for all of the benefits to emerge, time the markets aren’t necessarily willing to grant countries like Portugal.
It will be interesting to see if tomorrow’s 3-year LTRO from the ECB relieves some of the pressure on Portuguese bond yields. Portuguese yields actually increased since mid-December’s LTRO and you’d assume they will be left out in the cold this time, which is a major concern.
Richard Driver
Caxton FX Analyst
Tuesday 28 February 2012
Caxton FX Morning Report
Below is a shorterned version of Caxton FX's Morning Report. Please go to the Caxton FX website to sign-up for the full verison of the Morning Report for free.
It was a fairly calm start to the week yesterday, with no data of any major significance and little new information for the markets to digest from the weekend. Rating agency Standard & Poor’s downgraded Greece to the level of “selective default” but the markets were unperturbed, needing no reminder of how serious matters have become there.
Today’s session should be a little more lively; we have a UK CBI realised sales figure released this morning, followed by some durable goods orders and consumer confidence figures out of the US.
It was a fairly calm start to the week yesterday, with no data of any major significance and little new information for the markets to digest from the weekend. Rating agency Standard & Poor’s downgraded Greece to the level of “selective default” but the markets were unperturbed, needing no reminder of how serious matters have become there.
Today’s session should be a little more lively; we have a UK CBI realised sales figure released this morning, followed by some durable goods orders and consumer confidence figures out of the US.
STERLING/EURO: This pair traded pretty flat ahead of tomorrow’s cheap loan offering from the European Central Bank.
STERLING/US DOLLAR: After fading a little yesterday, this pair is back in pursuit of $1.59, which it should achieve this week.
EURO/US DOLLAR: A fairly tame attempt was made at $1.35 but you can expect this level to be given a sterner test.
STERLING/AUSTRALIAN DOLLAR: This pair was once again on the back foot having reached the top of its 2012 trading range.
STERLING/NEW ZEALAND DOLLAR: Sterling also retraced back down below 1.90 thanks to decent risk appetite in US trading.
STERLING/CANADIAN DOLLAR: After a strong week last week, this pair has fallen off by more than a cent from its 2012 highs.
Monday 27 February 2012
Asian sovereigns propping up the euro, but not for too much longer
Asian sovereigns continue to drive the euro forward
The support that the euro has found in the past week or so is a difficult theme to explain, but market irrationality is no rare thing. Eurozone growth data was awful last week; German growth slowed down and the eurozone manufacturing and services sectors as a whole contracted in January. The market must have priced negative eurozone growth in to a large extent. There was some brighter forward-looking news from the German economy, which the market chose to focus on; a German business climate survey joined mid-February’s economic sentiment survey in beating expectations to the upside.
As has so reliably been the case in recent months, when confidence and investment in the euro from large sections of the market has waned as the debt crisis intensifies, Asian sovereigns’ appetite for the single currency has remained solid. Asian central banks continue to diversify their reserves away from the US dollar in favor of the euro, as they seek to hedge their FX exposure.
The European Central Bank will be launching its second 3-year LTRO programme (cheap loan offering) on Wednesday. The effects of the first round of cheap loans in mid-December have been rightly celebrated as the reason for the stabilization we have seen in the eurozone. Bond yields in crucial countries like Italy and Spain are likely to be brought down again and it is likely to have a positive impact on sentiment towards the euro. Still, we do view the euro to be overbought and continue to anticipate a reversal of what has been a strong start to the year for the currency.
MPC minutes weigh on sterling but losses should be capped
Last week’s MPC minutes saw sterling suffer badly. The minutes revealed that at the rate-setting committees meeting a fortnight earlier, two (out of nine) policymakers had voted for a £75bn increase in quantitative easing, as opposed to the £50bn that was actually decided. It is no great surprise that arch-dove Adam Posen was plumping for further stimulus, though the additional vote from David Miles was a turn-up. Nonetheless, sterling’s losses looked overdone and the likelihood remains that the committees other seven policymakers will be reluctant to step up the BoE’s QE programme once again.
Data last week confirmed that the UK economy contracted in Q4 2011 (by 0.2%). Nonetheless, hopes are cautiously building that positive growth will return in the UK this quarter and a technical recession will be avoided. Whether it will or not should become clearer over the next week, with February’s set of monthly growth updates due from the UK’s manufacturing, construction and services sectors. With little chance of a rate hike in recent months, sterling has not been too responsive to domestic data but with rating agency downgrades looming, improved growth data essential if the UK is to maintain its all-important AAA credit rating.
Sterling is trading down at €1.18 today but the downside potential looks limited. The pound may begin to bounce soon. Against the US dollar, sterling continues to trade robustly. We have seen GBP/USD rejected twice at the $1.59 level during February, which could signal the end of its good run. In line with our bearish view of EUR/USD, we seeing the US dollar returning to favour soon. Another visit back down to $1.57 shouldn’t be too far down the road.
End of week forecast
GBP / EUR 1.19
GBP / USD 1.5750
EUR / USD 1.3250
GBP / AUD 1.47
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
The support that the euro has found in the past week or so is a difficult theme to explain, but market irrationality is no rare thing. Eurozone growth data was awful last week; German growth slowed down and the eurozone manufacturing and services sectors as a whole contracted in January. The market must have priced negative eurozone growth in to a large extent. There was some brighter forward-looking news from the German economy, which the market chose to focus on; a German business climate survey joined mid-February’s economic sentiment survey in beating expectations to the upside.
As has so reliably been the case in recent months, when confidence and investment in the euro from large sections of the market has waned as the debt crisis intensifies, Asian sovereigns’ appetite for the single currency has remained solid. Asian central banks continue to diversify their reserves away from the US dollar in favor of the euro, as they seek to hedge their FX exposure.
