Daily Reviews of major currencies from Globe Gain Forex Rebates

13/03/2012 Does Greece take a back seat, giving way to Spain?

EUR/USD

The single currency didn’t continue last week’s downturn yesterday. It was good news, but at the same time the currency didn’t grow on the subsiding fears around Greece. And this is already the signal to give a closer look to the issues currently disturbing the markets. As always there are two directions: Europe and the USA. However, while concerns about America seem to be the whims of a spoilt child, European issues look like life-and-death ones. Tonight we’ll see the Fed’s decision on the monetary policy. No factual action is expected: everybody looks forward to learning the committee’s evaluation of the economic health and their sentiment concerning the economic prospects. After the release of strong employment data market participants expect the mid-year QE to be carried out on a smaller scale than before. The markets behave as if they were given ordinary porridge instead of a delicious apple pie. This is unlikely to last for long. Money is still very, very cheap; inflation will likely speed up because of the rise in energy prices; economic activity is following the right path. Hardly had Europe breathed a sigh of relief concerning Greece, when similar issues started to pop up in other troubled countries. Spain claims that it won’t be able to meet its agreed budget deficit targets, especially under the circumstances of a severe economic recession expected this year. Assuming that the markets will treat Spain in the way they treated Greece, the size of bailout / debt write-off may amount not to hundreds of billions, but to trillions. However, at this stage markets see a great deal of good news and key central banks mainly stick to the expansionary policy. It means that the single currency may get some support and find buyers on the dips.

GBP/USD

The British housing market is gradually stabilizing. According to RICS, house price balance is at 13% (i.e. the number of those who expect the further decline in prices is 13% larger than that of those who await their growth)...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/13032012-1131-does-greece-take-back-seat-giving-way-spain

14/03/2012 Rare occurrence: both markets and dollar grow

EUR/USD

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Generally, when markets grow the dollar falls. However, there can be rare exceptions to this correlation. And now it seems to be the case. Last night the Federal Committee published its monetary policy statement. On the one hand, the markets got the expected commentary. The data on the labour market finally convinced most analysts that the economy is on the mend, although the recovery is rather slow. Such sentiments are supported by the increase in the consumer sentiment (and consequently in spending) and by the production growth. So, the markets wanted to hear this from Bernanke and Co. and they did. As a result, the dollar as well as the stock exchanges rallied. Since concerns around Greece have subsided, the markets have a chance to give a closer consideration to the economic outlook. And here, as is often the case, the U.S. economy is the first to decline and recover. While Europe is suffering from fiscal austerity and prolonged recessions in the peripheral countries, the U.S. economy tends towards trend growth rates. And this means that the monetary policy toughening will first take place in the U.S. and only then in Europe. The ECB’s balance sheet already contains the sum equivalent to $ 3 trln., which is far beyond the Fed’s parameters. Overnight the euro fell down to 1.3030. Market participants less tend to expect the further QE from the Fed now, and the inflation rise, triggered by the surge of energy prices, boosts the yield growth of U.S. government bonds.

GBP/USD

The British pound was moving along quite a bumpy road yesterday. In spite of quite positive data on the trade balance (yesterday we mentioned that the statistics came in better than expected, but on the whole it doesn’t suggest any significant shift), at the beginning of trading in London the pound went through sales as a result of the capital outflow from the European currencies...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/14032012-1044-rare-occurrence-both-markets-and-dollar-grow

15/03/2012 The carry trade is dead - Long live the carry trade!

USD

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Yesterday the dollar managed to take some more gains against most of its rivals. In particular, the single currency fell to 1.3020 against 1.3060 a day before and overnight even closely approached 1.30. It should be mentioned that now interest in the dollar is triggered by a bit different factors than in the midst of the crisis. Now the U.S. currency is bought as an instrument for investment in the U.S. markets, which are currently showing a better growth than the European ones. At the same time the large emerging markets are either trying to limit the capital inflow to their countries (Korea, Brazil) or suffering a serious economic slowdown after the excessive boom (Russia, China, India). In addition, other traditional high-yielders have ceased to be that high-yielding, and investors are currently considering the chances of the further policy easing (Australia, New Zealand). So, the carry trade, we knew before the crisis, is not in that great demand any longer. Of course, we do not say that the currencies have ceased to fluctuate on the interest rate changes, but the range has definitely become narrower. This has been clearly observed since the 4th quarter of the last year until now. Despite the speedy growth of the global economy and a fairly impressive rally in the stock markets, the dollar index has been growing pretty well over the past three weeks and is now close to 80.65, just as at the end of 2008, in the first quarter of 2010 and at the beginning of 2011. Regarding this, can we say that the world has turned topsy-turvy? Of course not. Simply with regard for the recent data it seems to be very probable that the rate in the U.S. will be raised earlier than in Europe, Switzerland, Japan, and that because of the rise in the Asian labour cost the U.S. companies will be more concentrated on the development of domestic production, thus saving on transport costs and delivery time. Consider the facts: despite the high cost of energy (similar to that of mid 2008), over the last quarters the U.S. current account deficit has been reduced by 40% compared to what was before the Great Recession. At the same time, China's trade surplus has severely declined. This is that much talked-about rebalancing. However, it’s proved to be much longer and more painful than expected.

