Daily Reviews of major currencies from Globe Gain Forex Rebates

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18/05/2012 Rating agencies are again armed with knives

EUR/USD



Yesterday morning the markets were trying to change the situation with the oversold risky assets. However they failed. EUR/USD was actively sold at the 1.2745 level on the rumours that investors had withdrawn over a billion out of the suffering Spanish banking network. Now the markets closer than usually watch the situation with deposits as the sharp investment outflow can knock down any bank. Leaving aside the fact that exactly the capital withdrawal is frequently called a trigger of the Great Depression, let’s remember the year of 2007 and insolvency of the British Northern Rock. Further, let’s recall the story with Lehman which was seriously affected by overagression of investors, who altogether rushed to withdraw their assets. Going back to the present, two days ago it was bruited that over Monday on the futile attempt to form a coalition government the Greek banks had to give about €800bln back to their investors – this rumour was then refuted by officials. Now, from hearsay, over the first two days the withdrawn volume has amounted to over 1bln. And during the whole period of crisis the banking deposits have shrunk approximately by a third. Yesterday it also became known that Moody’s cut down the ratings of 16 Spanish banks, including the largest Santander and Bilbao Vizcaya Argentaria. This downgrade quite naturally followed the cut of the Spanish government rating. On Monday 26 Italian banks suffered a downgrade. The talks about the probable exit of Greece reached another agency. Fitch again revised down the rating of Greece to CCC, though it was raised just in March. Apparently, the agency will keep working with its sharp virtual knife in the future. They say that in Ancient China there was a torture called “death by a thousand cuts”… Taking into account such external conditions, the euro looks quite confident versus other currencies. Though day after day it’s been hitting new local lows against the dollar. And already today the daily minimum makes 1.2641 against 1.2660 that we saw yesterday. From day to day the intraday high has been declining, each day coming lower than a day before. To make sure that the similar dynamics is seen from a broader perspective as well, let’s consider the dynamics of the last 4 years. The peaks of the major trends have been as follows: 1.6037 in 2008, 1.5144 in 2009 and 1.4939 in 2011. The greatest lows, which were starting points of euro sales, were reported only twice: 1.2328 in 2008 and 1.1876 in 2010. If this dynamics persists further, the next low may be found below 1.17. There is a high probability of this even if Greece doesn’t quit the euro bloc. There are too many problems besides this small country.

GBP/USD

The top British officials to the full employ their means to impact the national currency rate in order to enhance the competitiveness of the domestic economy. On Thursday Premier Cameron stated that the BoE can and must do more to support the economy...Read full review

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21/05/2012 Just a correction, nothing more

EUR/USD



The markets cannot move in one and the same direction for long, even if there are reasons for that. Thus, Friday became the day of correction, when demand for risky assets was growing and the euro was appreciating since the start of European trading. Moreover, the single currency also managed to extend its modest gains during the Asian session. Earlier today EUR/USD successfully recovered from Friday’s lows of 1.2640 to 1.2810. It’s quite possible that being under high pressure since the beginning of the month the euro will try to close out this trading day positive as well. This run of events can be well contributed by the fact that concerns around Greece are currently subsiding as the G8 leaders have expressed their will and desire to keep Greece in the euro bloc, emphasizing the need for economic recovery incentives (the Anglo-Saxon approach), but at the same time keeping in force the demand for the balanced austerity (the German approach). Although this formal support doesn’t promise to ease Greece’s lot, it still can make the markets which for the last two weeks considered the question with Greece’s exit settled feel more optimistic. It’s not surprising that the leaders of the largest developed countries should pay such a careful attention to this rather small country. Roughly half of the EU countries are in recession judging by the data for 1Q. Despite quite favourable figures posted in the first quarter the recovery in the USA is evidently losing steam and experts suppose that by the end of the year the Fed will probably have to adopt some new non-standard policies to maintain low interest rates in the economy. There won’t be much statistics and therefore any obstacles to the correction today. The only thing of interest is the Construction Output release scheduled for today. This indicator remains in the down trend, and even lost at once 7.1% in February. The year-to-year reduction then made 12.9% and the overall loss from the peak levels in 2007 amounted to more than a quarter. As we see, in contrast to the USA, which have demonstrated no decline in the sector and even posted some gains there, the European affairs are far from being stabilized. So, we can hardly rely on a quick reversal here.