The European Central Bank will be launching its second 3-year LTRO programme (cheap loan offering) on Wednesday. The effects of the first round of cheap loans in mid-December have been rightly celebrated as the reason for the stabilization we have seen in the eurozone. Bond yields in crucial countries like Italy and Spain are likely to be brought down again and it is likely to have a positive impact on sentiment towards the euro. Still, we do view the euro to be overbought and continue to anticipate a reversal of what has been a strong start to the year for the currency.
MPC minutes weigh on sterling but losses should be capped
Last week’s MPC minutes saw sterling suffer badly. The minutes revealed that at the rate-setting committees meeting a fortnight earlier, two (out of nine) policymakers had voted for a £75bn increase in quantitative easing, as opposed to the £50bn that was actually decided. It is no great surprise that arch-dove Adam Posen was plumping for further stimulus, though the additional vote from David Miles was a turn-up. Nonetheless, sterling’s losses looked overdone and the likelihood remains that the committees other seven policymakers will be reluctant to step up the BoE’s QE programme once again.
Data last week confirmed that the UK economy contracted in Q4 2011 (by 0.2%). Nonetheless, hopes are cautiously building that positive growth will return in the UK this quarter and a technical recession will be avoided. Whether it will or not should become clearer over the next week, with February’s set of monthly growth updates due from the UK’s manufacturing, construction and services sectors. With little chance of a rate hike in recent months, sterling has not been too responsive to domestic data but with rating agency downgrades looming, improved growth data essential if the UK is to maintain its all-important AAA credit rating.
Sterling is trading down at €1.18 today but the downside potential looks limited. The pound may begin to bounce soon. Against the US dollar, sterling continues to trade robustly. We have seen GBP/USD rejected twice at the $1.59 level during February, which could signal the end of its good run. In line with our bearish view of EUR/USD, we seeing the US dollar returning to favour soon. Another visit back down to $1.57 shouldn’t be too far down the road.
End of week forecast
GBP / EUR 1.19
GBP / USD 1.5750
EUR / USD 1.3250
GBP / AUD 1.47
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Caxton FX Morning Report
Below is a shorterned version of Caxton FX's Morning Report. Please go to the Caxton FX website to sign-up for the full verison of the Morning Report for free.
The weekend saw G20 finance ministers meet in Mexico, where European issues inevitably dominated proceedings. Greater IMF funding was on the agenda but many non-euro states, such as China crucially, are not satisfied with the efforts of euro-area nations to boost its bailout fund (EFSF).
This week’s main event is Wednesday’s second cheap loan offering (LTRO) from the ECB, the first of which has been vital in staving off a credit crunch in Europe so far. Today’s session brings little by way of data other than a pending homes sales figure from the US.
The weekend saw G20 finance ministers meet in Mexico, where European issues inevitably dominated proceedings. Greater IMF funding was on the agenda but many non-euro states, such as China crucially, are not satisfied with the efforts of euro-area nations to boost its bailout fund (EFSF).
This week’s main event is Wednesday’s second cheap loan offering (LTRO) from the ECB, the first of which has been vital in staving off a credit crunch in Europe so far. Today’s session brings little by way of data other than a pending homes sales figure from the US.
STERLING/EURO: Sterling is trading around €1.18 after a three cent drop from its highs last week and remains vulnerable.
STERLING/US DOLLAR: Sterling has been rejected once again at $1.59 though we may see this level tested once again.
EURO/US DOLLAR: The euro continues to trade positively despite the weighty concerns that remain.
STERLING/AUSTRALIAN DOLLAR: Sterling made hefty gains against the aussie dollar at the end of last week and is currently trading at a six week high.
STERLING/NEW ZEALAND DOLLAR: Sterling has made some decent gains against the kiwi dollar, helped by some poor NZ trade balance data.
STERLING/CANADIAN DOLLAR: Sterling is trading at a 2012 high against the Canadian dollar amid diminishing risk appetite.
Tuesday 21 February 2012
Morning report
Below is a shorterned version of Caxton FX's Morning Report. Please go to the Caxton FX website to sign-up for the full verison of the Morning Report for free.
Eurozone finance ministers have finally struck a deal on granting Greece a second bailout worth €130bn, with the aim of cutting the country’s debt to GDP to 121% by 2020. The news had been priced in over recent sessions to a large extent and the euro failed to sustain any major rally.
Today’s session will inevitably be spent mulling over and analysing the various details of the bailout but it seems that the euro may have made its gains already and we could see another example of ‘buy the rumour, sell the fact’ this week.
STERLING/EURO: This pair came under pressure yesterday as markets priced in the bailout, but the downside was limited.
STERLING/US DOLLAR: Sterling remains well supported against a weaker USD but it may struggle to climb much further now.
EURO/US DOLLAR: The euro is trading fairly well but hasn’t breached early February’s high of $1.33 despite the Greek bailout grant.
STERLING/AUSTRALIAN DOLLAR: Sterling actually recouped ground against the aussie dollar regardless of the (superficially) positive Greek bailout headline.
STERLING/NEW ZEALAND DOLLAR: This pair was fairly range-bound despite slightly softer kiwi inflation data.
STERLING/CANADIAN DOLLAR: With the Greek deal already priced in, this pair was unmoved by the overnight bailout headlines.
Monday 20 February 2012
Caxton FX Morning Report
Below is a shorterned version of Caxton FX's Morning Report. Please go to the Caxton FX website to sign-up for the full verison of the Morning Report for free.
The major news in the markets this morning is that the People’s Bank of China has cut its reserve ratio, ie the amount of cash banks have to hold in reserve, so as to boost lending and stimulate the Chinese economy. Riskier assets have benefitted from the news.
