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24/05/2012 Due south

EUR/USD

http://globegain.com/sites/default/files/imagecache/analytics_img/2012/May/eur_15.gif

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

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

09/05/2012 Greece again provokes risk aversion

EUR/USD

http://globegain.com/sites/default/files/imagecache/analytics_img/2012/May/eur_5.gif

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

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

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

21/03/2012 Another tiny little jump of EUR

EUR/USD

http://globegain.com/sites/default/files/imagecache/analytics_img/2012/March/eur_10.gif

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

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

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

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

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

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

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

12/03/2012 Good news does not always excite the market growth

EUR/USD

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EUR/USD has been falling since Friday and has lost almost two big figures over this time. The single currency is now worth $1.3080, which is a four-week low. Against our expectations the market did not wait for the publication of statistics on the US employment to start selling risky assets, including the euro. As a result, at the time the non-farm payrolls were released, the euro was already trading as high as 1.3125. The labour market statistics has come in almost as good as expected, showing the 227K increase in the number of jobs (we predicted 235K, while the general market forecast was 206K). Moreover, it can’t but be noticed that almost all sectors can boast improvement now. Employment in manufacturing has been steadily growing for three consecutive months, having added 31K in February after 28K in December and 52K in January. Private sector employment has been averaging out at above 200K over the last six months and grew by 227K in February. The unemployment rate remains at 8.3%, however the disappointing data of January, when the index went down only due to the participation rate reduction, have been a little bit smoothed away. This figure made 63.9% in February against 63.7% in January and 64.2% a year ago. These positive data make the Fed’s extension of its QE programme less possible. But despite the obvious positive data context such expectations triggered the decline in stock markets and reduced the demand for risk. Turning to today, Europeans are expected to back another aid tranche for Greece, which will help the country to avoid a disorderly default. This is also good news, but over recently it’s been too often the case that the market has fallen on the positive news. Technical analysts assume that the common currency will shortly drop below 1.29 on the rising bearish sentiment. However, there is a feeling that the market will be allowed some rest after a strong movement on Friday.

GBP/USD

Friday was an eventful day not only for the U.S. and Europe. Britain also brought us a batch of important news. However, it didn’t boost any optimism in the market. Industrial production did not surpass the expectations, having lost 0.4% against the previous month and 3.8% against the previous year...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/12032012-1117-good-news-does-not-always-excite-market-growth

9/03/2012 Greek deal is done and markets wait for payrolls

EUR/USD

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Thursday proved to be quite a favourable day for the markets. Tuesday’s losses in the stock markets were recouped, and the single currency climbed pretty much higher. EUR/USD is trading near 1.3250 now. Most likely, it will stick to this level until the release of data on the US employment. The results of the private investor participation in the debt swap were postponed to Friday morning. The good news is that the 66% threshold has been crossed, which, actually, was already evident from the leaks yesterday. With the collective action clauses applied, the level of participation in the swap amounted to 95.7%. Such relatively good news allows us to speak about the successful closing of the hardest and most nerve-racking deal, which took six months to be clinched. However, the market reaction to this long-awaited news was not very strong, having come just with a few sales of the single currency. The analogy with what we saw after the summits inevitably comes to mind. The euro is supported on expectations, and invariably depreciated on facts. Something of the kind may happen this time as well. Yet the main motion will most probably fall on the US publication of non-farm payrolls. Remember that the markets are expecting the employment growth of 209,000. After ADP’s data release (the 216K growth in the private sector) we assumed that the official figures would indicate the 235K increase or so. However, yesterday’s data on unemployment claims force to be more cautious. Let’s see. We're not going to change our expectations, suggesting strong data, growth in the stock markets and also higher demand for risk. But in the coming months the statistics may prove much weaker.

