Pound | Forex Blog

October 10, 2011

Forex Market Outlook 10/10/11

Filed under: Forex News — Tags: account, aud, business, china, currency, currency market, live, lower, market, nzd, pound, practice, sentiment, usd — admin @ 7:21 am

This morning confidence has returned to the markets and we are starting out in risk-taking mode with global stocks and commodities higher to start the US session. News out of the Euro zone that a Merkel-Sarkozy meeting over the weekend solidified agreement on what they are going to do about the debt crisis and the problems plaguing the shared currency—yet no concrete plans were laid out. Again. What they did do is set a deadline for a deal at the end of the month, essentially buying themselves more time.

But we’ve seen this all before. A plan to make a plan. Market credibility is important at this stage of the game and if the two can’t deliver then this could ugly pretty quickly. One of the major points mentioned though was an agreement that the European banks need to be re-capitalized to increase liquidity and offset potential losses due to sovereign debt exposure.

This however begs the question of how the Greek debt issue will be handled, and it seems as though they may require a further haircut from private investors, as I mentioned last week. Other questions to ask are whether or not any restructuring would constitute a default and trigger credit default swap payments and will the potential losses create a world-wide panic? So it seems as though they are starting to prepare for a negative scenario. While the markets appreciate the unified statement that a plan will be forthcoming, the devil is always in the details and the to-be-agreed-upon measures may be negative.

Meanwhile, they still haven’t fully ratified the July 21^st agreement which is now seen as thoroughly insufficient, though it is expected to be approved this week.

News coming out this week is what I would consider “second tier”, highlighted by Euro zone CPI, Australian employment figures, and US advance retail sales.

The markets seemingly would like to take risk as we have seen increased sell over the last few months and the Euro debt crisis has been the major impediment to risk appetite. While the global economic picture is not terribly rosy, you have to remember that markets are forward-looking so its not so much about what is going on right now but what may happen in the near future.

This is exemplified by the debate over economic direction here in the US and while things haven’t been great, I get the feeling that activity is ready to explode if we can just get the politicians out of the way. While the business climate is negative right now, these are the times that you have to invest whether you are a business or an individual as you want to be in to catch the upturn when/if it happens.

There is also news coming out of China this week that may give a perspective on how the biggest engine of global economic growth is faring and should they seem to be flat to slightly better than it could set the stage for a 4^th quarter rally.

So the data this week needs to be examined as parts of the whole and though there may be some volatility, it is important to get the overall picture. Data has been pretty good in my estimation despite investor sentiment and considering the massive selling we’ve seen of late, one might expect that the global economy would be a lot worse.

But it isn’t. While things aren’t great, they’re not horrible either. Unemployment is high, but there are pockets of strength. The longer this economic malaise continues to drag out, the impatience with the lack of productivity will increase and businesses sitting on so much cash might have to deploy capital for lack of anything better to do. Even in this ugly business climate with regulatory and tax uncertainty, and the overhang of further crises in the Euro zone.

If these two issues can be put to rest and the markets re-gain some confidence, then we could see some dramatic moves to the upside.

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October 3, 2011

Pound (GBP) To Rebound?

Filed under: Forex News — Tags: cause-the-pound, chart of the day, current-prices, daily, data, economy-without, england, gbp, infaltionary, policy-decision, pound, support-support, weakening, well-it-looks — admin @ 8:16 am

The British pound (GBP) has been down with just about every other currency not named the US dollar of late, though it looks like it is poised for a rebound. There is a lot of data due out this week for the UK, including the Bank of England interest rate policy decision on Thursday.

Th emarket expectati0n at this point is that the BOE will not lower interest rates but that they may increse the size of their bond purchases. This form of quantitative easing could help support the weakening economy without adding significantly to the infaltionary picture. So I think a lot of this sentiment is already baked in to current prices.

But what happens if the data improves ahead of the BOE of rate policy meeting? Well it looks that may be occurring already, as this morning home prices while lower did no fall as last month. In addition, PMI figures came in better than expected at 51.1 vs. an expected 48.5.

The big new however will be on Wednesday, when GDP figures are due out. Should they come in better than expected, then the BOE may not change anything, which could cause the Pound to rise. If this is the case, then 1.575 is the target. Short-term support support is at the daily S2 pivot at 1,546.