Today has been billed as the final deadline for a Greek bailout agreement to be made, though it would hardly be a shock to see a deal postponed once again. Based on the assumption that a deal does finally emerge, the euro may see a short-term rally.
STERLING/NEW ZEALAND DOLLAR Sterling remains on a downtrend against the kiwi dollar and amid positive Chinese news, Greek deal expectations and hopes for a RBNZ rate hike, this could well continue.
STERLING/CANADIAN DOLLAR: Sterling is trading in the middle of its two-month trading range despite last week’s strong US manufacturing figures.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
The major news in the markets this morning is that the People’s Bank of China has cut its reserve ratio, ie the amount of cash banks have to hold in reserve, so as to boost lending and stimulate the Chinese economy. Riskier assets have benefitted from the news.
Today has been billed as the final deadline for a Greek bailout agreement to be made, though it would hardly be a shock to see a deal postponed once again. Based on the assumption that a deal does finally emerge, the euro may see a short-term rally.
STERLING/EURO: This pair is trading at the top of its 2012 trading range but could come under some pressure in the short-term if Greece finally delivers.
STERLING/US DOLLAR: Sterling has reached a fresh high against the US dollar and $1.60 is coming back into view.
STERLING/US DOLLAR: Sterling has reached a fresh high against the US dollar and $1.60 is coming back into view.
EURO/US DOLLAR: This pair was a major mover on Friday and has bounced two cents to $1.32, not based on much.
STERLING/AUSTRALIAN DOLLLR: A cut in the reserve ratio in China helped the aussie dollar recoup some of Friday’s lost ground.STERLING/NEW ZEALAND DOLLAR Sterling remains on a downtrend against the kiwi dollar and amid positive Chinese news, Greek deal expectations and hopes for a RBNZ rate hike, this could well continue.
STERLING/CANADIAN DOLLAR: Sterling is trading in the middle of its two-month trading range despite last week’s strong US manufacturing figures.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Friday 17 February 2012
Strong UK retail sales perfromance triggers hope of positive Q1 growth
January’s growth figure for UK retail sales came in at 0.9%, which is a staggeringly strong showing and well above forecasts of a 0.3% contraction. To put it into perspective, this figure represents the strongest monthly performance since last April’s Royal Wedding bonanza. On the back of December’s strong retail sales growth, this represents an excellent start to the year.
In terms of what products pushed this growth figure so high – January clothes sales were not responsible, rather it was fuel, sporting and household goods leading the way. The UK must be getting more health-conscious; food sales shrank and sportswear sales grew impressively. The hefty discounts seen on UK high streets are obviously being received well at consumer level but it doesn’t reflect well on UK shop-owners, who are quite clearly desperate to stay afloat. A recent report revealed that on average fourteen UK shops closed a day in 2011.
Discounts have obviously had an enormous role to play in the retail sector’s bumper month in January. However, lower prices will have played their part. Last year was characterised by soaring inflation caused by higher VAT, elevated commodity prices and a weak GBP, which saw UK CPI reach highs of 5.2% last September. However, inflation declined sharply to 3.6% in January, which gives an indication as to why UK shoppers stepped up their spending. UK CPI is expected to continue declining aggressively in the coming months, which will be a huge relief to British consumers.
Thursday’s nationwide consumer confidence survey provided an indication as to an improved high street sentiment. The survey jumped to a five month high but still, confidence levels remain at historically very low levels and no one saw this retail sales growth coming.
Nonetheless, the need for caution with regard to the near-term hopes for UK consumers is overwhelming. Household incomes continue to be tightly squeezed and wage growth has been minimal.UK unemployment is soaring and expected to rise further this year.
The UK economy shrank by 0.2% in the last quarter of 2011 and it must rebound into positive territory this quarter if it is to avoid falling into a second technical recession in the space of three years. Fortunately, the Bank of England’s additional quantitative easing appears to be working – January’s growth figures, led by the UK services and retail sectors, have been remarkably positive and a double-dip recession may just be avoided.
With tensions surrounding the eurozone’s growth and debt profile ever-increasing, the near-term outlook for the UK economy has rarely been more uncertain. If the crisis escalates further, the UK economy will be more or less powerless to avoid negative growth.
January’s rate of growth can surely not be sustained throughout Q1 but the unexpected upturn we have seen in recent weeks is welcome nonetheless. From a currency perspective, it has benefited the pound as well, GBP/USD is at a three-month high and GBP/EUR has recently tested a seventeen month high.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
In terms of what products pushed this growth figure so high – January clothes sales were not responsible, rather it was fuel, sporting and household goods leading the way. The UK must be getting more health-conscious; food sales shrank and sportswear sales grew impressively. The hefty discounts seen on UK high streets are obviously being received well at consumer level but it doesn’t reflect well on UK shop-owners, who are quite clearly desperate to stay afloat. A recent report revealed that on average fourteen UK shops closed a day in 2011.
Discounts have obviously had an enormous role to play in the retail sector’s bumper month in January. However, lower prices will have played their part. Last year was characterised by soaring inflation caused by higher VAT, elevated commodity prices and a weak GBP, which saw UK CPI reach highs of 5.2% last September. However, inflation declined sharply to 3.6% in January, which gives an indication as to why UK shoppers stepped up their spending. UK CPI is expected to continue declining aggressively in the coming months, which will be a huge relief to British consumers.
Thursday’s nationwide consumer confidence survey provided an indication as to an improved high street sentiment. The survey jumped to a five month high but still, confidence levels remain at historically very low levels and no one saw this retail sales growth coming.
Nonetheless, the need for caution with regard to the near-term hopes for UK consumers is overwhelming. Household incomes continue to be tightly squeezed and wage growth has been minimal.UK unemployment is soaring and expected to rise further this year.