GBP/USD

As expected by most market participants, the Bank of England did not change anything in its policy, keeping the rate at 0.5% and the size of the QE programme at 325bln. However, that did not prevent the sterling bulls from taking GBP/USD above 1.58...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/09032012-1022-greek-deal-done-and-markets-wait-payrolls

8/03/2012 Big day for markets and, more so, for the euro

EUR/USD

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After Tuesday's fears and profit-taking in risky assets, the euro is gradually coming round. And though the day promises to be eventful, stock markets are trading positive. As a result, EUR/USD rose from the lows below 1.31 and is now trading at 1.3170. Today the ECB will hold a regular meeting on the monetary policy. However, the markets will want to pay more attention to Draghi’s press-conference, where he will probably lay his own assessment of the second LTRO auction and speak on the further plans and views of the Bank. For all its importance, the ECB’s meeting won’t probably come as the most risky event of the day. The fact is that later on Thursday or early on Friday markets will see data on private sector investor participation in the Greek debt swap. Remember that for the deal to close successfully the participation rate of all creditors have to be over 66%. However, even this won’t be enough. Even if the deal will be regarded as done, 90% of all money should be involved to reach the required level of "participation". It is rumored that 14% of the creditors are not obligated to participate, and if they take the opportunity, it may eventually ruin the whole deal. However, today’s agenda brings us good news as well. ADP Non-Farm Employment Change in February came in at 216K, which allows us to expect the Non-Farm Payrolls reach the 235K level. The figure is above the average market forecasts and may partly explain the moderate positive, currently dominating in the markets.

GBP/USD

Just like the euro, the sterling is gradually recovering from the weak start of the week. The Cable is now trading at 1.5760 against the 1.57 low, hit on Wednesday night. Today the Bank of England will announce its decision on Interest Rate...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/07032012-0956-big-day-markets-and-more-so-euro

7/03/2012 Markets fall on ongoing concerns around Greece, but the euro doesn’t look worse than its counterparts

EUR/USD

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Tuesday proved to be a hard day for stock markets. Frankly speaking, it came as the worst one since the beginning of the year. Some commentators attribute such dynamics to the higher probability of Greece’s default on its debt. It’s no secret that international institutions are evaluating the expense at which this deadly scenario may unfold. Institute of International Finance yesterday mouthed its assessment of default in Greece, forecasting possible losses at $1 trillion. The Dutch right-wing party held its own research which showed that the bailout of the troubled countries may eventually cost 2.4 trillion. With stakes being so high, the market players’ desire to give up breaking even is quite natural at the moment. This is what Dutch Freedom Party leader advocates. With such talks around, markets keep rather skeptical about Greece’s deal to get a sufficient number of claims. For now we know only about the participation of large holders, accounting for 20%of the claims. It is still far from 66% required to successfully close the deal. Meanwhile, the market is kept in suspense and volatility is gaining momentum. In our case, the rising volatility, preceded by a continuous rally, marks the market’s tendency to decline. However, we will hardly see any shift in the currencies before facts come out. The end of this week may become really crucial for the further movement in the markets.

GBP/USD

The sterling reveals its dependence on the stock market sentiments. The day, which came for stock markets as the worst one since the beginning of the year, proved to be equally bad for GBP/USD and GBP/JPY...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/07032012-1000-markets-fall-ongoing-concerns-around-greece-euro-doe

6/03/2012 Euro’s holding at 1.32 despite the reduced risk demand

EUR/USD

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The euro gained almost no momentum yesterday. Some factors offset other ones and, as a result, EUR/USD remained at 1.32. Yesterday markets saw a batch of PMI figures. Interestingly enough, statistics have again confirmed the old observation that recovery of the U.S. real economy happens 3-6 months earlier than that of the European one. Thus February’s PMI for the euro area was unexpectedly revised down to 48.8 against the pre-estimate of 49.4. The most depressing thing about this is that a month earlier the service sector displayed growth and the index figure made 50.4. In other words, in January the service sector was intensifying its activity yet, but already in February the situation changed for the worse and the sector’s activity was swiftly fading away. In contrast, ISM’s PMI data for U.S. reflected the increase in the service sector growth. The indicator rose to 57.3 from the previous 56.8. Such strong data generally support the demand for risk in stock markets and risk-sensitive currencies. However, it was different this time. Markets didn’t manage to recover from the sales triggered by lowering of China’s targeted growth. We consider it to be an exaggerated reaction to the expectations. The facts themselves may prove completely different. But the market is still pretty heavy after 2 1/2 months of the persistent rally. On the other hand, heavy sales need a good reason, for instance, a weak report on labour markets this Friday. Until then the sideways trend is likely to dominate.