GBP

Our story about the carry trade can’t but be amplified by the description of the situation in Britain. This country is also in a dire need of rebalancing. And this need is even more desperate than in the U.S., as the British total debt is much higher due to the large debt of financial institutions and households (507% of GDP as against 279% of GDP in the U.S.)...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/15032012-0904-carry-trade-dead-long-live-carry-trade

16/03/2012 When the good is not good

EUR/USD

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Improvement in macroeconomic indicators does not always imply the recovery of the whole economy. Sometimes other factors come into play and distort the picture. That was the case with yesterday’s labour costs data in the euro area. The indicator showed a rather unexpected acceleration of the annual growth rate up to 2.8% in the last quarter of the previous year (when the economy declined by 0.3%). Meanwhile the analysts had quite reasonably expected it to slow down to 2.3%. The data on the employment change didn’t point out any positive changes either. Over the last quarter of the previous year employment fell by 0.2% quarterly and annually. So, why do employers all of a sudden pay more in the time of the economic downturn and job cuts? The answer is simple - the governments are raising taxes, thus forcing companies to make bigger tax deductions. Thus, the recent figures hardly indicate any improvement or possibility of the further inflation speed-up. It’s also very important to note that such distortions are likely to persist in the coming quarters, as most European countries have just stepped into the process of austerity implementation. Yet, improvements in the US are also hard to discern. The number of continuing claims is rapidly decreasing. Yesterday’s weekly data indicated the drop of the figure down to 3.343 million, which is the lowest level since August 2008. But this progress is partly explained by the fact that the period, when people could claim unemployment benefits, has expired. Here it is also possible to include those who have lost hope to find a new job and abandoned their attempts. For comparison, with the similar number of unemployed claimants now and in summer 2008, the current unemployment rate in the US is at 8.3% against 6.1% then, and the economically active population totals 63.9% against 66.1%. Thus, the Fed looks more sensible than the markets, being careful and admitting the possibility of further measures to support the economy. To realize that too markets will probably need a month or two.

GBP/USD

Yesterday didn’t abound in statistics on the UK, but that vacuum in the agenda was filled with various interesting speeches. MPC’s Ben Broadbent noted in his speech that though the recovery from financial crises is usually slow, the household over-indebtedness in Britain shouldn’t be so much fussed over...

Read full review: url=http://globegain.com/analytics/globe-gain-daily-review/16032012-1100-when-good-not-good

19/03/2012 Expensive oil: stimulus to spend or threat to growth?

EUR/USD

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Last Friday was a quiet day for European markets, but quite a busy one for the US exchanges. Actually, it doesn’t seem to be a surprise, considering loads of important statistics which came from the States on Friday. First, data on inflation were published. Due to the fuel price growth the consumer price index gained 0.4% in February and the annual growth rate remained at 2.9%, as was generally expected by economists. It’s quite reassuring to hear about easing of the core inflation. However, in the coming months it most likely will go up due to the effect of energy prices on the prices of other goods. The industrial production data failed to surprise with any significant growth, though on the whole statistics are still very strong. The annual output growth rate made 4.0% in February against 3.4% in January. Capacity utilization slightly dropped down to 78.7% instead of going up to 78.9% as expected. However, for the most part it can be explained by the increase in capacity itself, which is a good sign, indeed. The March preliminary UoM data on inflation expectations have leaped, showing that consumers are expecting the annual price growth to come in at 4.0% against 3.3% a month earlier. No doubt, it is the result of the pernicious impact of energy prices. So, we just need to see how Americans will react to it. Will they start buying goods at cheaper prices now or will they reduce consumption of other goods because of the increased spending on fuel and food? With Americans the answer to this question is not so obvious as with Europeans, who already now are extremely concerned about the rising oil prices and talking (in particular French-born IMF Chief Lagarde) the pernicious impact it may produce on the just-started recovery process. But leaving the statements of politicians aside, it may be noted that the expectations of higher inflation and the energy price surge play against the dollar, as it was observed on Friday, when traders preferred to take profits after a several-week growth in USD. The single currency shot up from 1.3040 to 1.3180 in a few hours.