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September 30, 2011

Forex Market Outlook 9/30/11

Filed under: Forex News — Tags: a-reason-for, currencies, japan, live, loonie, oil, pound, trades — admin @ 7:24 am

The are many fund managers who are glad to see this quarter come to an end as it has been a rough road for risk assets as the Euro debt crisis has held world markets hostage. With the persistent fear that things will worsen in the EU and no resolution in sight, long-term growth projections are nearly impossible to forecast.

This all adds up to uncertainty which in turn creates volatility, and the lack of direction is disconcerting to say the least. Without a clear picture emerging, the longer the uncertainty persists the more difficult it becomes to return to economic health.

So far the Euro debt crisis is moving along at a glacial pace, with the required votes taking place but not acting fast enough to satisfy the markets. The problems with Greece are still weighing heavily and the lack of a long-term solution in favor of stop-gap measures keeps the investing climate negative. The end result of all of this week’s Euro drama is that for now Greece remains on pace to receive the next tranche of bailout money (a meager $8 billion in the grand scheme of things) and the question remains whether this is too little, too late. Only time will tell.

Meanwhile as we return to the current economic situation (which has taken a back seat to Euro debt drama), the Euro zone reported CPI data that came in much higher than expected, showing 3% inflation vs. the expectation of 2.5%. This might normally have a positive effect on the Euro as the market would expect the ECB to raise rates, but they are hand-cuffed now by the debt problems. As time drags on, the situation in the EU is looking more and more untenable.

Adding to the global slowdown story is news that China is slowing as manufacturing PMI data came in flat showing no growth. While this normally will have a negative effect on the antipodean currencies (it did!), there was added pressure on the New Zealand kiwi as they received a credit downgrade from Fitch and S&P.

In other news, Japanese industrial production has improved to almost pre-tsunami levels, yet the figures came in lower than expected. The jobless rate in Japan also fell to 4.3% from an expected 4.7% and consumer prices edged slightly higher. Both of these are positive data points for Japan, who is struggling to recover with a stronger Yen.

In Canada, GDP figures came in as expected and were slightly higher than the last reading which is significant as they are hanging in there economically despite a slowdown in the US.

Here in the US, personal spending and income figures came in lower than last month’s reading but in-line with reduced expectations. Later this morning the U of Michigan confidence figures are due out and I can’t imagine a positive reading at this point.

This all adds up to risk aversion in the markets, with the Dollar and Yen strength and stock and commodity markets weakness. It is difficult to go into the weekend “long risk” as the uncertainty of the Euro debt crisis looms. A pattern is emerging where the risk appetite increases on Monday and Tuesday, then begins to flip to risk aversion as we head toward the end of the week. This has been especially true with the high hopes the markets have for a Euro resolution, only to be disappointed again and again.

In these uncertain times, it is important to follow the market and not try to guess what may happen. Short-term traders have had more success than longer-term investors as the volatility that has been created suits that style better. If volatility persists, then you may want to consider shortening your horizon.

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September 20, 2011

Pound (GBP) Sell Off To Continue On BOE Minutes?

Filed under: Forex News — Tags: a-really-comes, gbp, little-as-far, monetary-policy, pound, release, shrinking, willingness, with-heightened, with-the-last — admin @ 8:04 am

Tomorrow is the release of the BOE rate policy meeting minutes which may show the willingness for further accomodative monetary policy to offset the shrinking fiscal policy measures undertaken through government austerity. The economic data has been coming in somewhat weaker, though not alarming enough to cause major action.

Inflation in the UK had remained elevated, with the last reading clocking in at 4.5% which is more than twice the BOE target of 2%. Will the BOE continue to get away with heightened inflation in the face of a declining economic picture. While the public backlash has been muted considering what has taken place in other parts of the world, at some point citizens may say enough is enough.

Yet this formula seems to be working, and the Pound (GBP) has been selling-off in orderly fashion. If its not broken, don’t fix it so the BOE may overtly seem to be dovish, but may do little as far as being extra accomodative unless the economic data really comes in worse. Nevertheless, I expect a continued decline in the Pound to perhaps 1.55 vs. USD by tomorrow.

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Forex Market Outlook 9/20/11

Filed under: Forex News — Tags: currency-pairs, debt, euro, europe, next, pound, trade, yen — admin @ 7:13 am

Well it looks like the markets this morning are growing tired of the “chicken little” scenario and are looking to put their fear aside and take on some risk. At least that’s what happened in the Euro session after S&P downgraded Italy’s credit rating one notch last night.