GBP/USD

The British pound had managed to recover by the end of the day and rose to 1.5850 during Asian session. As we mentioned earlier when commenting on the UK Services PMI data, the statistics are too good to let the sterling fall...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/06032012-0953-euro%E2%80%99s-holding-132-despite-reduced-risk-demand

5/03/2012 Monday’s demand for risk remains weak

EUR/USD

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On Friday the euro dropped below 1.32 on the sales of technology stocks. During the Asian session the stocks were recouping the losses suffered on Friday's falling of U.S. stock markets, while the euro/dollar remained almost unchanged - just below 1.32. If the pattern we saw in December repeats itself, the single currency may fall into decline for a week or two. The fact is that the "soft money", issued by the ECB, is primarily directed to ease crediting conditions, which, in its turn, leads to lower euro borrowing rates. But after all, it positively affects the economy and spurs inflation, which is sure to support the single currency in the near future. However, that’s all about the future, and now it is important to see the clear signs of the European economic recovery. In this connection, today’s PMI report on services is of interest. The index has cooled the markets’ ardour, having fallen down to 48,8 against 50,4 in January and shown the preliminary data revised down to 49,4. As we see, February’s final reading confirmed the activity reduction. At the same time, business and consumer sentiment indicators are turned upwards, which promises further improvement in the coming months. Thus, if no extreme scenarios unfold, the eurozone economy will show a better performance in the near future. In case this improvement turns impressive and involves not only Germany and France, but also the periphery, investors will probably turn away from the bond sales in the region’s peripheral countries. Time will tell. But for now we warn you against going too far with these expectations.

GBP/USD

It looks as though traders had decided that the British pound has climbed too high and too fast. On Friday and during the Asian session on Monday the sterling suffered a big sale, having dropped to 1.5820...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/05032012-1049-monday’s-demand-risk-remains-weak

2/03/2012 ISDA report helps the banking sector, but renders no support to risk demand

EUR/USD

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Yesterday’s market events can be well packed into two stories. The first one concerns the ISDA’s (International Swaps and Derivatives Association) conclusion that the swap for private Greek debt holders is not a credit event and therefore will not trigger CDS. This news has supported equity markets, especially the banking sector, which feels somewhat mystically feared at the word "default". The other story is about rather unimpressive data on the economy. That’s all in relation to expectations, of course. If earlier the U.S. unemployment claims totaling 351 thousand gave rise to the most optimistic sentiments in the markets, now these figures don’t seem to be enough. Again too optimistic market expectations concerning the economy are somewhat alarming. In a week, on Friday, markets will see data on the US labour market. In general, economists expect the employment increase to go above 200,000. Such monthly rates of job creation have been observed only in the best of times. Now the state of affairs is not that perfect, so it would be better if the markets moderated their optimism. U.S. consumer spending rose by 0.3% in January, which is lower than the forecasted 0.5%. The manufacturing ISM figure hasn’t met the expectations, having fallen from 54.1to 52.4. It is still the phase of growth, but of a more moderate one. The markets however expected acceleration. The same trend has been also seen in the report on durable goods orders. The economy gained momentum in October-December, having built up ample reserves, so now it may slow down for a while, and though not being at risk of recession (yet) it is unlikely to show the same impressive acceleration as in winter. The single currency is falling, which goes along with the model we’ve observed earlier: the ECB’s loans cause weakness of the euro. The EUR/USD is now close to 1.33 and two days ago tried to break above 1.35.

