Daily Reviews of major currencies from Globe Gain Forex Rebates

[Globe Gain]

01/06/2012 EUR is heading for the lower depths, but who will have the courage to buy it?

EUR/USD

The ECB calls for politicians to develop a new investment guarantee mechanism at the EU-wide level in order to eliminate an adverse effect, which capital shifts within the region are now producing on some banks. In their turn, the politicians keep emphasizing that the ECB has to take a more active part in bailing out of the troubled countries. While chief officials are shifting responsibility on each other and dictating others what to do, the EU countries keep falling on the domino principle, and the single currency is hitting new lows against the dollar and yen. Yesterday there was an attempt to cover massive shorts, which eventually pulled the euro up. At trading in Europe the pair grew up to 1.2427. However, just as it was in the preceding days the American session brought with it a wave of sales in the euro, which drove the pair down to its daily low of 1.2336. At early trading in Asia the pair hit a new low, 1.2323. We can’t say when this trend will come to its end, as, though the decline two years ago was similar to the current one both in the scale and rate levels, the politicians at least formally rejected the possibility of the EU disintegration. Technically the euro is severely oversold, but it’s hard to find enough optimists which could produce any significant impact on the situation, reversing the trend. There is a feeling that speculators will try to push the pair below 1.20 next week. As seen from yesterday’s trading, poor news from the USA again boosted demand for the dollar. The ADP’s labour market data marked a growth of the US non-farm employment -133K against 113K a month before. The indicator was expected to grow by 145K, and at the beginning of the year the monthly increase made about 200K. The second quarter again proves to be much weaker, which can generate a need for new incentives from the Fed. Buying the dollar on poor figures from the USA, the market clearly shows that it is going through a crisis. The flight to the high-quality US corporate assets has led to the exit into the country’s liquid and deep treasury market. It just remains to see how poor the payrolls will be.

GBP/USD

There isn’t much news from Britain, but nevertheless it doesn’t hamper the dynamics of the currency. The sterling is falling against the dollar much faster than the euro, which is clearly seen in the second attempt of EUR/GBP to tear off the 0.8 level... Read full review

 

[Globe Gain]

04/06/2012 Poor payrolls revive Fed’s idea of QE

EUR/USD

Since payroll figures proved to be poor, the likelihood of further QE has significantly grown. The US non-farm employment has gone up by 69K. As has already been mentioned, the decline in economic and employment growth is quite typical of summer months. In this connection, many economists expected that May would be a weak month, forecasting the employment growth at 150K against the average half-yearly figure of 200K. However, the reality turned out to be even harder than this. The actual figures for May-June have shown employment growth just at 69K. Meanwhile, the data for April have been revised down to 77K against the initial estimate of 115K. What is important, the average workweek has shrunk from 34,5hr to 34.4hr. At first sight, the minimal decline has reflected a serious issue. The total time worked out in May has proved to be less than in April. The dynamics of labour remuneration are also of interest. The wage increases are lagging behind inflation and keep slowing down. The annual average hourly earnings have made 1.7%. The most recent available data on inflation for April have shown a 2.3% growth. Of course, it is better than 2.9% that we saw two months ago and than 3.9% in last September. Still, the decline in real earnings will continue to produce an adverse effect on spending. Thus, already now we can see a drop in the savings ratio, which can hardly be attributed to the disposition of Americans to live on credit. They simply need more money to satisfy their daily needs. In other words, America could need a new injection of incentives to escape another slowdown. That explains why the euro after a short fight still has started growing, and the price of Gold has skyrocketed from the preceding low of 1540 to 1630 just over a few hours. The single currency, which over the first few minutes was pushed down to 1.23, closed out the day above 1.24. It may eventually give rise to the short-covering rally in the euro, provided there aren’t any unpleasant surprises from Europe.

GBP/USD

Not all the currencies have displayed an equally positive reaction to the troubles of the dollar. The sterling proved to be among those which failed to close the day positive, despite the growth of the pair on the release of the US employment data... Read full review

 

[Globe Gain]

05/06/2012 May the correction start!

