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23/02/2012 The euro gradually strengthens its positions
EUR/USD
The euro is slowly but steadily recouping its losses against the dollar. The single currency is oscillating around 1.3255, but can already boast a series of rising lows. This means that the currency is bought on the dips and that it is ready to take higher levels. As to news, Spanish appeal for mercy is of real interest. Spain’s Prime Minister asked the EU to raise the budget deficit target from 4.4% to 5%. Rajoy called it impossible to reach such a tough budget austerity. He is right, but all this suggests that the EU’s numerous concessions to Greece take their effect now. The precedent is set and now each troubled country will try to better its lot, asking for a bigger piece. The market has generally ignored this news, trying to concentrate on the positive aspects. The demand for risk continues to gain momentum, which cannot but result in strengthening of the single currency in the long run. This state of affairs is also supported by the U.S. statistics. The housing market in the States demonstrates a greater vitality than before. In January the secondary housing market showed the sales growth by 4.3% up to 4.57 million at an annual rate. This is the highest sale pace since May 2010. But then the market was supported by the government, and now - by falling housing prices. The average price of a house on sale dropped to 154.7 thousand dollars, which is ten thousand less than last year’s average price. Obviously, Americans are ready to buy houses, but only the cheapest ones and at historically lowest interest rates. Nevertheless, banks offer such conditions, as money in the markets is relatively cheap.
GBP/USD
The sterling received a serious blow on the publication of the MPC meeting minutes yesterday. In the minutes it was said that two members of the monetary committee advocated a greater expansion of the programme... Read full review
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24/02/2012 Euro area rose to two-month highs on triggering of stop orders
EUR/USD
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
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27/02/2012 G20 promises to secure $2 trln in firepower
EUR/USD
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
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28/02/2012 Greece’s rating is cut to selective default, but who cares?
EUR/USD
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
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29/02/2012 Markets see the positive everywhere
EUR/USD
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
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1/03/2012 Is EUR becoming the carry-trade funding currency?
EUR/USD
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
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2/03/2012 ISDA report helps the banking sector, but renders no support to risk demand
EUR/USD
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
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5/03/2012 Monday’s demand for risk remains weak
EUR/USD
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
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6/03/2012 Euro’s holding at 1.32 despite the reduced risk demand
EUR/USD
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
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7/03/2012 Markets fall on ongoing concerns around Greece, but the euro doesn’t look worse than its counterparts
EUR/USD
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
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