The UK economy shrank by 0.2% in the last quarter of 2011 and it must rebound into positive territory this quarter if it is to avoid falling into a second technical recession in the space of three years. Fortunately, the Bank of England’s additional quantitative easing appears to be working – January’s growth figures, led by the UK services and retail sectors, have been remarkably positive and a double-dip recession may just be avoided.
With tensions surrounding the eurozone’s growth and debt profile ever-increasing, the near-term outlook for the UK economy has rarely been more uncertain. If the crisis escalates further, the UK economy will be more or less powerless to avoid negative growth.
January’s rate of growth can surely not be sustained throughout Q1 but the unexpected upturn we have seen in recent weeks is welcome nonetheless. From a currency perspective, it has benefited the pound as well, GBP/USD is at a three-month high and GBP/EUR has recently tested a seventeen month high.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Tuesday 14 February 2012
Moody's downgrades UK outlook but AAA remains intact
Ratings agency Moody's last night slapped the UK with a downgrade to its ratings outlook, doing the same to France and Austria. Moody's also cut the ratings of Italy, Spain, Slovenia, Malta, Portugal and Slovakia. Not the sort of news Europe was hoping to wake up to.
So what's the significance?
We don’t see Moody’s decision to downgrade the UK ratings outlook as overly worrisome. It is just a warning but all the warning signs were already there; it stands to reason that negative growth and climbing public debt will result in a loss of the UK’s AAA rating. Still, after the recent strong PMI figures and last month’s improved public borrowing figures, Moody’s warning will come as a bit of kick in the teeth. Nonetheless, UK debt has climbed over £1trn and the UK ecoonmy looks hard-pushed to grow its way out of trouble any time soon. The Q1 outlook for UK growth is fairly grim but we should see it pick up later on in the year as things stand.
The deciding factor will be developments in the eurozone - regardless of the UK government’s attempts to boost growth whilst cutting debt, if the eurozone crisis escalates then they will prove largely irrelevant. The liquidity operations have reduced the risks of a major collapse in the eurozone but the situation remains incredibly uncertain.
Greece has passed the necessary austerity package and has thus gone a step closer to receiving a second bailout that will avert a messy Greek default in March. However, further budget cuts need to be agreed, a debt-swap still needs to be agreed, and the Troika need to be convinced that Greece can implement its austeirty promises. All this and we face the uncertainty of a Greek general election in April, which inevitably opens the door to policy u-turns. On balance, the UK may just be able to hang on to its AAA rating, provided the European financial system buys enough time to shore itself up.
Sterling has taken the warning from Moody’s in its stride – GBP/USD came off a little last night but this was mainly EUR/USD driven and it has found support at $1.57 regardless.
€1.19 (84p) should hold firm for GBP/EUR, whilst GBP/USD should be able to climb a little higher in the short-term before we see a reversal.
This morning’s UK inflation figure has also failed to leave much of a mark, the market is well aware that prices are set to ease sharply in the coming months.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
So what's the significance?
We don’t see Moody’s decision to downgrade the UK ratings outlook as overly worrisome. It is just a warning but all the warning signs were already there; it stands to reason that negative growth and climbing public debt will result in a loss of the UK’s AAA rating. Still, after the recent strong PMI figures and last month’s improved public borrowing figures, Moody’s warning will come as a bit of kick in the teeth. Nonetheless, UK debt has climbed over £1trn and the UK ecoonmy looks hard-pushed to grow its way out of trouble any time soon. The Q1 outlook for UK growth is fairly grim but we should see it pick up later on in the year as things stand.
The deciding factor will be developments in the eurozone - regardless of the UK government’s attempts to boost growth whilst cutting debt, if the eurozone crisis escalates then they will prove largely irrelevant. The liquidity operations have reduced the risks of a major collapse in the eurozone but the situation remains incredibly uncertain.
Greece has passed the necessary austerity package and has thus gone a step closer to receiving a second bailout that will avert a messy Greek default in March. However, further budget cuts need to be agreed, a debt-swap still needs to be agreed, and the Troika need to be convinced that Greece can implement its austeirty promises. All this and we face the uncertainty of a Greek general election in April, which inevitably opens the door to policy u-turns. On balance, the UK may just be able to hang on to its AAA rating, provided the European financial system buys enough time to shore itself up.
Sterling has taken the warning from Moody’s in its stride – GBP/USD came off a little last night but this was mainly EUR/USD driven and it has found support at $1.57 regardless.
€1.19 (84p) should hold firm for GBP/EUR, whilst GBP/USD should be able to climb a little higher in the short-term before we see a reversal.
This morning’s UK inflation figure has also failed to leave much of a mark, the market is well aware that prices are set to ease sharply in the coming months.
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Monday 13 February 2012
Chaos in Greece but euro to remain firm in short-term
Greek parliament votes on austerity measures to pave way for bailout
Greece is unfortunately in a state of utter turmoil; riots, 21% unemployment, recession and political division. However, as far as the markets are concerned the weekend’s events represent a step in the right direction. The Greek parliament passed an austerity package necessary to receive its second bailout in two years. With this major obstacle removed, global stocks are on the up and the euro is trading positively.
The euro is by no means rallying however. There are potential banana skins for Greece to slip up on between now and Wednesday’s (February 15th) meeting between EU finance ministers. We still need to see a deal on a debt swap between Greece and its private sector creditors, we still need to see some further budget cuts (€325 million’s worth), and the Troika will still want to see evidence of how Greece will implement its austerity promises.
The euro should be able to climb if Greece’s bailout is finally remitted on Wednesday, such are the market’s fears of a failure to do so. However, with the eurozone heading into recession and debt issues elsewhere in the periphery waiting in the wings, this period of improved sentiment towards the euro should be nearing its end.
