Daily Reviews of major currencies from Globe Gain Forex Rebates

[Globe Gain]

04/05/2012 Even Dove Draghi turns into Hawk Draghi with time

EUR/USD



Mario Draghi started yesterday’s press-conference with quite an unexpected statement pointing to the low possibility of further rate cut or another LTRO. It is a really surprising stance, especially at the time when the European countries one after another slide into recession. Apparently, the atmosphere in the ECB is such that no matter how peace-loving the ECB’s head is he will eventually turn into a hawk. Of course, it wasn’t without the heavy pressure from Germany, all the ruling top of which reacted nervously to the latest actions of the ECB in regard to long money and easing of collateral requirements. However, to Draghi’s credit, he honestly pointed out his readiness to consider further measures of economic stimulation should the political risks grow. At the coming weekend the presidential elections in France and parliamentary ones in Greece will take place. The people’s dissatisfaction with the current authorities is quite natural, however there is a big question if the new authorities will be able to change the situation for the better or if they just ruin all the groundwork, laid with such difficulty. At the very beginning of Draghi’s performance the euro dropped by 30bp, but then immediately started to grow and reached the daily high of 1.3180. However, nothing of particular interest was said, so the pair closed out the day exactly at that very level from which it started the day, i.e. 1.3150. This day promises to be very quiet before the release of the US employment data. On average the market analysts expect the 170K growth after the increase just by 120K a month earlier. Yet, in our opinion, there is risk that today’s data will be similar to those of March. The ISM Non-Manufacturing PMI, published yesterday, shrank sharply in April from 56.0 to 53.5, though a much softer lending to 55.5 had been expected. The employment component of the index also slowed down, promising a lower growth rate than in the preceding month. It’s really important as the services sector makes 80% of GDP.

GBP/USD

Yesterday the British pound worried about its continental vis-à-vis, but still managed to do just the 60 bp journey from its daily low to daily high, which is not much for such a volatile pair. As a result, the gradual downward slide in the first half of the day was diluted with two relatively sharp fluctuations down and up, after which the pair calmed down...Read full review

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07/05/2012 The wind of change

EUR/USD



Last weekend was really eventful. Besides, all the published news contributed to the reduction of risk appetite. The euro opened the week with a huge gap down, broke the 1.30 level and stopped just at 1.2950, though Friday’s trading was closed at 1.3080. To begin with, the American employment data turned out to be utterly disappointing. The number of jobs in the non-farm sectors grew by 115K. Remember that the earlier market optimism in regard to this indicator was gradually melting away last week. At its beginning the markets forecasted the 200K growth, while by its end the jobs were expected to increase just by 160K. But the factual data proved to be even lower than this. The current growth rate is the lowest since October 2011. The manufacturing industry added just 16K, which is the minimal level since November. The bitter pill was sugared only by the backdated increase of the figures for the previous two months. All this didn’t smooth the slowdown much. Again and again the winter impetus dies away by summer and economy falls into stagnation. Investors shouldn’t be too happy about the reduction of unemployment down to its 3-year low of 8.1%, as it was a result of the sharp 342K decline in the participation rate in April. The average hourly earnings rate showed even a stronger slowdown and totaled just 1.8%. For all that, it would be interesting to know how the FOMC, the members of which almost unanimously claimed last week that there was no need in further stimulation of economy, feels under such circumstances. Further about Europe. The elections in France have ended with the victory of Hollande, which accordingly implies the end of the “Mercozy” era. What’s really unpleasant is that Merkel and Hollande had already addressed each other with stinging remarks before it became known that Germany would have to save Europe alone, without the support of the eccentric French president. The Greek affairs are far from being perfect as well. The two ruling parties, New Democrats and the socialist movement PASOK, managed to retain only half of the seats in the Parliament. Remember that only these parties openly support the bail-out terms of UE/IMF/ECB. Others have been indulged in populism and, one or another way, spoke about the possible secession from the EU. There remains only to see what they will do when in power. One thing is sure: it’s period of change in Europe.

