Tough time for the Aussie
Daily Forex Brief: FxPro / 17 May 2013 / Simon Smith, FxPro
Data/Event Risks
GBP: MPC member Weale speaks early on, but only small risk of an impact on sterling. (more…)
Simon Smith - Articles and news items
Mixed messages from Japan
Daily Forex Brief: FxPro / 16 May 2013 / Simon Smith, FxPro
EUR: The inflation data is the final number, so not likely to be a market moving event, but if revised lower it could dent the euro a little as expectations of further stimulus measures from the ECB (negative deposit rate) resurface. (more…)
The new reality
Daily Forex Brief: FxPro / 14 May 2013 / Simon Smith, FxPro
Data/Event Risks
EUR: The ZEW data at 09:00 GMT the main data risk for the single currency. Focus will be on German data after the fall seen in last month’s release (sentiment back below 40 level), with market expecting a bounce back up to this level. (more…)
Crunch time for the Aussie?
Daily Forex Brief: FxPro / 13 May 2013 / Simon Smith, FxPro
Even before Friday’s break of the parity level on AUDUSD, significant changes were underway on the Aussie which had lead it to be the weakest performer on the majors over the past month. (more…)
Forex market breaking down barriers
Daily Forex Brief: FxPro / 13 May 2013 / Simon Smith, FxPro
Data/Event Risks
EUR: Eurozone finance ministers meet later in the day, but there are no potentially market-moving events are on the agenda. (more…)
Yesterday saw strongest 1-day dollar appreciation since 2011
Daily Forex Brief: FxPro / 10 May 2013 / Simon Smith, FxPro
Data/Event Risks
CAD: Labour market data the focus, especially after the disappointing numbers seen recently. The rate seen holding steady at 7.2%, with employment rising 15k (54.5k decline last month). (more…)
Turning sterling?
Daily Forex Brief: FxPro / 9 May 2013 / Simon Smith, FxPro
JPN: Overnight into Friday there will once again be a focus on the weekly Portfolio data from Japan. The thinking was that the weaker yen would entice investors abroad for returns, but so far this has not proven to be the case.
GBP: Industrial production data of modest interest ahead of the interest rate decision. The chances of a move on quantitative easing have diminished since last month, meaning only a modest bounce for sterling on such an outcome (10-15 pips).
Idea of the Day
The Bank of England decides on interest rates today and although there is little expectation of a change in policy on quantitative easing (QE), the recent voting history does reflect the dilemma facing central banks right now. For the past 3 months, we’ve see 3 members of the committee voting for more quantitative easing. This is in contrast to the previous 4 years since QE started, during which the Bank has been pretty unanimous in QE voting. Furthermore, the minutes have shown the ‘no change’ group sticking to their guns. The latest data (GDP firmer than expected) has shifted the balance away from those wanting to see more QE, but this does leave sterling in the middle, between those central banks still expanding their balance sheet (Japan, less so the US) and those contracting (the ECB). This could mean that the sterling bears continue to be frustrated for the time being.
Latest FX News
JPY: Relatively steady overnight. The interesting price action continues to be on EURJPY, not least because this is where central bank balance sheets are diverging as the BoJ expands and the ECB contracts (as banks repay long-term loans). This has the potentially to break EURJPY above the 130 level on a more sustained basis, but for now the underlying momentum is lacking.
AUD: A strong rebound in employment lifted the Aussie overnight. The unemployment rate nudged lower to 5.5% (from 5.6%), with employment gaining 50.1k (from 36k fall last month). This comes after the latest rate cut and expectations of a peak in the mining sector output. Once again, the Aussie the Aussie’s move below 1.02 was all to brief and bears are once again.
NZD: Strong labour market data also seen in New Zealand, the Q1 unemployment rate falling to 6.2% (from 6.8%) with employment rising 1.7% (falling fallen 1.0% in Q4 last year). Kiwi was up 0.5% vs. the USD to 0.8460 area, with AUDNZD holding recent gains just above the 1.21 area.
CNY: Inflation data recorded an increase from 2.1% to 2.4%, a touch firmer than expected, although the producer price series showed a larger than expected decline, falling 2.6% YoY. Yuan continues to strengthen, both CNY and CNH below the 6.15 level.
Kiwi Risks
Daily Forex Brief: FxPro / 8 May 2013 / Simon Smith, FxPro
EUR: Focus on the German production numbers after the stronger orders data yesterday gave the euro a lift, although it was notable that the euro failed to sustain the gains later on. Production is seen falling 0.1% in March, after 0.5% gain during February.