EUR/USD

The single currency is appreciating this morning. The correction of extreme oversoldness in the single currency is running its course. EUR/USD has gone above 1.25 at trading in Asia. This long-awaited correction is contributed by a neutral news background. It was a quiet day yesterday and the markets closed it out flat. Today’s correction can be explained by the expectations that the phone conference of G7 financial ministers scheduled for today will lead to some positive shifts towards resolving of the EU crisis. As G7 mainly consists of the countries which handle the slowdown by means of spending increase, Germany will turn out to be in the minority. As opposed to EU summits where Germany is the country with the largest economy, here its adherence to austerity will hardly meet any sympathy. Probably, Germany will announce its readiness to sacrifice the short-term drive for balance for the sake of a higher potential in the long term. There are certain grounds for that as Europe is now travelling the path of greater integration, which earlier was actively advocated by Germany. However, now it is not the only reason. Apart from the perspective to set more ordered budget rules, the markets need to be sure that the banking sectors of the troubled countries will get support from rich states, which in fact can be rather problematic. As usual, Europeans are very ingenious when it comes to long-term rules and plans, at all cost trying to put off the moment when they will have to part with their money. Yet the essence of the matter is not only in the greed of rich countries, but also in the fact that these countries’ electorates regard the Greek bailout as their personal loss and a too generous present, forgetting about ‘penalty’ interest rates imposed on Greece in accord with these rules. So, on the one hand the markets are pinning high hopes on the G7 leaders, but on the other hand demand immediate measures from the weak countries. A couple of weeks ago Spain carried out cash infusions into their banking system and yesterday it became known that Portugal is also infusing €6.6bln into its largest banks. Remember, the banks need cash infusions to meet the new budget requirements from EBA by the end of this month.

GBP/USD

The sterling is gradually catching up with the euro. Earlier today it was trading close to 1.54. However, we shouldn’t expect any sharp movements in the pound today as Britain is still on holidays, celebrating the Queen’s Brilliant Jubilee... Read full review

 

[Globe Gain]

06/06/2012 Between Fed’s QE3 and ECB’s LTRO

EUR/USD

Mariano Rajoy, Prime Minister of Spain, keeps upsetting the markets with his unexpected remarks. Yesterday he kicked the euro from 1.2520 down to 1.2410, pointing out that the country’s banking system is "in an extremely difficult situation". He also mentioned that joint euro bonds could ease the pressure currently imposed on the Spanish banks. Nevertheless, the aforementioned drop was soon followed by another attempt to go up to 1.25, where the pair found itself earlier today. Yesterday afternoon the markets were full of hope that after the phone conference the G7 finance ministers and leaders of the local CBs would take joint actions to handle the EU crisis. But the hopes were not realized and now we can expect actions only from some CBs. In particular, the markets believe that there is a high probability of further QE or extension of ‘operation twist’. However, some members of the FOMC are trying to cool the ardour of market participants, saying that the issue is not settled yet and that it is not reasonable to be guided only by employment reports. Indeed the Fed has now got much space for maneuvering: lower inflation pressure, economic slowdown and an opportunity for further QE to satisfy the demand for again safe dollars. But on the other hand, capacity utilization is now within the norms, so here further stimulation of growth will turn into inflation much quicker than in Europe. Today the ECB will announce its decision on the rate (it usually occurs on Thursdays). As is often the case, most of the focus will be pinned not on the decision itself (here we expect keeping the rate at 1.0%), but on the commentary of the CB’s head. The Bank is also scheduled to release its economic and inflationary forecasts. Meanwhile, the markets will wait for liquidity injections through LTRO.

GBP/USD

Except for the Queen’s Jubilee celebrations, there isn’t much news from Britain. Judging by the news released today, the rate of price increases in the country’s shops has stabilized after a decline... Read full review

 

[Globe Gain]

