Currency Trading

Intriguingly, the Canadian dollar strengthened against sterling by 0.5% over the week – exactly the same proportion by which the New Zealand dollar and the euro went up in the forex spreads.

All three came about for the same reason: the EU agreement on a plan to resolve the southern European debt crisis. The news came on Wednesday night and sent the euro higher for obvious reasons.

Less obvious was investors’ associated decision to move back into commodity-related currencies. The logic there was that a solution for Euroland was a step back from the brink of another recession and a step towards renewed global growth.

The Canadian economic statistics didn’t bring much to the party, just a usefully healthy 0.5% monthly increase for retail sales in August. On the downside, the Bank of Canada lowered its forecast for future growth.

In its quarterly Monetary Policy Report it slashed a percentage point from next year’s forecast. The current guess is 1.8%, rather than the previous 2.8%. This is not a worrying development, more a falling in line with other developed country downgrades as everyone reduces their debt.

By MoneyCorp.

CFDs, Forex and Financial Spread Trading carry a high level of risk to your capital and can result in losses larger than your initial stake/deposit. These forms of trading may not be suitable for everyone so please ensure you fully understand the risks involved. Where necessary, seek independent financial advice.

Last Wednesday night EU leaders revealed their latest plan to salvage the wreckage of Greece’s economy and to prevent Italy following her onto the same rocks.

The proposal was not tightly-crafted or finely-honed; that stage is months away. It was, however, an acceptable working model and investors looked kindly upon it. The plan’s announcement sparked a round of buying for the euro spreads.

But there was no follow-through. A cent-and-a-half rally was all investors were prepared to grant – mainly because so many other things have to go right in order for it to work.

The biggest gap in the plan at this stage is where the money will come from; roughly €100bn to beef up banks’ reserves and €750bn to make the EFSF bailout fund big enough to handle Italy or Spain if necessary. The world is no longer quite so worried about the euro, but a genuine love for it is way down the road.

By MoneyCorp.

CFDs, Forex and Financial Spread Trading carry a high level of risk to your capital and can result in losses larger than your initial stake/deposit. These forms of trading may not be suitable for everyone so please ensure you fully understand the risks involved. Where necessary, seek independent financial advice.

AUD FX Trading

RBA minutes suggest interest rates will remain steady for the rest of the year.

Sterling never managed to make any headway above last Monday’s starting point. By Wednesday it had lost two and a half cents, by Friday lunchtime it had made a full recovery and by the time the Far East market got into its stride this week it had fallen all the way back again. It opened in London two cents lower on the week.

A generally optimistic attitude among spread trading investors to global growth allowed the Australian and New Zealand dollars to lead the way through the week. The Aussie did not need a great deal of help from the economic data, which was just as well because it did not receive much. New vehicle sales were down by -0.6% in October, Westpac’s leading index was flat and the wage price index rose by 3.5% in the year to September, slightly more than forecast.

The minutes of the Reserve Bank of Australia’s meeting in early November revealed that the decision to increase the policy rate from 4.5% to 4.75% was “finely balanced”. Analysts interpreted that to mean there is little chance of another increase at the next meeting on 7 December.

NZD FX Trading

S&P downgrades the outlook for New Zealand credit ratings.

Sterling spent the whole of the week gradually giving up four and a half cents to the NZ dollar. It made back half of that loss in one fell swoop to open in London just two and a half cents lower on the week.

A generally optimistic attitude among CFD investors to global growth allowed the Australian and New Zealand dollars to lead the way through the week. It was a good job the NZ dollar did not need help from the New Zealand economic data because it did not receive much. Manufacturers’ costs rose by 0.7% in the third quarter of the year while factory gate prices went up by 1.2%, suggesting a widening of industry’s margins.

Consumer confidence improved by a point to 114.5 and credit card spending increased by 0.6% on the month and by 4.6% in the year to October.

Everything was going swimmingly until early on Monday morning when ratings agency Standard & Poor’s updated its opinion on New Zealand.

There was no change to the AA+ credit rating itself but S&P lowered its outlook from stable to negative, raising the possibility of a downgrade for the rating at a later date if New Zealand’s external position does not improve. According to S&P; “Rising public savings will be an important component of such an improvement.

The rating could fall, too, if New Zealand’s current account weakens because of any higher real cross-border funding costs within its banks.” The NZ dollar reacted sharply, falling by more than 1% across the board.