ECB and BoE hold interest rates, though the latter adds £50bn in QE
The European Central Bank and Bank of England both decided to leave their interest rates on hold at 1.00% and 0.50% respectively. Neither decision comes as much of a surprise, though ECB President Mario Draghi’s press conference has led us to revise our expectations of another eurozone rate cut. The ECB seem content with their ‘QE through the back door’; a second round of cheap ECB loans is scheduled for the end of this month, which should continue to benefit eurozone liquidity and particularly bond market pressures. As a result, we don’t see the ECB cutting interest rates for the foreseeable future.
The Bank of England went with market expectations and added a further £50bn to their quantitative easing programme. The move was fully priced in and did not/does not pose much of a threat to the pound.
Further room for hope in the UK
In addition to January’s broadly positive UK growth figures (particularly from the services sector), we saw some strong industrial and manufacturing production figures last week, as well as an excellent trade balance showing. However, the week ahead provides plenty of scope for sentiment to worsen against sterling. Wednesday brings some UK unemployment figures and Friday brings the monthly update from UK retail sector (which is expected to show a contraction). As ever, external events (namely developments in Greece) should prove far more market-moving.
Sterling is trading at the now familiar level of €1.19 (84p) and seems reluctant to budge at present. The short-term risks this week are skewed to the downside for GBP/EUR but beyond this, we are still targeting levels above €1.20. Against the US dollar, the picture is a little brighter (judging by the last three months). GBP/USD is currently trading at $1.58 and a short-term climb in EUR/USD looks likely to drag this pair by a cent or so higher in coming sessions. This is based on a fairly optimistic view of Greek progress this week. The risks of another twist or two from Greece are significant however and if a second bailout is not remitted, then the US dollar will be a major beneficiary.
End of week forecast
GBP / EUR 1.19
GBP / USD 1.59
EUR / USD 1.3375
GBP / AUD 1.4650
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Greece is unfortunately in a state of utter turmoil; riots, 21% unemployment, recession and political division. However, as far as the markets are concerned the weekend’s events represent a step in the right direction. The Greek parliament passed an austerity package necessary to receive its second bailout in two years. With this major obstacle removed, global stocks are on the up and the euro is trading positively.
The euro is by no means rallying however. There are potential banana skins for Greece to slip up on between now and Wednesday’s (February 15th) meeting between EU finance ministers. We still need to see a deal on a debt swap between Greece and its private sector creditors, we still need to see some further budget cuts (€325 million’s worth), and the Troika will still want to see evidence of how Greece will implement its austerity promises.
The euro should be able to climb if Greece’s bailout is finally remitted on Wednesday, such are the market’s fears of a failure to do so. However, with the eurozone heading into recession and debt issues elsewhere in the periphery waiting in the wings, this period of improved sentiment towards the euro should be nearing its end.
ECB and BoE hold interest rates, though the latter adds £50bn in QE
The European Central Bank and Bank of England both decided to leave their interest rates on hold at 1.00% and 0.50% respectively. Neither decision comes as much of a surprise, though ECB President Mario Draghi’s press conference has led us to revise our expectations of another eurozone rate cut. The ECB seem content with their ‘QE through the back door’; a second round of cheap ECB loans is scheduled for the end of this month, which should continue to benefit eurozone liquidity and particularly bond market pressures. As a result, we don’t see the ECB cutting interest rates for the foreseeable future.
The Bank of England went with market expectations and added a further £50bn to their quantitative easing programme. The move was fully priced in and did not/does not pose much of a threat to the pound.
Further room for hope in the UK
In addition to January’s broadly positive UK growth figures (particularly from the services sector), we saw some strong industrial and manufacturing production figures last week, as well as an excellent trade balance showing. However, the week ahead provides plenty of scope for sentiment to worsen against sterling. Wednesday brings some UK unemployment figures and Friday brings the monthly update from UK retail sector (which is expected to show a contraction). As ever, external events (namely developments in Greece) should prove far more market-moving.
Sterling is trading at the now familiar level of €1.19 (84p) and seems reluctant to budge at present. The short-term risks this week are skewed to the downside for GBP/EUR but beyond this, we are still targeting levels above €1.20. Against the US dollar, the picture is a little brighter (judging by the last three months). GBP/USD is currently trading at $1.58 and a short-term climb in EUR/USD looks likely to drag this pair by a cent or so higher in coming sessions. This is based on a fairly optimistic view of Greek progress this week. The risks of another twist or two from Greece are significant however and if a second bailout is not remitted, then the US dollar will be a major beneficiary.
End of week forecast
GBP / EUR 1.19
GBP / USD 1.59
EUR / USD 1.3375
GBP / AUD 1.4650
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Friday 10 February 2012
Greek set to receive bailout but euro's upside potential looks limited
The euro has enjoyed a remarkably strong start to 2012, rebounding considerably from what was a very steep decline at the end of last year. Greece has been the primary focus of recent weeks - talks stalled between Greece and its private creditors over a debt swap deal and the Greek coalition has struggled to agree on the necessary austerity measures. At last, a Greek deal has been announced, which should pave the way for a €130bn second bailout that will avoid a messy and potential disastrous Greek default.
Growth in the UK economy picked up a little in January, which has fuelled some hope that the British outlook may not be as gloomy as once feared. Growth will remain sluggish even in a best case scenario, so it was always a question of by how much, not if, the Bank of England would increase its quantitative easing programme at its recent meeting. £50bn of additional asset-purchases has been announced but sterling was unaffected as the move was fully priced in.
Despite building eurozone concerns, risk appetite is in fairly good shape at present and this has seen the US dollar weaken off in recent weeks. Nonetheless, we maintain a bearish outlook for risk assets this year and a bullish view of safer currencies such as sterling and the US dollar.