GBP/USD

The British pound finished the free fall of the previous week with the consolidation around the 200-day moving average level. The consolidation is now at 1.5820 after testing the low of 1.5730 on Monday morning...Read full review

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22/05/2012 Chinese incentives are to benefit EUR

EUR/USD



On Monday the markets managed to extend correction. The most reassuring thing is that the correction was performed simultaneously in different markets. In the previous review we mentioned that the growth of the euro against the background of the falling stock markets is nothing but a mere technical bounce. However, yesterday the demand for risky assets was supported in the stock markets as well. The American exchanges posted the largest growth in two months, speculating on the expectations that China is heading for a new wave of incentives. It looks as though the politicians of the Celestial Empire were afraid themselves that they stepped too hard on the brake and that the economy is now running the risk of hard landing. To confirm it, let’s turn to the Conference Board’s Coincident Index published overnight. It is the second time the index is on the decline over the last 4 months. And if in January the decrease could be regarded as a consequence of the public holidays in the country, April’s decline of 0.8% makes us ponder over the hardships the economy might suffer under the current financial conditions. The balancing Chinese officials are to carry out won’t be easy, as at the same time they will have to restrain property speculations. The Chinese affairs have a significant impact on the attitude to risk and, as has been repeatedly noticed, the stronger growth in Asia supports the euro. Of course, traders need to glance back at the state of affairs in the region itself. However, for now there is nothing of interest there, except for the French support of the idea of common bonds. This news is potentially favourable, but we all know how easily this potential disperses behind closed doors of numerous EU summits. EUR/USD has settled around 1.28, being too weak to go lower because of a record number of speculative short positions in the pair. Under such circumstances the market has no chance to go down, so the support at 1.2620 can remain intact over another couple of weeks.

GBP/USD

This day doesn’t promise to be easy for Britain. As we mentioned yesterday, today the markets will pay their attention to the publication of borrowing volumes in the public sector. Thus, the markets will be able to check how well the British exchequer is filled and how close Cameron is to keeping his pledges...Read full review

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23/05/2012 Good news for USD: the housing market in the USA looks better and better

EUR/USD



The former Prime Minister of Greece, Lucas Papademos, said that the country is hardly likely to exit the euro zone, though mentioned that the risk still remains. As we predicted, the recovery of the single currency has proved to be weak and short-term. Already yesterday the euro/dollar was falling without any serious news background involved. Sales grew only at the end of the day. Yet, it is of interest that the American exchanges closed the day at the opening levels, having made an attempt to grow prior to that. We again see that the markets don’t act in unison. Such a picture is usually observed when the market participants are focused on the technical side of trading and rebalance their portfolios. We’ve already mentioned that EUR/USD cannot break below 1.2640 straight off. However, after a certain consolidation, the chances that the pair will manage to do that will grow, should the events unfold in the negative way. Besides, the dollar will be in greater demand if America posts more improvements on concerns about the European integrity. The American bulls received a good reason to act yesterday on the release of the US Existing Home Sales data. The sales rate grew by 3.4% in April, which is within a slightly upward trend that we indicated after the reports on the housing starts. Another positive factor is that the median home price has grown right by $12.6K, up to $177.4K. We should also say that the stock of unsold homes has increased, nevertheless these fluctuations are within the normal limits and stay far from those extreme levels which were observed during the crisis and even a year ago. Tonight our optimism concerning the US housing market can be proved or disproved by the New Home Sales data. Investors forecast growth. It’s also expected that the House Price Index from FHFA will demonstrate positive dynamics as well. At the same time analysts feel more and more skeptical about the chances of the European leaders to come to an agreement in Brussels today.

GBP/USD

Yesterday’s news from Britain turned out to be quite favourable for those who are concerned about the country’s economy. The British government managed to achieve the budget surplus in April. The net debt repayment made £18.8bln...Read full review

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EUR/USD



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

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25/05/2012 While Europe is living a nightmare, America … doesn’t care