GBP/USD

The British pound is trying hard to resist the across-the-board strengthening of the dollar. At the same time the pound is gradually crawling up and feels all the more freely above 1.59, which is also the level of the 200-day moving average...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/02032012-0950-isda-report-helps-banking-sector-renders-no-support-

1/03/2012 Is EUR becoming the carry-trade funding currency?

EUR/USD

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The data on the ECB’s direct loans proved adverse for the common currency and eventually generated demand for the dollar. It is quite an interesting result as the figures turned out to be close to the middle of the predicted values. Three-year loans totaled 530 billion euro. However, the euro failed to make any gains on the news. On the other hand, the peripheral bond yields began to decline straight away, thus indicating that the fears for the fate of these countries subsided. Judging by the influence such loans produce on the currency, they can be definitely attributed to quantitative easing, which makes borrowings in the currency cheaper. In the end, it should trigger off demand for risky assets and support lending. But at the initial stage, we are most likely to see the sales of the euro as the currency with lowered rates. Looking back to December, after the publication of the first 3-year LTRO the euro held to the same level for a few days at and then began to decline. It must be noted that then the euro sales were accompanied by the growth in stock markets, in contrast to what we had observed earlier. By the way, is it possible to say that with Draghi’s getting into office and the unfolding debt crisis in Europe the euro will become the funding currency? It all depends on how long it will take Europe to handle its current issues. So far treatment deals only with the symptoms while the disease itself remains unaffected and is progressing here and there.

GBP/USD

The data on the UK lending proved really surprising. Net Consumer Credit figures, published on Wednesday, came well above the expected values and proved to be the best over the long term...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/01032012-1046-eur-becoming-carry-trade-funding-currency

29/02/2012 Markets see the positive everywhere

EUR/USD

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The US dollar continues the retreat started on Tuesday. The currency is declining while the markets generally remain optimistic, thus generating demand for risky assets. Yesterday’s data on investor sentiment supported the markets. Conference Board’s Index of Consumer Confidence has exceeded everyone’s expectations, having risen to 70.8 in February, the highest level in a year. The data on Durable Goods Orders and the S&P/Case-Shiller Home Price Index proved to be a bit disappointing. However, the orders largely increased over the previous months (4.2% in November, 3.2% in December), so together with the 4.2% decline in January the figures have restored to the trend levels. Housing prices in the U.S. remain low or in the downtrend. But it is no news as this trend has already been indicated in other reports. The Americans are not very enthusiastic about purchasing single-family homes; they look for more affordable offers, despite the low interest rates on mortgages and the opportunity of a lower down payment. Europe still remains in the limelight of traders and investors. Today we’ll see the results of the ECB’s 3-year auction repos. The sums close to the previous LTRO levels are seen as the most favourable for the markets. High figures will reflect the need for serious refinancing in Europe, and low ones will generate fears that the situation won’t change much in the long run and that the banks will remain highly dependent on the goodwill of the markets.

GBP/USD

The British pound managed to rise to 1.59 during yesterday’s trading, as we promised. Today, it is already trading above the 200-day moving average, which is actually the middle level of the year...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/29022012-0931-markets-see-positive-everywhere

28/02/2012 Greece’s rating is cut to selective default, but who cares?

