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 EUR/USD was actively sold at the 1.2745 level on the rumours that investors had withdrawn over a billion out of the suffering Spanish banking network.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 Now, from hearsay, over the first two days the withdrawn volume has amounted to over 1bln.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