EUR/USD



Interesting enough, when America’s affairs are in a dreadful state, the whole world prays for mercy, but when the whole world goes to pieces, the States doesn’t seem to care at all. The American S&P hasn’t managed to perform any impressive bounce since the middle of the week, but still keeps edging up steadily. Meanwhile, Asian stocks are posting 5-week lows and the single currency doesn’t have enough strength to recover from the sales yet. For three consecutive days certain stabilization in active European trading has been followed by the euro sales at the end of the American session. Leaving aside the sharp drop on triggering stop orders yesterday, this dynamics can be easily explained. The euro is quite steady in Europe, as the European investors are simply shifting money from one country to another, without changing the currency. At the same time, American investors prefer to hedge their external risks, buying the stocks of the US companies and selling the euro and Asian assets. It’s of interest that the news from Europe should have a short-term impact only. Yesterday‘s PMI data came in very poor, showing a sharp decline in the German manufacturing activity (for the third consecutive month). The Business Climate figure also tumbled down from 109.9 to 106.9, which is the lowest level since last October. Such bounces are not typical of this indicator, in fact. The Current Assessment sub-index sank down to its lowest rates since July 2010. Need we say that the whole euro zone feels worse now? While the German Flash Services PMI stays afloat, demonstrating the same rate of growth as a month ago (the figure is 52.2), the similar indicator for the euro area has declined from 46.9 to 46.5, which is really low. The Flash PMI Composite is now at 45.9 against 46.7 a month ago. For now the signs of slowdown in the USA are little: Durable Goods Orders increased by 0.2% in April, while the Core Orders shrank by 0.6% against the expected 1.1% growth. Yet, it is just a leading indicator, so the growth won’t necessarily stop. Apparently, the economic slowdown is built in the rates of stocks, which have significantly depreciated since the beginning of March.

GBP/USD

Britain is suffering a recession, but yet the sterling can hardly be called a whipping boy. The revised GDP figure for 1Q has proved to be even worse than the preliminary one. When the first estimate came in, many said that the 0.2% decline might be revised up... Read full review

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28/05/2012 Buying on dips?

EUR/USD



They say that the most successful deals to buy stocks are made when the markets are quaking with fear and the forecasts differ only in the shades of black. Last week it seemed that the American stock exchange was involved in that very buying on the dips. But it should be mentioned that at the same time the euro and high-beta currencies hit new local lows. Against our expectations, speculators decided to make the most of the decline last week, thus triggering further sales on Friday. The euro sank close to 1.25. The markets first spread the rumour that Greece would use the coming long weekend to announce their exit from the euro bloc. However, by day’s end the attention had shifted to Spain, whose autonomous region Catalonia was said to be on the verge of bankruptcy. If true, the country’s debt situation would be much aggravated. However, nothing of the kind happened during the weekend, so the single currency breathed a sigh of relief, having jumped from the Friday level of 1.25 up to the 1.2590 level at early trading on Monday. This is close to the highs of the preceding session. So, no bad news is good news again. Let’s turn back to the US stock market despite the fact that there won’t be any trading today. Judging by the charts, the market participants are actively buying assets on the dips now. The charts show the birth of a bounce, which can well affect the course of trading today. With such a mood the euro can try to break above 1.2630/50. However, be careful when opening long-term positions. In our opinion, the current recovery attempt is nothing more than a bounce with a chance to turn into consolidation. The government supported Spanish Bankia asks for the €19bln bailout and plans to get it from the ECB, using government bonds as collateral. It looks as though the ECB was now involved not only in bailing out sovereign states, but also in saving the banking sector. If the Bank doesn’t mind it, it will be a new stage of integration as the CBs of Japan, Britain and the USA have already taken an active part in saving their banking sectors from collapse.

GBP/USD

As there is no important domestic news, the British pound has to follow the major market sentiments and movements. Thus, coming after the euro it is now consolidating a bit below 1.57... Read full review

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29/05/2012 EUR skips the short-covering rally, for the time being

EUR/USD



The correction bounce of the euro couldn’t last for long on Monday. Already by the end of the day the pair sank to its 2-year lows and closed out the day around 1.2530, where it keeps trading today. Meanwhile the markets are showing a slight increase. However, the current trend has hardly been triggered by growth in risk demand. Apparently, various funds are involved in rebalancing of their portfolios, collecting cheap stocks in accord with their trading strategies. That’s why the current bounce in the markets isn’t very helpful for the euro. The ongoing concerns around Greece and the Spanish banking sector put heavy pressure on the government bonds of these countries. The yield of 10yr bonds has already amounted to 6.5%. Remember that already the yield of 7% is considered to be unstable and can urge the country to beg the troika (EU/Fed/ECB) for a helping hand. Yet it should be mentioned that last year the yield of the Spanish bonds already reached that mark, then the collapse of the financial system was averted thanks to the interference of the ECB. This time the situation seems to be tenser. Again the markets see that Greece is not the only country which feels difficulty in observing tough austerity measures. Spain is also unable to meet the challenge. Despite the strenuous efforts of the central government, the regions cannot handle their deficits and the banks are in a dire need for the inflow of fresh capitals to liquidate the toxic debts. Yet we shouldn’t forget that since the beginning of summer the banks will have to meet new, tougher capital requirements. In that rule, however, there has been a reservation relating to the case of a sharp deterioration of the financial conditions. Can they be worse than now? As the spread between the yields of the ‘trustworthy’ countries and the Latin bloc is growing, Europe can do nothing but speed up the creation of euro bonds. The leaders have to reach a compromise as soon as possible.