07/06/2012 ECB’s and Fed’s members keep up risk demand

EUR/USD

It is not the first time when at the beginning of Draghi’s conference the markets mainly sell the euro, but eventually switch over to buying of the currency. First Draghi pointed to the fact that the forecasts for the second quarter had changed for the worse. Yet he didn’t suggest anything new to maintain confidence in the suffering banking system. It surely disappointed the markets, though later they tempered justice with mercy on the news that the Bank would continue to hold 3-month auctions to supply unlimited liquidity. Besides, it is prepared to do that as long as needed, another year of auctions is guaranteed. As has become known, some chief members of the bank voted for the rate cut. So the further questions to Draghi were imbued with the anticipation of a rate cut in no longer than a month. However, Draghi’s comments don’t make it sure. He generally prefers to ‘buy the time’ while EU politicians follow the path of deeper integration within the euro bloc. In the meantime the Fed has changed its tone into more dovish. Fed’s Vice President Janet Yellen, referring to the ongoing troubles in the housing market and worse financial conditions, announced probable extension of Operation Twist. Remember that the first round comes to its end this month. Within it the Fed has been exchanging 400bln of 3yr bonds for 6-10yr bonds since the end of the last year. It’s very likely that this operation has contributed to the decrease in the yield of American 10yr bonds from 3.0% to 1.6%. It’s also possible that further decline in the yield of 10yr bonds will be undesirable for the Fed, for this reason the Bank will focus on longer-term bonds. It will make the yield curve even flatter. Anyway, the news that the Fed is considering to support the markets further helps the stock exchanges, keeping up demand for risky assets. The single currency managed to consolidate above 1.25 yesterday and earlier today was trading close to 1.2560. Probably, today’s speech of Ben Bernanke will strengthen the positive market sentiment even more.

GBP/USD

Today is a very important day for the sterling. And though analysts don’t expect any changes in the monetary policy and don’t think that the QE programme will be extended, traders still have built such probability into the rates... Read full review

 

[Globe Gain]

08/06/2012 Hawkish central bankers?

EUR/USD

Two-three months ago we took the absence of news as good news. At that time the incoming statistics often proved to be either worse than expected (on US, Australian and Chinese economies) or utterly poor (on the sovereign crisis of the euro-zone). Then in the periods of lull there still were some buyers of cheapened assets, and the situation was gradually changing from ‘positive’ into ‘moderately positive’ and eventually slipped into what we see now. The recent employment data turned out to be so poor that immediately awakened anticipations of further QE across the market. The confidence in this run of events grew as the scheduled speech of Bernanke approached, but was completely destroyed yesterday afternoon. The tone acquired by the Fed’s head was not entirely hawkish as he didn’t totally deny the possibility of further incentives. But against general expectations Bernanke didn’t provide a slightest hint about how the next QE round would look like and under what conditions it could be launched. Is the history really that cyclic and the markets will have to wait for August to hear the new QE terms and for the fourth quarter to finally see the startup of the programme? It’s no good, if the events unfold this way. But probably, the whole story will follow an absolutely different scenario. This week the chief central bankers and G7 Finance Ministers have summoned a conference-call where they, most likely, discussed the EU debt crisis. Then on Wednesday and Thursday we saw that the central bank governors, who earlier willingly agreed to QE in such circumstances, all of a sudden took up a firmer stance. Earlier the ECB as well as the Fed and the BOE treated the EU affairs as the basic cause of uncertainty. So, it would be natural if Germany moderated its stand, thus boosting improvement in financial markets and making further QE unnecessary. But be careful, we won’t know this for sure until the G20 leaders provide their comments on the situation at the end of the month. On the disappointment caused by Bernanke’s speech EUR/USD dropped below 1.25 at trading in Asia.

GBP/USD

As has been mentioned above, the CBs seem to be less decisive in their actions than it is awaited by the markets. We belong to those who yesterday were disappointed by the BOE’s inactivity. The FOMC kept the rate and programme size unchanged... Read full review

 

[Globe Gain]

18/06/2012 A flicker of hope in the depths of despair

EUR/USD

Many traders know very well that May is not the best month for buying stocks, and this year was not an exception. Yet the most interesting thing is that the crisis peaked in May not only because of the economic slowdown, but also as a result of political uncertainty. The biggest mystery surrounded Greek elections and their outcome. Given their preference to the parties supporting the EU membership and bailout Greeks have made it clear that they don’t want to be Europe’s outcasts. Many commentators still keep estimating how favourable the EU disintegration could be in the current situation, but it seems that this issue is no longer that high on the agenda. The chosen solution finally appears to be right. Now the matter depends on the EU leaders, who are to set forth a plan of further integration within the euro bloc. In the meantime the experts, who track the FOMC’s sentiments, more and more tend to think that after a two-day meeting the Fed will announce another round of Operation Twist. This news has a positive effect on the risk demand. Since the beginning of June the single currency has managed to break the downward trend, albeit nervously and with occasional drops. It’s quite likely that the upward movement will persist. Yet, we don’t know for sure if it will develop into a month or two long correction or into a reversal lasting till the end of the year. This wholly depends on the steps the officials will take, and it is always connected with a high degree of uncertainty. Nevertheless, it’s most likely that till the end of the month the euro/dollar will try to break above 1.30 again.