NZD: Labour market data is released at 23:45 GMT, with the unemployment rate seen nudging lower to 6.8%. Note that AUDNZD has been moving lower for the previous 7 weeks now, but comments overnight threaten a continuation of this trend.
GBP: The market will have half an eye on the state opening of parliament, but it’s not likely to be a market moving event.
Idea of the Day
Things are changing in FX, perhaps more so than usual. Three themes are worth noting. Firstly, the dollar’s positive correlation with data surprises has been falling, but this should not be that surprising. Earlier in the year, there was excitement at stronger data on the basis that this could mean the Fed withdrawing stimulus earlier than expected, but subsequent data and comments have undermined this. Secondly, the Aussie rate cut has further put to bed the risk-on/risk-off categorisation that dominated last year, but this has been a long-running theme. Finally, there is a lot more two-way traffic in the yen, so the dominant trend of the first quarter has turned a lot more neutral. What this leaves us with is a market currently more inclined to trade ranges, rather than push new territory. That was evident yesterday with USDJPY’s move away from the 100 level, the Aussie’s failure to test the year lows after the rate cut and the reluctance of the euro to hold above the 1.31 level. The CAD and the NZD are the main exceptions, with AUDNZD having pushed lower for the previous 7 weeks. Having failed to break below 1.20 on a sustained basis yesterday, keep an eye on AUDNZD for a possible reversal, especially in light of the latest comments from the central bank governor overnight, suggesting more intervention may have taken place to weaken the currency.
Latest FX News
JPY: Fighting the trends towards a stronger dollar and once again this lead to a push back from a test of 100 on USDJPY. EURJPY was the main mover on Tuesday, the push above 130 soon undermined by the afternoon’s change in tone.
GBP: Suffering on Tuesday although not real specific factors were behind the move, with cable moving back below the 1.55 level. Overnight data suggested a weak retail picture, the BRC measure showing like for like sales falling 2.2% YoY.
NZD: Revering some of the recent strength on the back of comments from the central bank chief Wheeler, who said that “there had been intervention” which will become evident in their balance sheet data later this month.
EUR: The push above 1.31 on EURUSD soon met with sellers during the afternoon session, the euro suffering in line with sterling.
The new Aussie reality
Daily Forex Brief: FxPro / 7 May 2013 / Simon Smith, FxPro
Data/Event Risks
EUR: Just German Factory Orders data released today. This is not a major one for the euro, but could knock the singe currency if weaker than expected. (more…)
Trading payrolls
Daily Forex Brief: FxPro / 3 May 2013 / Simon Smith, FxPro
Data/Event Risks
GBP: A close eye on the services PMI data. The manufacturing series was modestly better than expected and this gave sterling a decent lift in the middle of the week to 1.5606 Fibonacci level on cable, which remains the upside level to watch. (more…)
The impending ECB curveball
Daily Forex Brief: FxPro / 2 May 2013 / Simon Smith, FxPro
For markets, an ECB press conference is a minefield. Rather than release all the pertinent information in a statement at the time of the decision (as other major central banks do), the ECB gives the bare minimum then throws in the curveballs in the press conference opening statement and quite often, in the question and answer session. (more…)
ECB negative rates and FX
Daily Forex Brief: FxPro / 2 May 2013 / Simon Smith, FxPro
EUR: All eyes are on the ECB. The expectation is that they will cut the main reference rate (currently 0.75%) by 25bp. The bigger issue for euro is whether discount rate (which remunerates funds ‘parked’ at the ECB by banks) is cut to a negative number (currently it’s zero). This would be a far more negative factor for the single currency, ultimately setting up EURUSD for a re-test of 1.30 in the near-future.
GBP: Just construction PMI data, but has the potential to move sterling if far away from expectations. The series is expected to rise to 48.0 from 47.2 previously.
USD: The trade balance and initial claims data the main focus, but unlikely to induce much volatility on the dollar.
Idea of the Day
The day of reckoning has arrived, with the market largely priced for a 25bp cut in the ECB’s main refinancing rate to 0.50%. The latest run of weaker data this week has most likely tipped the balance in our view. The bigger issue for FX is what happens to the deposit rate. This is rate at which funds deposited back at the ECB are remunerated. In ‘normal’ times (remember them?), this has been 1% below the main rate, to discourage banks from ‘parking’ funds. If the rate is set negative today (currently it’s zero), then this would push the ECB into new territory, for itself and compared to its peers. The danger is that the ECB punishes well capitalised banks, who could then take money out of the Eurozone, a bigger negative factor for the euro than today’s expected cut in the main rate by 25bp to 0.50%. On balance, we don’t expect a negative deposit rate today, but it’s the main risk to be watching for.