GBP/EUR
Sterling’s progress against the euro has stalled in recent weeks. The imminence of further quantitative easing has pegged sterling back somewhat. However, the key resistance factors for GBP/EUR have been some intense short-covering by a market that had bet heavily against the single currency and some relieving (albeit frustratingly slow) progress towards a second Greek bailout that will avert a default in March.
The current Greek situation remains highly uncertain however. The deal may broadly have been agreed but the Greek parliament still needs to approve it; it contains further crippling austerity measures, which will likely be a tough sell to Greek MPs.
Fears of another eurozone credit crunch have eased in recent weeks, largely due to the ECB’s cheap loan programme to ease credit lines. The cheap loans scheme (which will be replicated at the end of this month) is in effect quantitative easing through the back door and has filtered into the eurozone bond markets, resulting in lower yields across most of the periphery, most importantly in Spain and Italy.
However, Portuguese bond yields have not responded as the ECB would have liked, which indicates that another crisis scenario is just around the corner. Speculation is building that we will need to see another second bailout scenario in Portugal, whose bond yields are on a very similar trajectory to Greece’s last year.
The UK’s AAA credit rating and the demand of UK gilts remain the key drivers of any sterling strength. The market has made its peace with increased quantitative easing from the Bank of England and the issue shouldn’t weigh on the pound too much this year.
A plunge back into recession, of which there is a significant risk, is the main risk factor hanging over sterling. Negative growth combined with ongoing elevated debt levels will surely attract the attention of the rating agencies and the rug could well be pulled from under the pound. Still, some strong January growth figures, typically led by the UK services sector, suggest there is some room for optimism. Add to this the growth-friendly effects of further QE and a double-dip may just be averted.
GBP/EUR has consolidated around the €1.20 mark since the turn of the year and we don’t envisage any major or sustained forays below this level. 84p (or €1.1905) should provide some decent support and the balance of risks look skewed to another move north of €1.20 in coming weeks.
GBP/USD
Sterling has had a superb run against the US dollar, bouncing well off its lows of $1.5250 to trade six cents higher. As evidenced by stronger stocks in January (an historically strong month for equities), risk appetite has been fairly prominent in recent weeks, which has weakened the US dollar considerably. As usual, GBP/USD has tracked a considerable rebound in the EUR/USD pairing, which we don’t see lasting too much longer.
The US Federal Reserve’s announcement that it expects to keep interest rates at record lows close to zero until late 2014 has done the US dollar few favours by fuelling risk appetite. Likewise the greenback’s strange relationship with US economic data has swung out of its favour. The encouraging signs out of the US economy, as evidenced by the lowest unemployment levels in three years, have added to the prevailing risk-friendly environment.
However, once market sentiment sours as a result of the eurozone crisis (as it inevitably will do) and investors flood back into safe-havens as we anticipate, then the robust figures coming out of the US economy should work in the dollar’s favour again.
GBP/USD’s rally looks to have some more legs in the short-term, which could see the $1.60 level tested. Beyond this though, we see the rate coming back down (perhaps quite aggressively) towards $1.55, in line with our bearish view for the EUR/USD pair.
Caxton FX one month forecast:
GBP / EUR 1.21
GBP / USD 1.5750
EUR / USD 1.3050
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Growth in the UK economy picked up a little in January, which has fuelled some hope that the British outlook may not be as gloomy as once feared. Growth will remain sluggish even in a best case scenario, so it was always a question of by how much, not if, the Bank of England would increase its quantitative easing programme at its recent meeting. £50bn of additional asset-purchases has been announced but sterling was unaffected as the move was fully priced in.
Despite building eurozone concerns, risk appetite is in fairly good shape at present and this has seen the US dollar weaken off in recent weeks. Nonetheless, we maintain a bearish outlook for risk assets this year and a bullish view of safer currencies such as sterling and the US dollar.
GBP/EUR
Sterling’s progress against the euro has stalled in recent weeks. The imminence of further quantitative easing has pegged sterling back somewhat. However, the key resistance factors for GBP/EUR have been some intense short-covering by a market that had bet heavily against the single currency and some relieving (albeit frustratingly slow) progress towards a second Greek bailout that will avert a default in March.
The current Greek situation remains highly uncertain however. The deal may broadly have been agreed but the Greek parliament still needs to approve it; it contains further crippling austerity measures, which will likely be a tough sell to Greek MPs.
Fears of another eurozone credit crunch have eased in recent weeks, largely due to the ECB’s cheap loan programme to ease credit lines. The cheap loans scheme (which will be replicated at the end of this month) is in effect quantitative easing through the back door and has filtered into the eurozone bond markets, resulting in lower yields across most of the periphery, most importantly in Spain and Italy.
However, Portuguese bond yields have not responded as the ECB would have liked, which indicates that another crisis scenario is just around the corner. Speculation is building that we will need to see another second bailout scenario in Portugal, whose bond yields are on a very similar trajectory to Greece’s last year.
The UK’s AAA credit rating and the demand of UK gilts remain the key drivers of any sterling strength. The market has made its peace with increased quantitative easing from the Bank of England and the issue shouldn’t weigh on the pound too much this year.
A plunge back into recession, of which there is a significant risk, is the main risk factor hanging over sterling. Negative growth combined with ongoing elevated debt levels will surely attract the attention of the rating agencies and the rug could well be pulled from under the pound. Still, some strong January growth figures, typically led by the UK services sector, suggest there is some room for optimism. Add to this the growth-friendly effects of further QE and a double-dip may just be averted.
GBP/EUR has consolidated around the €1.20 mark since the turn of the year and we don’t envisage any major or sustained forays below this level. 84p (or €1.1905) should provide some decent support and the balance of risks look skewed to another move north of €1.20 in coming weeks.