GBP/USD

The British pound also took part in this high-demand-for-risk party. The sterling jumped to 1.5860 from 1.57 at the beginning of the day. That upswing was generally spurred by triggering of stop-losses on the break through the resistance around 1.5740...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/19032012-1039-expensive-oil-stimulus-spend-or-threat-growth

20/03/2012 By fits and starts EUR’s moving up

EUR/USD

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The single currency is moving by fits and starts. Apparently, big players prefer to hold back from systematical buying, and trading is now driven mainly by technical factors. Yesterday, just like on Friday, the euro/dollar spent the most part of the day in a narrow corridor. However, within the first two hours of the US session it leapt dramatically from 1.3150 to 1.3260 and then again resumed tracking sideways. The current Forex movement in EUR/USD can be compared to what we saw after the 1st LTRO auction. For a while the single currency was falling as a result of the interbank interest rate cuts, but soon the general improvement in the markets spilt over into buying of risky assets. Then the euro sagged from 1.3050 to 1.26. The current range of the currency’s decline makes 1.34 - 1.30. Thus, the shift ranges as well as the ECB auction sizes are almost the same. What happened next and what shall we expect now? Then, in mid-January, the single currency grew from 1.26 to 1.35. So, in our situation we may well expect that the single currency will reach the area of 1.40 in the coming 4-6 weeks. In addition, both the U.S. and European economic indicators more and more often point at improvement. It’s rather doubtful if these signals of improvement will keep coming in steadily in the coming months (it mainly concerns Europe), but within the next few weeks this very sentiment will most likely dominate the markets, in this way supporting the demand for the euro and triggering the dollar sales.

GBP/USD

Today is an eventful day for Britain. We’ll see data on the Consumer Price Index, CBI’s Industrial Order Expectations and Selling Prices. As for CPI, we don’t see any serious cause for concern. It is expected that the February inflation rate will go up by 0.4% monthly, but will come in at 3.4% against the previous 3.9% annually...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/20032012-0923-fits-and-starts-eur%E2%80%99s-moving

21/03/2012 Another tiny little jump of EUR

EUR/USD

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Tuesday turned out to be a fairly quiet day for most of the markets. The American exchanges were generally dominated by the correction sentiment, but the scope of correction didn’t give any particular cause for concern, as stocks recouped most of the losses to close out the day. It is noteworthy that the single currency managed to stay almost unaffected by the initial impetus for decline in the US. Regarding the results of the day, the EUR/USD rate remained almost unchanged, and now makes about 1.3260. Such dynamics supports our supposition that the euro has good chances to grow in the coming weeks. Formally, buying was triggered by the news that Greek legislators agreed on the acceptance of the troika’s aid package with the significant majority voting in its favour. Wednesday is unlikely to spring any unpleasant surprises either. Bernanke in his pre-published statement has pointed at conspicuous progress made by the European financial markets. However, he also mentioned that it is too early for the European policymakers to get relaxed on the path of reforms. Improvements in the US construction industry are also worth mentioning. We are no longer that ironic about the possible recovery in this sector, although with reservation that it’s highly probable that the figures similar to those of 2006 (over 2 million new homes yearly) won’t be recorded for another decade. Nevertheless, from the bottom of recession (about 500K) the volume of monthly building permits increased by 40%, having reached the annual growth rate of 698K (in February). As seen in other reports the Americans tend to buy cheaper and plainer homes now.

GBP/USD

The inflation rate in Britain formally proved higher than expected, but the gap between the factual and expected figures can hardly be called significant. Monthly consumer prices added 0.6% against the predicted 0.4%, while the annual growth rate coincided with the expected slowdown to 3.4% in February against 3.6% a month earlier...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/21032012-1134-another-tiny-little-jump-eur

22/03/2012 Are Gold and Aussie out of favour?

