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 Post subject: FX Market Overview
PostPosted: April 24th, 2012, 1:15 pm 

Joined: February 20th, 2012, 2:57 pm
Posts: 42

According to the Confederation of British Industry, UK high street sales improved again in March all the way back to an index reading of 0. That might look a bit pathetic but it was minus 2 in February and the markets were expecting the index to weaken rather than strengthen. However, the failure of the Game group is sobering evidence that retailers are not out of the woods yet and the sales environment is challenging to say the least. Nonetheless, in the absence of any other UK data, traders took the CBI report as a positive sign and Sterling had rather a good day. Hopefully, that optimism will remain after this morning’s release of the UK economic growth data. This is the final calculation of the quarter 4 growth figures and we expect the -0.2% quarterly figure and the annualised +0.7% will be confirmed.
Sterling was also flattered by the weakness of the US Dollar. The Federal Reserve Chairman has been talking about further expansion of the US money supply through quantitative easing measures and in true supply and demand style that has had a negative effect on the value of the USD. The slight dip in US consumer confidence shown in yesterday’s report didn’t do anything to improve that situation. Perhaps this afternoon’s US durable goods data will improve the mood a little. We are expecting a rebound from last month’s minus 3.7% reading to perhaps 3% growth so that would boost confidence a tad.
European news remains worrisome; Spain is in recession and is announcing plans to slash spending but expected the economy to shrink by 1.5% this year. And Germany has announced that the German parliament will have a far greater say over any further EU bailout funds. That is not what Chancellor Merkel wants to hear because her grip on power over this subject is tenuous at best; even her coalition partners are cautious. And while this is going on, the Greek parliament is embroiled in serious in-fighting over the austerity measures forced upon them by Brussels in return for rescue funds. They are playing the problem down but it is yet another example of the politically created and supported euro causing serious political problems for its supporters. Whether that leads to a weakening of the support for the euro is a moot point at this stage but traders are cautious.
Meanwhile, nervousness over news and data coming from China has weakened the Australian and New Zealand Dollars and also the Canadian Dollar and South African Rand. China is such an enormous importer of commodities and is Australia’s chief export market so it is understandable that any hint of weakness in China’s economy will weaken the currencies of the providing nations. In fact, for those needing to buy Aussie Dollars, the current Sterling - Australian Dollar exchange rate is the most attractive it has been since 29th December 2011. That has put a smile on the faces of those moving to or importing from Australia; a smile that has been absent for quite a while. It is hard to know whether this is the start of a largest scale recovery but it is certainly an opportune moment to be grabbing some Aussie Dollars.
And as Britain agonises over who we might offend if we deport Abu Qatada and how the poor mite could be treated in Jordan, Italy ignores a court order and deports a convicted terrorist. And now the European Court of Human Rights has said they can’t make Italy reverse the deportation. Who is right and wrong? Only you can decide but should Italy and Britain be allowed to decide who lives in their country and who does not? You betcha.

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 Post subject: Re: FX Market Overview
PostPosted: April 24th, 2012, 2:10 pm 

Joined: December 14th, 2011, 5:07 pm
Posts: 2
Hello all,

The above market overview was from the 28th March. Here is today's report that we sent our clients this morning:

*Eurozone turmoil gathers pace

*Improved Canadian data largely ignored

*Australian inflation drops; interest rate cuts to come

I could almost write this report with the three headlines above and leave it at that. The Eurozone is the big story though. When you chain a group of countries together with a single currency, it could be argued that the currency is only as strong as the weakest link in the chain. It was easy when we could point at Ireland as the problem or Greece or even when we could point at the Mediterranean coastline and say, ‘The problems are all there’ but we are running out of fingers to point with now. France is torn between the left and right but looks like it may avoid the centre ground because that is occupied by the unloved Sarkozy. Greece is in political turmoil over the unpalatable austerity that the EU is foisting upon them and one of the potential Presidents thinks he can cut taxes and increase benefits without derailing the austerity plans (perhaps walking on water is a possibility after all). Holland appears to have lost its Prime Minister over similar concerns over spending cuts and that threatens their relationship with Germany. Spain’s economy contracted faster than forecast in Quarter 1, Europe’s purchasing managers are very pessimistic, as we saw from yesterday’s data and.... well I could go on but the essence of the message is that despite the EU, ECB and IMF telling us things will be OK and that there is plenty of money left to lend, no one is yet convinced that loans alone will solve the structural problems that are inherent within the Eurozone; hence the Euro weakness we have seen in recent weeks and again overnight.

Yesterday afternoon brought Canadian wholesales sales, which were better than expected at 1.6% growth against a forecast of contraction. The market reaction was muted though. US data seems to be more influential on the value of the Canadian Dollar these days but today’s release of Canadian retail sales data may have some impact. We are expecting a mixed set of numbers but variation from the forecasts is often the driver of volatility.

Overnight news that Australian inflation rose just 0.3% in the 1s t quarter of the year; barely half the amount markets expected, took on much more significance due to previous Reserve Bank of Australia comments. Before the day is out, I imagine the bond markets will have priced in a 100% chance of the RBA cutting the Australian base rate by at least 25 basis points when they meet on May 1st and that is reflected in the overnight fall of the Australian Dollar. We are not at the psychologically longed for A$1.60 to the Pound but we are at the best levels for Aussie Dollar buyers since December 2011.

Aside from the Canadian numbers mentioned above, today’s data diary includes UK government borrowing data and US consumer confidence but tomorrow brings a US and New Zealand interest rate decisions, UK GDP growth data and US Durable Goods orders. All could be very influential and all/any could allow the Pound to make a proper advance.

Away from the markets, it seems guns are everywhere. Just days after Pippa Middleton’s friend was snapped pointing a gun at photographers in France, a teacher in Virginia has been arrested after firing blanks at his students in his class. I would guess there are a number of teachers who have felt that way at some time but scaring the living bejeezers out of the kids with a firearm (real or otherwise) is not an option I am afraid to say.

If you'd like to be subscribed to our daily or weekly currency insights please private message me with your details or email clare.allen@halofinancial.com.

Many thanks,

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