Latest FX News
JPY: Holding fairly steady in Asia but USDJPY has now been declining for the past 6 sessions. Of course, no surprise to see data on the monetary base expanding (up 23.1% YoY) as the BoJ’s measures to double it start to take effect.
USD: The Fed statement steered a steady course, despite the recent run of softer data suggesting that they were prepared to either expand or scale back their QE program as appropriate. The dollar was initially volatile, but ultimately little changed on the news.
AUD: It’s notable that the Aussie has been dragging behind in the weaker dollar environment, once again proving (not that it were needed) that the risk dynamics of last year have well and truly been taken over by other factors. Overnight, the finance minister warned of a ‘new reality’ ahead of budget later this month, in light of the slowing of the mining boom. AUD softened to around 1.0240 vs. the USD.
CHF: Remains the strongest performer on the majors this week, up by more than 1.5% vs. the USD with EURCHF close to the 1.22 level again.
CNY: Big jump in the CNY fixing today, the most in more than 6 months to take the reference rate to 6.2082. The onshore and offshore rates have been holding tight to each other in recent days, currently 6.1544 and 6.1582 respectively.
GBP: Initially firmer on Wednesday thanks to the stronger manufacturing PMI data, but other currencies soon caught up. BoE voting member Broadbent last night suggested there were signs of optimism on the economy, although admitting that the economy was weaker than normal and weaker than the average.
Dollar retreat
Daily Forex Brief: FxPro / 1 May 2013 / Simon Smith, FxPro
GBP: Strong focus on the manufacturing PMI data and with liquidity lower owing to the holiday in many European countries, there is the risk of some outsized moves in sterling. The market looks for 48.5 reading and anything above the 50 level would be very welcome and would place a decent bid under sterling. Note that BoE members Broadbent and Bailey speak at 17:00 and 19:00 GMT respectively.
USD: The FOMC meeting decision at 17:00 GMT will be a case of scanning the statement for any shift in language or tone. We doubt that there will be anything beyond subtle shifts in the description of the economy, with the more important language on policy remaining unchanged. Dollar volatility should be limited, but with a risk of modest gains.
Idea of the Day
Tuesday proved to be a fairly volatile day for currency markets, in part as month-end flows dominated trading. What has been notable is that the US dollar has been in retreat vs. other major currencies, sterling gaining 0.5% over the week vs. the dollar and the Swiss franc up 1.4% over the same period. There have been concerns regarding the durability of the recovery in the US, but the question is whether we are going to see any of these concerns reflected by the US central bank later today as they announced their latest policy decisions. No changes to their current plans on quantitative easing (QE) are expected, so the focus will be on the language used to describe the current state of the economy. If anything, the risk is that the market has become too expectant of the Fed shifting its stance and we see risk of a less ‘dovish’ statement that anticipated, leading to some near-term dollar reversal.
Latest FX News
JPY: USDJPY has seen five consecutive days of declines, benefitting on Tuesday from the generally weaker tone to the dollar. We talked earlier in the week on the signs of a shift in sentiment towards the yen and the price action yesterday further confirms that the short yen story is now looking tired.
EUR: The single currency was finding some decent month end buying on Tuesday, with the weaker US Chicago prompting some buying and the stronger consumer confidence only causing a small dent in the rally towards the 1.3186 high.
AUD: The Aussie dollar was being dragged higher on the coat-tails of gains in other currencies, principally the euro, during Tuesday. The reluctance to push higher was notable and suggests there are still forces holding the Aussie dollar back. Next upside resistance is seen at 1.0414.
CHF: The Swissie was gaining vs. the single currency during Tuesday, taking EURCHF down to the 1.2230 area. The reserves data showed the SNB further diversifying its reserves away from euros in the first quarter, more notably towards the yen.
CNY: Latest manufacturing PMI data showed small fall to 50.6 from 50.9, broadly in line with expectations, but in the bigger picture, has continued perception of generally slower growth in Asia. South Korea saw weaker production yesterday, with slower inflation (1.2% YoY) and declining trade balance seen today.
The new yen
Daily Forex Brief: FxPro / 30 April 2013 / Simon Smith, FxPro
Data/Event Risks
USD: The main focus will be with the consumer confidence data at 14:00 GMT. Last release saw the headline reading fall to 59.7, with the market looking for a small rebound to 61.0. (more…)
Sterling reversal
Daily Forex Brief: FxPro / 25 April 2013 / Simon Smith, FxPro
GBP: That so much attention is paid to a number which is prone to revisions and looks back over the previous 3 months is sometimes a mystery. Even more attention will be paid today because if GDP declines, the UK will have officially entered a triple-dip recession. (more…)
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