EUR/USD

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Yesterday the US market remained in the mode of slight correction, which actually failed to produce any significant impact on the EUR/USD rate. At some point the single currency rose to the two-week high of 1.3280, but didn’t manage to consolidate at this level. Apparently, the markets needed a larger batch of news to decide on the further action. The only interesting statistics came in on the existing home sales. According to the data published by the National Association of Realtors, home sales fell by 0.9% in February to the annual pace of 4.59 million. However, last month sales jumped by 5.7%, so there’s no cause for concern about the stability of recovery in this sector. As was mentioned yesterday, the Americans tend to purchase more homes when their prices go up. This report has shown the reverse side. The decline occurred on the rise in the average sale price from $154.6K to $156.6K. When compared with the minimum levels at the height of recession, the market volume have grown by 40%. Besides, as you remember, the new home sales have increased by about 50%. Thus, finally we get the picture of quite a healthy growth. Today’s data on the European flash PMI for March have come in surprisingly weak. The composite index has fallen to 47.7 against the expected 49.6 and 49.0 a month earlier. The services sector doesn’t feel better. Instead of going up to 49.3 the composite indicator has fallen to 48.7 from 48.8 a month earlier. This index is a creditable indicator, so its weak figures have served as a strong impetus for selling, nipping in the bud all attempts of the bulls to fight for the 1.33 point.

GBP/USD

The British government made every effort to smooth out the release of the new budget. And we should say, they have succeeded. As has been generally expected, the 50% income tax for the wealthy will be replaced by the 45% one starting next year...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/22032012-1045-are-gold-and-aussie-out-favour

08/05/2012 No news is good news

EUR/USD

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Monday’s trading was mainly quiet. After the drop, caused by the results of French and Greek elections, the single currency managed to recover from 1.2955 to 1.3065. But still technically the morning gap remained uncovered. To do that EUR/USD needs to rise up to 1.3080. The old saying - ‘no news is good news’ – is evermore true now. Yesterday that stance helped the euro to grow and it may do it today as well. Frankly speaking, this statement is only partially true: there was some news coming, but it was not of great importance. Thus, the German Factory Orders came in a bit beyond expectations (+2.2% against +0.5%). Still in the annual terms this indicator remains negative, showing a 1.3% decline. However, the favourable effect of this news was nullified by the Sentix Investor Confidence data. This index fell below the bottom of its December figure and proved to be at the lowest level since July 2009, when Europe was already coming out of the recession. Once again the sentiment indices point to that period, the hardest and gloomiest in the history of Modern Europe. The USA, on the contrary, enjoyed a surge in the consumer credit sector in March: 21.4bln against 9.3bln a month before. Of course, it doesn’t necessarily imply the beginning of the steady growth of the indicator. The surges of the kind have already occurred before and can indicate not only the stronger confidence in the future, but also the need of Americans for credits to pay their bills. The salaries are growing slower than inflation, and the interest rates are low in accord with the historical standards. By the way, the above-mentioned news hasn’t received any significant feedback from the markets.

GBP/USD

The British pound felt a bit better than the euro yesterday. It’s quite natural as it is not Britain which suffers the political uncertainty now....

Read full review: http://globegain.com/analytics/globe-gain-daily-review/08052012-0958-no-news-good-news

09/05/2012 Greece again provokes risk aversion

EUR/USD

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Yesterday we mentioned that the best variant for Europe is the absence of news. However, that situation couldn’t last for long. The political uncertainty in Greece again revived market agitation. The Greek Left Coalition leader declared that the bailout terms set by the EU and IMF should be nullified. For now these statements haven’t taken the form of laws yet and probably will never take it. But the European leaders will now think twice before issuing of another aid tranche to Greece. The country quite easily managed to disclaim the private debt obligations. That happened with the help of the EU leaders. So now they won’t find it easy to withdraw from further performance of their obligations. Most likely, the leaders of the Greek parties don’t realize all the political and economic risks of such statements. Besides, there was another unpleasant rumour stirring the markets yesterday. One of the Spanish magazines messaged that the government is going to nationalize the largest banking group in the country, Bankia. To better understand the scale of the problem note that Bankia’s assets make 1/3 of all the country’s economy and the government a few days earlier announced the plans to issue special debt securities meant to support the suffering regions. Spain is burdened with too many obligations. Will Rajoy bear that heavy load? It’s quite natural that under such circumstances the single currency should be under pressure – it again has fallen down to 1.2960. The euro would be much lower if there weren’t so many short positions, opened earlier. But the market concerns are observed clearly in other instruments, which are rewriting their months-long lows.