GBP/USD
Sterling has had a superb run against the US dollar, bouncing well off its lows of $1.5250 to trade six cents higher. As evidenced by stronger stocks in January (an historically strong month for equities), risk appetite has been fairly prominent in recent weeks, which has weakened the US dollar considerably. As usual, GBP/USD has tracked a considerable rebound in the EUR/USD pairing, which we don’t see lasting too much longer.
The US Federal Reserve’s announcement that it expects to keep interest rates at record lows close to zero until late 2014 has done the US dollar few favours by fuelling risk appetite. Likewise the greenback’s strange relationship with US economic data has swung out of its favour. The encouraging signs out of the US economy, as evidenced by the lowest unemployment levels in three years, have added to the prevailing risk-friendly environment.
However, once market sentiment sours as a result of the eurozone crisis (as it inevitably will do) and investors flood back into safe-havens as we anticipate, then the robust figures coming out of the US economy should work in the dollar’s favour again.
GBP/USD’s rally looks to have some more legs in the short-term, which could see the $1.60 level tested. Beyond this though, we see the rate coming back down (perhaps quite aggressively) towards $1.55, in line with our bearish view for the EUR/USD pair.
Caxton FX one month forecast:
GBP / EUR 1.21
GBP / USD 1.5750
EUR / USD 1.3050
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Tuesday 7 February 2012
Weekly Round-Up: UK economy picks up, Greece stalls
Greek issue drags on…and on
The euro is holding up remarkably well given the weight of concern that is surrounding Greece and indeed Portugal. Last Monday’s (30th Jan) EU Summit saw Germany’s deficit control proposals finalized and the official scheduling of the €500bn permanent bailout fund’s (the EFSF) introduction for July this year. Positive steps but hardly game-changers.
The issue that continues to obsess the financial markets is Greece. Talks over private sector involvement in a Greek debt swap, which will involve significant write downs on investor holdings of Greek debt, have been the primary focus of the markets for some time now. Agreement is required for Greece to receive the €130bn it needs to avoid default in March. Time and again we have been assured a deal was imminent, but deadlines have been repeatedly been missed and negotiations are ongoing. On balance, there is probably a feeling that a deal will be reached in the end, which will avoid a Greek default for now. However, we are not anticipating a major euro relief rally on the back of any positive announcement.
This is explained by the issues that remain even if a Greek default is averted. Portugal is clearly next in the firing line; Portuguese bond yields reaching fresh record highs is evidence of this. Rating agency Fitch added to the pressure in the bond markets by downgrading several eurozone states last week, including heavyweights Spain and Italy. The euro has actually made a strong start to the year, largely as a result of short-covering, but we maintain a bearish view on the single unit.
UK growth figures raise hope of U-shaped recovery
Last week’s UK PMI figures were broadly very encouraging; the services sector grew at its fastest pace in ten months, whilst the manufacturing sector bounced back into positive growth. The UK construction sector posted another poor figure, but the data as a whole represents a source of hope that Britain can avoid a double-dip recession. This week’s manufacturing and industrial production figures are also expected to return to growth.
This will all be insufficient to dissuade the Bank of England from introducing further monetary easing to the UK economy at Thursday’s meeting (in the form of further QE). However, it should be enough to convince Mervyn King & Co to add £50bn rather than £75bn of QE, which should reduce the downside risks to sterling. The ECB also meet on Thursday and it could well cut its 1.00% interest rate by a further 0.25%, though they may choose to wait a further month.
US recovery continues to impress
Economic figures out of the US economy are on a clear uptrend at present. This was evidenced most importantly by the key monthly labour market update, which revealed 243 thousand jobs were added to payrolls (the most in nine months). Risk appetite away from the US dollar increased as a result of the announcement, but has since been hemmed in by growing frustrations surrounding Greece.
Sterling is trading at 1.2050 against the euro, in the middle of a range that has persisted throughout the start of this year and should continue to do so over the coming sessions. Trading up at $1.58, sterling is performing excellently against the US dollar and may keep on climbing for now, but is due a pullback soon.
End of week forecast
GBP / EUR 1.2025
GBP / USD 1.5850
EUR / USD 1.3180
GBP / AUD 1.46
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
The euro is holding up remarkably well given the weight of concern that is surrounding Greece and indeed Portugal. Last Monday’s (30th Jan) EU Summit saw Germany’s deficit control proposals finalized and the official scheduling of the €500bn permanent bailout fund’s (the EFSF) introduction for July this year. Positive steps but hardly game-changers.
The issue that continues to obsess the financial markets is Greece. Talks over private sector involvement in a Greek debt swap, which will involve significant write downs on investor holdings of Greek debt, have been the primary focus of the markets for some time now. Agreement is required for Greece to receive the €130bn it needs to avoid default in March. Time and again we have been assured a deal was imminent, but deadlines have been repeatedly been missed and negotiations are ongoing. On balance, there is probably a feeling that a deal will be reached in the end, which will avoid a Greek default for now. However, we are not anticipating a major euro relief rally on the back of any positive announcement.
This is explained by the issues that remain even if a Greek default is averted. Portugal is clearly next in the firing line; Portuguese bond yields reaching fresh record highs is evidence of this. Rating agency Fitch added to the pressure in the bond markets by downgrading several eurozone states last week, including heavyweights Spain and Italy. The euro has actually made a strong start to the year, largely as a result of short-covering, but we maintain a bearish view on the single unit.
UK growth figures raise hope of U-shaped recovery
Last week’s UK PMI figures were broadly very encouraging; the services sector grew at its fastest pace in ten months, whilst the manufacturing sector bounced back into positive growth. The UK construction sector posted another poor figure, but the data as a whole represents a source of hope that Britain can avoid a double-dip recession. This week’s manufacturing and industrial production figures are also expected to return to growth.