GBP/USD

The sterling resumed its movement against the dollar at the end of the last week. All through the second half of May the British currency had been trading below the 200-day moving average against the greenback... Read full review

 

[Globe Gain]

19/06/2012 And still the risk demand is growing

EUR/USD

Despite the obvious improvement in the general news background, the single currency faced sales in the second half of the day yesterday. Formally it was not without reason. But the newly elected Greek government still needs to show its will to take further austerity measures. The expectations that Germany would take a less tough stance under the pressure of other G20 leaders also didn’t manage to develop into something tangible yesterday. While formerly the markets got disappointed in the results of the EU summits, now they get disappointed with the summits held by the leaders of the most influential countries of the world. However, the dollar hasn’t managed to appreciate not only against the euro, but also against most risk-sensitive currencies. EURUSD remains in a slightly upward trend. It’s very likely that before the release of the Fed’s decision, which is scheduled for tomorrow evening, the market will hardly venture to storm the 1.25 and 1.30 levels. However, the positive dynamics of the stock exchanges shows that the negative of May has already faded away. Just as in the previous few years the market participants more tend to buy on the dips, seeking out attractive assets. Frankly speaking, the current behaviour of the central bankers gives the world much food for thought. The RBA has decided to abstain from any extreme measures, the BOE has delayed another round of QE at least for a month, the Reserve Bank of India has surprised with its inactivity, the Banks of Japan, Canada and New Zealand haven’t taken any measures either. All that happened between the summits of the G20 Finance Ministers and CB heads and the leaders of these countries. It seems that they still feel certain that the euro zone will preserve its integrity and also tend to curb the capital outflow into the relatively safe dollars and yens. Of course, to some extent all this resembles a kind of the conspiracy theory, but we should bear in mind that the rates are now very high and the politicians are least of all interested in the fast capital movements among the countries and large fluctuations of the currency rates.

GBP/USD

Just like the euro the sterling abstained from storming important levels. Yesterday morning the British pound reached the average annual level of 1.5730 and then dropped below 1.57, where it remains now... Read full review

 

[Globe Gain]

20/06/2012 QE, Twist or nothing?

EUR/USD

Those, who ventured to stake on risk yesterday morning, must have been generously rewarded in the evening. Though at the end of Monday’s trading the single currency sank to 1.2550, already yesterday evening it found enough strength to test the 1.27 level. Today’s quotes remain close to this mark. The Fed’s meeting is ahead. In the last few days it has been widely rumoured that the FOMC will react to the weak market data with another round of Operation Twist. The major advantage of such steps over the additional purchases consists in the absence of any inflationary aftereffects. The fact that the market more expects Twist than Q3 is seen in the reaction of Gold and Oil. These commodities usually face a strong rally on the expectations of higher inflation, however this time it’s more likely that their growth simply reflects depreciation of the dollar. Meanwhile, the stock exchanges on the contrary look much more cheerful, as the reduction of long-term interest rates (the consequences of Operation Twist) makes investing in the stocks more attractive and promising. The euro still meets certain obstacles on its way and the periphery bond yield remains high. Nevertheless, yesterday we saw some signs of progress. From the FT we learn that Monti is advancing the plan of periphery debt buyback by means of EFSF. Yesterday we also heard messages that the Spanish banking sector can get up to 125bln, as Germany is likely to take a less tough stance. In these circumstances it becomes clear why most central bankers have been abstaining from any significant activity over the last two weeks. The Fed can also follow the same scenario. In other words, we shouldn’t regard Twist as a settled thing. If today’s meeting proves to be disappointing, we may expect the short-term surge of interest in the dollar, however the overall improvement can finally prevail. No matter what results we will see today, we suppose that at the end of the week the euro will be above the current 1.27.