GBP/USD

Despite a certain slackening in the recent few days, the British pound is still rather expensive. It is at the 1.6150 level now, which is 3 points higher than the average annual figure (200-day moving average)...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/09052012-0850-greece-again-provokes-risk-aversion

16/05/2012 Escape velocity

EUR/USD

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«Greece is close to the end of the road” said Swedish Finance Minister yesterday, referring to the country’s membership in the euro-zone. Two and a half years ago, when the analogy with the road was drawn, it was emphasized that it was the beginning of a long and hard journey towards financial stabilization. Apparently, Greece has successfully finished the journey, but in the wrong direction. Yesterday it became absolutely clear that the country will not manage to form a coalition government, so reelections will be held in a month. This news, coming prior to the active American session, hit the single currency and afterwards affected other risk-sensitive assets. It should be mentioned here that this is not the case when reaction lasts for a short period of time and then is followed by purchases of cheaper assets. The euro makes stops from time to time, but then again falls under selling pressure. Now EUR/USD is at 1.2730, which is a point lower than the daily opening price and a point higher than the lows of January 2011 and August 2010. S&P struggled not to fall lower at the start of trading, but eventually dropped to close out the day. Except for almost inconspicuous corrections on May 7 and 10, the Americans stocks depreciated each day this month. To be fair, however, it should be noted that the current market reaction is more restrained than a year ago. Those looking for good news may find it in yesterday’s euro-zone preliminary GDP statistics, which proved to surpass the expectations. The economy didn’t sink, but showed the zero growth against the levels of the preceding quarter and also of the same quarter a year ago. That happened due to 0.5%, by which the German economy went up. It’s an unexpectedly strong growth, especially when compared to the forecasted level of 0.1%. The newly-elected French President Hollande yesterday arrived in Germany to meet Merkel. Eventually they said that they had managed to come to terms with each other. It’s not clear yet what language prevailed in their discourse, French or German, but the talks about ‘fleeing to safety’ are becoming more and more wide-spread.

GBP/USD

The British Trade Balance once again brought to the surface the hardships of the country’s manufacturers. The Visible Trade Balance remained roughly at the same level as a month ago, having shown the £8.6bln excess of imports over exports...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/16052012-0920-escape-velocity

24/05/2012 Due south

EUR/USD

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It didn’t take much time for the market participants to rebalance their positions, and yesterday the common currency was again pushed down to new local lows. This time it was much easier to break through the defence line, once really strong at 1.2620. Last week the attempt was foiled just like in January 2012 and at the end of August 2010. The talks of the EU politicians about the development of the Greek exit plan tipped the scale. Earlier from February till the end of April the consolidation was mainly held within the corridor above 1.30 and below 1.34. Something like that was happening in 2011, when from April till August the euro/dollar was fluctuating within a relatively steady channel. Only a keen eye may notice that now as well as then the pair is mainly controlled by the bears, posting lower highs and lower lows time after time. Breaking through the support level (when the bulls finally gave in at 1.40) sent the pair down to 1.31. Only then the sales stopped for a while. We’ll probably see something like that this time as well. The single currency is moving stepwise from 1.40 to 1.30. So the next stop is now expected only at 1.20. If it is caused by mere concerns about Greece’s disintegration and Greece itself remains in the euro bloc, many periphery markets will get a chance to enhance their competitiveness, which is so much dreamt of. Of course, the healthy manufacture of Germany and large investments into this country on the capital outflow from other states will play right in the hand of the German locomotive. We’ve described a rather smooth run of events. But the anticipation of a tougher turn is weighing more and more heavily on the market participants. It is feared that at the elections in June Greece will select the secession from the euro zone and again adopt the drachma. It’s not clear yet how the country’s debts will be converted then. But what really alarms is the growing accord among the EU leaders. Cameron has nothing against Greece’s exit and, as rumoured, Merkel is also ready to put up with it.

GBP/USD

The sterling is even more technical than the euro. Having fallen out of the channel, it was accelerating for three days in a row. Then for a while it consolidated at the 200-day moving average level, to which the pair has frequently stuck this spring...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/24052012-1117-due-south