GBP/USD

It looks as though the wind had changed its direction for the sterling as well. Following the 10 ½ -day rally, the correction phase has set in. It’s too early to speak about the all-out sales now, but the fact, that for 6 trading sessions in a row the pound has been falling vs. the dollar, cannot be overlooked either...Read full review

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EUR/USD



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

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EUR/USD



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

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10/05/2012 EUR rewrites the four-month low

EUR/USD



The Spanish government has received the 45% share in Bankia, the third largest banking group in the country. 4.47 bln of the governmental aid will be converted into equities, thus allowing the group to build up its capital and confirm its solvency. The talks concerning the necessity of this step put pressure on the stock exchanges on Wednesday and also contributed to the euro sales. Even the rhetoric of Weidmann, president of Deutsche Bundesbank, hasn’t helped the euro. Weidmann keeps persisting in his opinion that the current measures, proposed by the ECB, are temporary and that the Bank shouldn’t be required to take any further steps to maintain the stability. Yesterday the single currency rewrote the four-month low, having fallen down to 1.2910. And today the pair hasn’t found any sound reason to bounce up yet and is trading around 1.2950. Technically it looks as though the common currency had broken through the bottom, which it was bouncing off for the preceding three months. The situation similar to this happened a bit earlier to the Aussie and there the breakdown proved to be real. With the single currency it’s a bit different as there are more factors to consider, so there are still those who believe that the current breakdown is false and that the pair has the potential to grow. It is quite possible, especially if we take into account the fact that over the recent three days the March statistics for Germany have come in beyond expectations. On Monday it was the release of Factory Order data (+2,2% m/m), on Tuesday – of Industrial Production figures(+2,8% m/m) and on Wednesday – of Trade Balance statistics (13,7bln), which proved to be higher-than-expected against the growth of both imports and exports. Euro-bulls feel more and more confident that, having shown fairly good growth in 1Q, Germany will evade falling into recession and will even manage to pull up some other countries in the region in the coming months.

GBP/USD

This day is very important for the sterling as the Bank of England will announce its decision concerning the interest rate and asset purchase programme. Most market participants suppose that the Bank will take a break and won’t extend its QE programme...Read full review

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11/05/2012 Keeping our fingers crossed for Greece

EUR/USD



‘Hedging failed’ – that’s the way Jamie Dimon, JPMorgan CEO, has described the trading loss of $2bln. In fact, the losses will hardly end there and in this quarter there will be further losses resulting from market volatility. Some especially meticulous analysts suppose that the company will possibly lose another $3bln. It’s a hard blow for the reputation of the company and its managers. Such unexpectedly bad news not only put pressure on the stocks at the end of the American session, but also can become an eventful moment in the fight of investors against Walker’s rule. All this may or may not have far-reaching consequences. However, the fact is that the single currency has again rewritten another local low. To be honest, for the three consecutive years the beginning of May has been associated with the massive euro sales. But even despite the drop the single currency looks more confident than in 2010 and 2011. Those years the difference between the max and min levels made 10 points in the first two weeks of May. This time the euro has sunk only by 4 points. Well, not bad for the barely alive euro. This week the markets are to plunge into the disturbing time of teetering on the brink, when decisions concerning Greece may be taken just a few hours before the deadline. Today is the last day when the Greek parties will try to form the coalition. If there is no coalition formed, the president of the Republic will have to announce the rerun of elections.

GBP/USD

Yesterday we proved to be wrong in regard to the BOE’s actions. The Bank preferred to do nothing, keeping the size of the QE programme at the level of £325bln...Read full review

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14/05/2012 EUR plunged below 1.29. Politicians consider the losses the Greek secession may inflict

EUR/USD



The single currency opened the day with a drop below 1.29, caused by the persisting political uncertainty in Greece. Apart from the Bloomberg’s survey which forecasts the more than 50 % probability that “at least one country will leave EU by the end of the year”, some European officials already say that the consequences of this step are discussed at the summit level. As many times before, the deadline for the political decisions on Greece has been passed with no certain decision taken. The country still doesn’t have the government. The ECB’s Honohan said that “technically” Greece can disintegrate the euro, but it may damage the currency. Germany’s Finance Minister Schäuble pointed out that none of those who demands austerity from Greece cannot make the country stay. The European Finance Ministers will meet today to discuss the fate of further tranches to Greece and the situation in Spain. We believe that the worst point of Greece’s quitting is that it will severely damage the confidence in the banks and companies in other troubled countries like Spain and Portugal. Perhaps, even Italy will be affected. If officials are really weighing up the probable exit of one of the countries, they should, for a start, think over and agree on the mechanisms to assure the markets that this is really ‘an exceptional case’. As you remember, the attempt to make the markets believe that the Greek debt restructuring was this very exceptional case proved to be vain.