GBP/USD

The dynamics of GBP/USD clearly shows how quiet the market keeps in wait for the further development of events. The bounce off the lows, the sterling performed on Monday has been fully recouped by today. The short-covering rally couldn’t gain momentum at thin trading... Read full review

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30/05/2012 American stocks up, EUR down

EUR/USD



The ongoing concerns around Spain impede an upward bounce in the euro. Yesterday EUR/USD hit a 2yr low, breaking through 1.25 and reaching the level of 1.2457 at some point. Portugal and Spain are still suffering the capital outflow. The yield spread between these countries’ 10yr bonds and German Bunds exceeds 1000bp for Portugal and 500bp for Spain. The German stocks cost more than their American counterparts (i.e. their yield is lower). This current state of affairs should hardly be attributed to investors’ confidence in the higher growth in Germany against the USA, but can be rather explained by the fact that the funds tend to withdraw their assets from the troubled countries, yet keeping them in the euro. It takes time to convert money into another currency, you know. Moreover, the euro is obviously oversold, so apparently the players will want to wait for a while to sell the euro on the bounce. Our supposition is also based on the fact that the American stock indexes keep appreciating. The drop of the euro and growth of the American stocks clearly show that the capitals deliberately flow to America which can supply much more assets of the proper quality. However, we should understand that the abnormally low yield of the German Bunds is connected with a huge volume of liquidity, which is now just waiting for its turn to quit the euro-zone. The German debt market, even when joined by the corresponding markets in the Netherlands and Scandinavian countries, simply doesn’t have such a great number of high-quality assets to satisfy the existing investor demand. Under such circumstances the market of joint Eurobonds would be of help, creating additional supply of reliable assets. However, on the other hand this idea entails subprime CDO. The world has paid a stiff price to learn this lesson. Probably, there is some sense in creating a kind of “subprime Eurobonds” which would generate money for weak European countries and have a corresponding medium rating. Their yield will be higher than that of the EU-wide bonds, but lower than the current yield of Greek, Spanish and Portuguese bonds taken separately. Besides, the yield of such bonds would be less volatile.

GBP/USD

The troubles of the euro don’t let the sterling grow or even consolidate at the same level. It can be explained not only by the correlation of the European currencies against the dollar or yen, but also by the fact that the Spanish banking sector issues put a heavy burden on Britain... Read full review

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31/05/2012 Hope dwindles

EUR/USD



As seen from yesterday’s rates, hopes that Spain would do without help of the EU were gradually melting away throughout the day. The pair neither bounced on bad news nor flew on an avalanche of triggering stop-orders. However, having started the day from 1.25, the euro/dollar closed it at 1.2370. Again it becomes evident that the single currency suffers the heaviest pressure at trading in America, while sessions in Asia and Europe go on by far more quietly. Yet, even then we don’t observe any significant corrections in the pair. The weak Italian auction with a low bid-to-cover ratio of 1.4 looks particularly prominent against the poor news background. The yield of the Italian 10yr bonds has grown up to 6.03% against 5.66% earlier this month. Their Spanish counterparts have even a higher yield of 6.66%. Both consumer and business confidence indicators keep falling, despite the fact that they’ve already been showing negative figures for several months in a row. There is a feeling that Mr. Draghi was wrong saying that the ‘moderate recession’ in the euro zone proved to be less hard than expected. The reality prompts that the decline in 4Q last year and stagnation in 1Q this year can be followed by a very undesirable run of events in the third and fourth quarters. The journalists now seem to have turned all their eyes from Greece to Spain, whose EU membership is up in the air at present. Our hopes that the euro would make a stop at 1.25 vanished yesterday. Apparently, even if the pair performs a correction bounce this week, it will prove to be rather insignificant in comparison with the drop, preceding to it. For the first two weeks of May we kept talking that the down trend in the euro, which over the last three years has become a common thing at this time of the year, has turned out to be half as strong as before. However, in 2011 the pair performed a correction bounce in the second half of the month, and as you know this time we’ve seen nothing of the kind. The current situation looks more like that in 2010 when the reversal took place in June below 1.28. Now hopes for June are great, as the middle of it will be marked with elections in Greece and its end – with the EU summit.

GBP/USD

Yesterday the pound-bulls finally lost their nerve. Considering the influence produced on the sterling, the bad news from Europe can be divided into two categories. For a while the negative sentiments in Europe were accompanied by purchases of the sterling, as investors sought refuge for their money and the market of high-quality assets, denominated in the euro, significantly shrank... Read full review