Asian markets followed yesterday’s risk aversion and pushed the Euro lower overnight, only to watch it rebound in the European session. News was that Greece was in “productive” talks with the troika in regards to receiving their next tranche of bailout funding. Yet not much has changed for the positive, as there still is no resolution to Greece and remains to be seen whether or not they can avoid a default. Greek citizens have taken back to the streets in protest of the austerity measures required to receive the next bailout, so political will in waning to say the least.

Also to note is that German economic data came in worse than expected, with PPI data showing a monthly decline of .3% vs. an expected no change, pushing the YoY number down to 5.5% vs. the expected 5.8%. While lower prices are not necessarily a bad thing, growing concern of a declining economic picture in concert with the debt crisis is alarming. ZEW economic survey figures were lower than expected across the board which should come as no surprise unless you think Europeans are happy that their monetary union may be on the verge of collapse.

In Switzerland, the SECO economic forecasts came out and growth figures were adjusted lower, citing recent Swiss franc strength as an impediment to exports. Trade balance figures were reduced as indeed exports fell from last month as imports gained.

Overnight in Australia, the RBA released the minutes from its rate policy meeting and stated that they were “well placed” to deal with a global economic slowdown or inflation. This essentially is a neutral stance that gives them the flexibility to either raise or lower depending upon the health of the global economy.

Tomorrow will bring the release of the BOE rate policy meeting minutes and any perceived dovish ness could push the Pound lower.

This comes ahead of tomorrow’s FOMC meeting where the market is expected some sort of further monetary easing. The most popular guess is that “Operation Twist” will be unveiled, whereby the Fed will now purchase Treasuries of longer durations to keep rates low for an even longer period of time. However, the market impact of such a move is unclear at this point, and some are starting to think that the Fed may do little.

It is always a tightrope that Fed walks, and the balance between a fundamentally weak Euro and a declining economic picture is one that must be balanced carefully. The Fed got little help yesterday from the President, whose speech about deficit reduction was more campaign rhetoric than anything credible.

At this point, it is painfully obvious that the President lacks any concrete plans to fix the US economy and is just setting the table for the blame game come the next election in 2012. This means things may get a lot worse before they get better, as the economy flounders toward stagnation.

Housing starts and building permits figures came in lower than last month here in the US, though the latter did come in better than expected.

Until the fiscal side of the ledger improves, there is little the Fed can do so essentially this is a crisis of confidence here in the US, with the President playing the role of “Debbie Downer”.

Unless he can come up with some pro-growth policies and not job-killing, wealth re-distributing ideology, things will continue to worsen. Add in the debt crisis in Europe and now you have a recipe for disaster. Unless the Europeans can get their act together, contagion could put the EMU in survival mode, with the outcome (outside of major risk aversion) unclear.

See what I mean about risk-taking today? Confounding, isn’t it?

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September 16, 2011

Forex Market Outlook 9/16/11

Filed under: Forex News — Tags: aud, china, commodities, course, currency trading, eur, european, invest, japan, jpy, markets, politicians, pound, rate-decision — admin @ 6:57 am

Once again the Euro zone is in focus as the meeting of European finance ministers and bankers is taking place in Poland. However, there is one notable guest of “honor”, our own US Treasury Secretary Geithner.

Yesterday he made his presence felt as it was announced that the US Fed would provide unlimited Dollar liquidity to the European banks, essentially helping them re-capitalize as there was strong indication that many were about to face a liquidity crisis. This sent the Euro screaming higher, as EUR/USD gained about 200 pips in less than half an hour!

However, the market quickly determined that despite this shot in the arm, the patient is still not well. The Euro is selling off this morning, as there are still problems with the various regions of the Euro zone agreeing to comprehensive plan for Greece and what they need to do to receive the next round of bailouts.

So Geithner is there attempting to smooth things over and to help the process, though his effectiveness is still undetermined. The uncertainty that is still emanating from the Euro debt crisis is a major impediment to the global economy and is the major risk in the markets at this point.

However, there are additional impediments still out there, most notably declining economic figures that reflect a global economic slowdown.

While there is little significant news due out today, there is risk aversion to start the morning, despite higher stocks in both Asia and Europe. Gold has retreated after yesterday’s liquidity announcement, as it was fairly obvious that it has been trading more as a de facto currency and less as a hedge against inflation.