GBP/USD

If earlier inflation in Britain proved to be higher than forecasted, now it systematically comes below the overall expectations. The CPI data published yesterday indicated a 0.1% drop instead of the expected 0.1% growth... Read full review

 

[Globe Gain]

21/06/2012 Small Twist

EUR/USD

The Fed managed to surpass the market expectations. Yesterday the FOMC announced that it would purchase the Treasury securities with remaining maturities of 6 years to 30 years and sell or redeem an equal par value of Treasury securities with remaining maturities of approximately 3 years or less. There is about $267bln of such bonds on the Fed’s balance. The first round of the programme consists in the redemption of 400bln and was to be finished by July. Yesterday’s decision is accounted for by a rather weak economic dynamics over the last few months: job growth has slowed down, spending has shrunk. The paradox is that the slowdown ran parallel with the initial stage of the programme, which, probably, is the best illustration of its effectiveness. On the whole, we can say that the current economic situation depends largely on the business sentiments, which in their turn are also connected with the market dynamics. The programme of substitution of short-term bonds by long-term ones helped to restore confidence for a few months and as a result spurred the growth. Meanwhile, Europe cherished hopes that the debt restructuring would be an effective remedy for the European debt crisis. Due to all that the market dynamics improved greatly and the job growth proved to be really impressive. There is a chance that in the coming months the markets will demonstrate a good growth as well (it won’t be very difficult after the heavy sales in the second quarter). This also carries the potential of the dollar depreciation. Yesterday’s reaction of the market was roughly in this vein. The initial disappointment was followed by new purchases of risky assets; the euro/dollar continued its moderate upward trend. And though this morning the pair fell below 1.27, this drop still was within the established ascending channel. As has already been mentioned, it is not clear yet if this trend will give rise to a continuous wave of growth or will just turn into a bounce after the sharp decline in the previous months. Probably, no one knows this for sure, as too much depends on the behaviour of politicians now.

GBP/USD

There is a feeling that the sterling-bulls still keep control of the situation, but allow the bears to play with the rates a bit. Yesterday the pound/dollar performed two sharp drops which less than in an hour ended with the return of the rates to the old levels... Read full review

 

[Globe Gain]

22/06/2012 Back to 2009?

EUR/USD

The miracle that was awaited by many hasn’t happen. The utterly poor EU Prelim PMI figures that came in yesterday morning deeply upset the market participants. Yet unfortunately it was not the only bad news of the day. According to the Markit PMI data for Germany, the affairs of the local manufacturers are now at their worst since summer 2009. The preliminary PMI figure for June dropped down to just 44.7. France and Euro-Zone in general feel a bit better then forecasted. But we believe that they won’t be able to show better dynamics than Germany for any significant space of time. The thing is that most countries have to carry out budget consolidation. Yesterday we also heard about the job cut in the government sector and also about the intention of some large corporations to launch an austerity drive by means of staff reduction. Today’s business climate data for Germany proved to be a bit surprising. It’s quite normal that the actual figures for June (the decrease down to 105.3) came in much worse than expected (106.1). Nevertheless, the IFO-Current Assessment even rose from 113.3 to 113.9. Is that all about the weak euro? This way or another, the expectations are now much worse. Yesterday we also saw surprisingly poor data on the US housing market. Existing Home Sales have shrunk by 1.5% in May. Looking at the scale of the decrease, we cannot speak about anything serious, but still it somehow cools the ardour about the unshakeable improvement in this sector of the USA. Meanwhile, the Philly Fed Manufacturing Index has also proved to be disappointing. Despite the forecasted growth in June it dropped down to -16.6 against -5.8 a month before. We were wrong when said that the trend would keep upwards. By one powerful movement yesterday most bulls were beheaded. EUR/USD sank below the lows posted at the beginning of the week and at some point even hit the 1.2530 level. For now it looks as though the growth from 1.23 to 1.27 had been a mere correction of the drop from 1.33 and further might be followed by a new wave of sales. Will Europe really fail to come up with something effective to resolve the crisis? If true, it will swallow up even Germany.

GBP/USD

Most market commentators chuckled as the Moody’s cut the ratings of the four largest banks of Britain and the world, for the intention had already been announced a month before. Anyway, traders decided to take advantage of this news and with its help to put a stronger pressure on the risky assets... Read full review