EUR/USD

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S&P has downgraded Greece’s credit rating to selective default (SD). This decision hasn’t come as a surprise, as the agency already promised to do it a couple of months ago. For this reason, there haven’t been any sharp euro sales. The agency has also pointed out that if there aren’t enough private investors engaged in debt swap, the country will inevitably face outright default. However, as the technical analysis shows, the euro sales were just held during the day yesterday, not longer. EUR/USD fell to 1.3366 during Monday’s session, but already now trading is again conducted around 1.3440. Demand in stock and commodity markets remains strong. And current traders’ talks more and more resemble those of early 2008. Traders underestimate the consequences of the European issues now just like they underestimated the graveness of the situation in the US and the UK banking sector then. Investors turn their eyes to the developed countries, performing rather well at the moment, as if the poor state of affairs in Europe wasn’t likely to impact developing China and Russia. Of course, there has been a certain shift in the economic models of China over this time, but the fact still is that all the developing BRIC countries heavily depend on demand in foreign markets. Moreover, most of their capitals come from the U.S., Europe and Japan, which is a result of the soft monetary policy in these countries.

GBP/USD

Following the market recovery, the British pound also tries to demonstrate some growth. However, its dynamics leave much to be desired, which is especially noticeable in the pair with the euro...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/28022012-0856-greece%E2%80%99s-rating-cut-selective-default-who-cares]Read full review

27/02/2012 G20 promises to secure $2 trln in firepower

EUR/USD

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On Friday the single currency continued to rally and reached 1.3485. The growth was supported by positive expectations in regard to Europe, as well as by the trigger of stop orders in the euro short positions. The impulsive rise in the single currency may hold for some more time, but it is unlikely to last for long. Now Spain steps onto that very spiral Greece has been lately moving along. The Spanish government more and more realizes its inability to fulfill the budget plans. Haircuts have just begun. Nevertheless, the markets mostly ignore this fact, being happy with the G20’s promise to increase the firepower of international lenders up to $2 trln over the next two months. One thing is of interest – who will pay for this? By the way, the major developing countries (BRICS) are said to negotiate in detail the foundation of a bank for developing countries at the G20 meeting. It seems that the dynamic economies are not willing to participate in financing of the troubled euro area and prefer to focus on the growth in their own states and on the cooperation with other developing countries. However, one of factors sparking off the euro rally was China's statement about its readiness to provide the euro area with greater support. China heavily depends on the investor sentiment, so it is the country’s vested interest to maintain as much stability as possible in the euro zone, with which it has very close trading relations. Stock markets today will seek to take profits after a week of remarkable growth, which may eventually lead to the euro correction and drive the currency down to 1.34. However, there will surely be some more attempts to break above 1.35 this week.

GBP/USD

Britain's Chancellor manifested its firm stance towards tax cuts and stimulation of the economic growth through government spending...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/27022012-1014-g20-promises-secure-2-trln-firepower

24/02/2012 Euro area rose to two-month highs on triggering of stop orders

EUR/USD

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The single currency has moved up on triggering stop orders and reached 1.3360. This level is the highest since mid-December. The rising optimism in stock markets and subsiding fears around Greece lead to partial liquidation of short positions in the euro. As has already been mentioned, the market is heavily tilted against the euro, yet its exchange rate has remained relatively stable so far. Thus, the upward movement of EUR/ USD has good chances to go on. This rally is supported by strengthening of stock markets on good reports and rise in prices of raw materials. Until recently the inverse correlation between commodity markets and the dollar has served well, helping the single currency to climb up. This time the long-term steadiness of this correlation is questionable because of the shifts in the euro area, which may keep exerting pressure on the performance of the eurozone economies for a long time to come. However, in the near term the single currency may get support from the markets. It’s not likely that the euro will face serious obstacles on its way to 1.35. European banks are supported by speculators on the threshold of the second 3-year LTRO auction. It is scheduled for the next week. The previous auction demonstrated the bank demand at 500 billion euro, and this time the volume is likely to be the same. With this tool at hand the ECB helps banks to ease the need for refinancing and to increase demand for government bonds.

GBP/USD

The punishment of the pound for ‘weak’ MPC minutes hasn’t lasted for long. Already throughout yesterday’s trading the pound managed to recoup most of its losses and return above 1.57...

Read full review: http://globegain.com/analytics/globe-gain-daily-review/24022012-1027-euro-area-rose-two-month-highs-triggering-stop-order