University of Michigan confidence figures are due out later this morning and I don’t think anyone expects them to be positive with the gridlock in Washington and the declining economic landscape.

Overnight, New Zealand consumer confidence figures came in worse than expected and declined from last month, though the Kiwi was able to rally with the Pac Rim Index.

The Pound is trading lower as the market is seeing the declining economic data in the UK and is starting to believe that further quantitative easing will be forthcoming from the BOE.

Other than these developments, the focus is really on the outcome of the European finance meeting and whether of not they can make strides toward an agreement. No one is expecting a solution in the next few days, but the politics have been difficult to overcome, to say the least.

Someone needs to step up to the plate over there and agree to do what may not be so popular, so that world markets and thus economies can improve. When risk is high in the marketplace, investors move money to “safe havens” which is essentially the same as stashing it under the mattress as it is not a productive use of capital.

While the Euro zone is not entirely to blame for the global economic malaise, the US needs to also step up and realize that without pro-business policies, the pie will continue to shrink. And when the pie shrinks, politicians go for the money grab and attempt to increase their take through higher taxes.

They then attempt to “invest” that money which if recent history is any indication, will be an abject failure. The recent $500 million “loan” to the bankrupt green energy company Solyndra is one such display of why politicians should not be able to pick winners and losers.

So hopefully we can get the politicians out of the way so Americans can get back to work and we can start to see economic health again. Otherwise, we will continue to worsen and may dig a hole so large that we may not be able to recover. And if things keep continuing this way, I’m going to start to think that is exactly what they want to occur.

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August 26, 2011

Euro Rise Vs. Pound Could Be Short-Lived!

Filed under: Forex News — Tags: chart of the day, deal-as-the, euro, gbp, greek, over-the-last, pound, the-prospects, with-the-greek — admin @ 7:55 am

The Euro (EUR) has been moving higher vs. the British pound over the last 4 days on the prospects of a declining growth story in the UK, which was confirmed by this morning’s release of UK GDP figures. However, the 4-hour chart of this currency pair suggests that we may be reaching a triple-top resistance area at .8850.

The markets have been kind to the Euro despite the rumblings of problems with the Greek debt deal as the vote to expand the EFSF is not a done-deal just yet. With market attention on the US Dollar of late, the focus could return to the Euro after Bernanke’s speech today.

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August 19, 2011

Pound (GBP) Quietly Moving Higher!

Filed under: Forex News — Tags: a-rate-hike, bent-on-buying, committee, declining, government, looking-bleak, over-the-past, pound, the-committee, the-prevailing — admin @ 7:55 am

The British pound has been in stealth rally mode over the past week despite the risk aversion in the market and the declining economic picture in the UK which was exemplified by teh rioting that took place there recently.

Earlier this week, the release of the Bank of England rate policy meeting minutes revealed that the last two hawks on the committee changed their stance from hawkish to neutral, meaning there is very little chance of a rate hike despite CPI data that showed rising inflation at 4.4%.

With the economy looking bleak in the UK thanks to fiscal austerity measures put in place by the government, the next move for the BOE may be to actually be more accomodative with monetary policy to attempt to mitigate the slowdown.

So why is the Pound moving higher if this is the prevailing sentiment? Because the markets appreciate fiscal responsibility, and not reckless spending by governments hell-bent on buying the votes of its populace to maintain political power.

Pay attention US, the markets are speaking to you!

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Forex Market Outlook 8/19/11

Filed under: Forex News — Tags: a-more-prudent, committee, currencies, economy, euro, europe, franc-as-rumors, interest-rate, pound, top stories — admin @ 7:16 am

The global rout is on and has continued in the overnight sessions with stocks in Asian and Europe decidedly lower, though US equity futures are bouncing back from earlier lows. A crisis of confidence is occurring within the European banking system as a by-product of the European sovereign debt crisis, which is starting to resemble the early days of what happened here in the US in 2008.

Now I’m not saying that the two situations are similar, just that the sentiment is starting to feel the same. So why isn’t the Euro lower if the global economic crisis du jour is emanating from them? Because they are not the US dollar!

Right now, the markets are in “pick your poison” mode. Do they chance buying Euros in the face of a declining Dollar? Or do they buy Dollars because the EU is extremely weak?