This will all be insufficient to dissuade the Bank of England from introducing further monetary easing to the UK economy at Thursday’s meeting (in the form of further QE). However, it should be enough to convince Mervyn King & Co to add £50bn rather than £75bn of QE, which should reduce the downside risks to sterling. The ECB also meet on Thursday and it could well cut its 1.00% interest rate by a further 0.25%, though they may choose to wait a further month.
US recovery continues to impress
Economic figures out of the US economy are on a clear uptrend at present. This was evidenced most importantly by the key monthly labour market update, which revealed 243 thousand jobs were added to payrolls (the most in nine months). Risk appetite away from the US dollar increased as a result of the announcement, but has since been hemmed in by growing frustrations surrounding Greece.
Sterling is trading at 1.2050 against the euro, in the middle of a range that has persisted throughout the start of this year and should continue to do so over the coming sessions. Trading up at $1.58, sterling is performing excellently against the US dollar and may keep on climbing for now, but is due a pullback soon.
End of week forecast
GBP / EUR 1.2025
GBP / USD 1.5850
EUR / USD 1.3180
GBP / AUD 1.46
Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.
Thursday 2 February 2012
Richard Driver, Analyst The pound had another good day against its US counterpart yesterday, cementing its two-and-a-half month high, as Manufacturing PMI data in the UK showed a surprising return to growth. Germany also posted solid manufacturing data, which helped support the euro, trading 0.3% up against the pound yesterday. The near term outlook for Sterling will depend on the Bank of England’s asset purchasing programme. Any surprises to the upside in the UKs Construction and Services PMI data may see a scaling back of the extra 50 billion pounds expected on February 9th. Today the market’s attention will yet again turn to Greece, with concerns likely to mount as we approach the end of the week with no resolution to the debt swap talks in sight. As far as economic announcements go, the markets main interest today will be surrounding the UKs Construction PMI data out this morning, and Fed chairman Bernanke testifying on the economic outlook for the States. | |||
STERLING/EURO: Sterling traded down 0.3% yesterday, but support remains for the pound as concerns over the single currency mount.
| FORECAST  | ||
STERLING US DOLLAR: Sterling continues to do well against the dollar, but with QE expectations around the corner this rally could be short lived.
| FORECAST | ||
EURO/US DOLLAR: The euro is holding onto gains it made on the 31st January but remains vulnerable to the downside.
| FORECAST | ||
STERLING/AUSTRALIAN DOLLAR: the Australian dollar maintained two day gains as Asian equities extended a global stocks rally, spurring investor appetite for higher-yielding assets.
| FORECAST | ||
STERLING/NEW ZEALAND DOLLAR: New Zealand’s dollar also maintained its two day gains as Asian equities extended a global stocks rally, increasing appetite for higher yielding assets.
| FORECAST | ||
STERLING/CANADIAN DOLLAR: The pound is currently holding onto its gains this morning as a positive manufacturing figure yesterday bolstered demand.
| FORECAST | ||
This post is prepared by Caxton FX Ltd for information purposes only and may contain personal views that are not the opinion of the company. This is not an offer to purchase or sell any security or an investment advertisement. Caxton FX Ltd is authorised and regulated by the Financial Services Authority, although foreign exchange transactions with Caxton FX are regulated by HM Revenue and Customs. This email does not constitute advice for any foreign exchange transaction, nor is it intended as a solicitation for funds or recommendation to trade. | |||
Wednesday 1 February 2012
Morning Report
Richard Driver, Analyst The single currency had a positive early session yesterday, and equities advanced with buyers hoping overnight assurances that the Greek-PSI negotiations were close to a positive conclusion. The extent of market frustration over the dragging out of this Greek debt deal was evident however, as support for the euro soon disappeared when the US started their day. As a result the pound gained almost a per cent against its euro counterpart during the afternoon session. Greek debt-swap talks will again dominate the market today, with traders looking for positive signs of a conclusion by the end of the week. Portugal will also once again feature in investors thinking as they look to sell bills today amid concerns over their economy. Meanwhile the first of the UK’s PMI readings is out this morning with manufacturing expecting to improve slightly. | |||
STERLING/EURO: Sterling is holding onto its gains it made yesterday with the UK’s Manufacturing PMI figure eyed this morning.
| FORECAST | ||
STERLING/US DOLLAR: Sterling hit a 2 ½ month high against its US counterpart yesterday amid month end dollar selling.
| FORECAST | ||
EURO/US DOLLAR: The single currency has repaired some of its losses from yesterday this morning, but holding onto these gains will be tough going.
| FORECAST | ||
STERLING/AUSTRALIAN DOLLAR: The Australian dollar weakened on speculation that U.S. jobs data will forebode a slowing recovery, reducing the demand for higher-yielding assets.
| FORECAST | ||
STERLING/NEW ZEALAND DOLLAR: New Zealand’s dollar similarly to the Australian Dollar, suffered a decline on speculation that U.S. jobs data will show a slowing recovery and dampening the demand for higher yielding assets.
| FORECAST  | ||
STERLING/CANADIAN DOLLAR: Sterling gained against the Canadian dollar yesterday as their GDP figure undershot, but declines this morning.
| FORECAST | ||
This post is prepared by Caxton FX Ltd for information purposes only and may contain personal views that are not the opinion of the company. This is not an offer to purchase or sell any security or an investment advertisement. Caxton FX Ltd is authorised and regulated by the Financial Services Authority, although foreign exchange transactions with Caxton FX are regulated by HM Revenue and Customs. This email does not constitute advice for any foreign exchange transaction, nor is it intended as a solicitation for funds or recommendation to trade. | |||
Subscribe to:
Posts (Atom)