GBP/USD

The British pound has been gradually declining for two days. The level of 1.6180 became the starting point of sales in the currency after the upsurge on Thursday. The sterling has reached the strong support level of 1.6060 and is trying to break lower...Read full review

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15/05/2012 Markets paint the countries black and white, without any shades of grey

EUR/USD



Obama decided to seize the chance and surf the wave of people’s wrath with large banks. The US President pointed out that the JPMorgan loss would lead to tougher regulation of financial institutions. This is just what we feared when spoke about the $2bln loss of businesses (further it may even amount to 3bln). Such perspectives are favoured neither by investors nor by companies. As a rule, at these important points, when the fate of such bills hangs in the balance, the markets go down. Since the USA is heading for presidential elections, Obama will try to play his card as well as possible. It’s hardly good news for the markets. The regulation issue may appear on the agenda in a couple of months. However, at present the markets also have something to worry about. Stock exchanges remain under pressure of risk asset sales. For all that the single currency looks surprisingly steady against other high beta currencies. Thus, though EUR/USD edged close to 1.28 earlier today, EUR/AUD has been gradually growing since the beginning of the month. The thing is that the European debt markets still see everything black and white, without any shades of grey. The countries, where politicians declare their intention to reject the austerity, are severely punished by the markets. The spreads of French, Spanish and Greek bonds are growing against Bunds, the yield of which hits record lows. Earlier medium-term bonds served as a good indicator of inflationary sentiments, but now they do not. The yield of German 5-year bonds makes 0.5% at present, despite the fact that some of the country’s officials have already claimed their readiness to be more tolerant towards the inflationary pressure, allowing for a bit faster price growth.

GBP/USD

The British pound survived Monday with credit, having managed to hold the important level of 1.6060. The pound was at that point when the single currency was rewriting its 4-month lows against the dollar. And when the euro stabilized the sterling became much in demand...Read full review

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16/05/2012 Escape velocity

EUR/USD



«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

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17/05/2012 Markets are sick and tired of falling and make feeble attempts of correction

EUR/USD



Yesterday the markets rewrote their local lows on growing concerns around Greece. EUR/USD sank as low as 1.2680, but by now has slightly bounced up to 1.2745. We cannot say that the situation has changed much for the better, so the current movement should be regarded as nothing more than a mere correction after a rather large anti-rally. Since the beginning of May the pair has dropped by 6 points from the 1.3260 level. As has already been mentioned, this year’s movement resembles those of the previous two years, however this time the decline is half as strong as before. The reason for that is not only the fact that the poor news from Greece has been a real cause for concern over the last three years, but also that money, flowing out of the troubled European countries, goes into the bonds of more fortunate states of the same Euro-Zone. Literally, it seems to be a simple transfer of money from one pocket into another. The mischief of this is that these pockets belong to different parties. Since there is no tight fiscal unity (and there’s not many who want it now), the current situation with weak and strong EU countries cannot be compared to the way money is distributed between rich and subsidized regions in one particular country. However, inside Europe there exist very close ties, that is why the periphery’s issues tell badly on the business sentiment of the core countries. In long term it adversely affects the region’s potential, putting off the time when the economy will be finally able to afford the normalization of interest rates. Standing in contrast to all that, the USA keeps carving its way upwards. The housing market is moving with more than a measured tread, but this is not a decline already, but a steady organic growth, absolutely different from that boom period. In April the Housing Starts grew up to the annual rate of 717K. A year ago the figure was 552K. The graph clearly shows that the market is still in the uptrend. It’s also surprising that physical capacity should be utilized that much. Yesterday’s data on industrial production have recorded the capacity utilization at the level of 79.2%. In the boom years that indicator was a bit above 80% and in the depths of decline went down to 66.8%. The industrial sector has recouped 80% of the losses incurred during the crisis. In this regard, the USA has a more strained situation with the inflationary pressure. However, in the released FOMC meeting minutes it is clearly seen that the Fed has preferred to focus on the possible risks on the side of the euro-zone. That’s true, we are more concerned about the things which are unamenable to our control.

GBP/USD

The idea that we worry most about the things which are out of our control was also confirmed by the BOE King’s speech yesterday. Rendering another quarterly inflation report, King also said that the consequences of the EU disintegration are unpredictable...Read full review