Some of these questions may be answered next week, when Bernanke and the Fed meet in Jackson Hole, WY to deliver the Fed economic outlook. Many believe that Bernanke will use this stage to launch QE3, another round of quantitative easing. Should this be the case, the Dollar could weaken considerably which would cause the Euro to rise by proxy. Should he show restraint next week and abstain from QE3, the Euro could break out of the range it has been trading and fall below 1.40.

There is not a lot of news today and none in the US so a market reversal would be purely on an over-sold bounce. Gold reached earlier highs of $1875, though it has pulled considerably. As I mentioned yesterday, I think we are in for a parabolic move in gold, and today’s earlier action is not it. If we get QE3, then gold could trade in the mid-$2000 range!

The little news that we do have today is that German PPI came in considerably higher, though it is unclear if this will translate over to higher inflation. This could prompt the ECB to move on interest rates if inflation is deemed too high, though most in the market believe that the ECB needs to start printing its way out of its debt crisis.

In Canada, CPI came in slightly lower than expected, with headline inflation at 2.7% vs. the expected 2.8%. The Loonie has been weak of late as oil prices reached a 79 handle earlier this morning.

The market is treading lightly around the Swiss franc as rumors are that the SNB is going to charge a deposit tax on those who want to keep their money in francs. This means that investors will actually have to pay to have francs, rather than receive interest. The Central bank hopes that this will quiet demand for the safe-haven currency.

The Pound is also higher after public sector borrowing came in much lower than expected revealing a more prudent fiscal dynamic than many other regions around the globe. It is for this reason that the Pound has been moving higher despite the BOE commitment to keep rates low. Just goes to show what the markets think of fiscal austerity and responsibility.

And speaking of fiscal responsibility or the lack thereof, the US needs to get its act together pronto and should look at the other regions around the globe that have taken the un-popular steps to turn around their economies. We have, after all, become a nation of followers and not leaders as exemplified by our trusted politicians in Washington!

Its time for a change and it all starts with fiscal responsibility. Otherwise, the US will become a third-rate nation.

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August 9, 2011

Forex Outlook 8/9/11

Filed under: Forex News — Tags: bank, currency, currency market, dow, forex, gold, london, point, pound — admin @ 8:07 am

The markets appear to be “stabilizing” for the time being after yesterday’s massive sell-off, the 6^th largest down move for stocks in the history of the markets. Oil has pulled back as well, though gold is sky-rocketing to new daily highs, reaching just under $1780.

There is obvious fear in the marketplace, and what started out as debt concerns both here in the US has become global economic growth concerns. So right now, the market is unsure who poses the bigger the risk, the US or the Euro zone. This is reflected in the currency values, as EUR/USD has been trading a range with no clear direction.

This is in stark contrast to the commodity currencies, which have sold-off greatly lead by the Aussie which is down close to 10% for the week! On the flip side, the safe havens have received these money flows, with the Swiss franc making new all-time highs vs. Euro and USD. The Japanese yen is also strengthening despite the attempt to weaken the currency through intervention last week.

The British pound is also trading a range as their economic data weakens and also dealing with the “protests” taking place in London right now. I’m not sure that the media is giving this the proper attention it deserves, but looting and rioting are taking place as a single incident has ignited the anger over austerity measures.

One of the last bastions of growth in the global economy has been China, and overnight their CPI data came in higher than expected showing inflation of 6.5% which means that they may make further efforts to slow down their economy. Talk of the global “double-dip” is starting to heat up, as it appears that the soft patch we were dismissing the data as may become a harsh reality.

So it’s the Fed or nothing today, as all eyes are on the FOMC meeting taking place today. What, if anything, can the Fed do at this point? Bernanke will clearly attempt to calm fears in the market but at this point it may be difficult to provide the magic pill that everyone so desires. Instead, the medicine we may be forced to take is a much tougher pill to swallow.

The global banking system while not in great shape is clearly better than in 2008, though European bank exposure to sovereign debt and US bank exposure to a still-declining housing market may make it difficult to bring confidence back. Money pours into US Treasuries, as it is not certain where to go.

So how do we get out of this mess? It all comes back to economic growth. Without it we are doomed and those who think the government can pick up the slack are delusional. Without job creation form private business, demand will continue to weaken.

So while stocks may be higher to start the morning, do not be fooled into believing a bottom is in. This saga is far from over, and thankfully politicians are on vacation for the rest of the month so I don’t have to listen to the blame game take place.

Be cautious and judicious in your trading and use strict risk management principles. Volatility can be your friend, though it can also be your greatest enemy!

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