By MoneyCorp.

CFDs, Forex and Financial Spread Trading carry a high level of risk to your capital and can result in losses larger than your initial stake/deposit. These forms of trading may not be suitable for everyone so please ensure you fully understand the risks involved. Where necessary, seek independent financial advice.

The Markets This Afternoon:

Currency markets have captured investors’ attention this afternoon after the US core inflation announcement came back unchanged, and crickets have been audible on equity trading desks.

Many investors are scratching their heads at the euro’s resilience in the face of the Irish debt situation, with the common currency up against a number of major pairings (USD, JPY, GBP, CAD and HKD), albeit in fairly tight ranges.

UK core retail sales tomorrow morning should reignite the equity markets, with many eyeing SAB Miller’s interim statement for additional insight into luxury spending.

The Markets This Morning:

FTSE flat at 5680, Wall St futures up 25 points at 11005.

Markets are broadly flat in across Europe as markets digest yesterday’s plummet. There are few people who hadn’t expected form of correction after the rapid rise after the Fed’s announcement of QE2, but seems different this time is the market’s lack of desire to drive north on this drop.

Having broken through the 5700 level, the market looks now to be at a turning point and the risk remains to the downside.

The minutes from the MPC meeting at 9.30am will be scrutinised for any change in stance of the members, but overall would expect little change there – one member Hawkish (Sentance), one Dovish (Posen) and the rest middle ground. Whilst inflation is without doubt too high, it is stable, but any change of stance could rattle a nervous market

Article by Spreadex.

CFDs, Forex and Financial Spread Trading carry a high level of risk to your capital and can result in losses larger than your initial stake/deposit. These forms of trading may not be suitable for everyone so please ensure you fully understand the risks involved. Where necessary, seek independent financial advice.

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Better than expected UK purchasing managers’ indices reduce the pressure on the Bank of England for more easing. There were no such qualms at the Fed, however, which launched another $600 billion stimulus.

Positive PMI figures, together with an equally surprising 1.8% monthly rise for the Halifax house price index, set the scene for a predictable verdict when the Monetary Policy Committee came to its decision on Thursday.

There was no chance of a change to interest rates but there had been a long-odds possibility that the committee might go for another round of quantitative easing (QE). In the event, the previous week’s punchy figure for third quarter growth, together with last week’s positive PMIs and above-target inflation, made it difficult to argue convincingly for a more relaxed monetary policy.

There were no such reservations when the Federal Open Market Committee convened to discuss US monetary policy. The decision had been well flagged by the Fed so there was little reaction in the CFD markets when the Fed promised another $600 billion of EQ to add to the $1,750 billion already out there.

It will be months before anybody can tell whether this second round will accomplish what the first one failed to achieve. The Federal Reserve will supply the money at “a pace of about $75 billion per month” so it will be June next year before the exercise is complete. But the FX market is not one to wait for results before it acts.

The announcement, which included the now-traditional mantra that “subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period”, sparked a volatile reaction from investors but failed to deliver a new direction for the dollar.

It was a different story with Friday’s all-important US employment report, which showed unemployment steady at 9.6% while non-farm payrolls leapt by 151k. The payrolls number looked the more impressive because the previous month’s figure of -95k job losses was upwardly revised to -41k. Taken together the data for September and October were more than twice as positive as the market had been expecting and the dollar moved gently higher.

With its second round of QE Washington has all but admitted it wants a weaker currency. As long as the global economy can extend its recovery – and avoid the sort of problems which send investors rushing towards the safe-haven currencies – there is no reason why Washington should not achieve that aim. Buyers of the dollar should hedge less than half their requirement, using either a stop order or a put option to protect themselves in case of any renewed decline by sterling.

By MoneyCorp.

CFDs, Forex and Financial Spread Trading carry a high level of risk to your capital and can result in losses larger than your initial stake/deposit. These forms of trading may not be suitable for everyone so please ensure you fully understand the risks involved. Where necessary, seek independent financial advice.

During the first half of the week, sterling covered a range of one and a half cents. It broke higher at midweek to peak on Thursday two and a half cents above its starting point. Since then it has been the dollar on the offensive and sterling opened in London this week a cent and a half off its highs.

There was plenty to keep investors focused on sterling. Most notable were the purchasing managers’ indices (PMIs) for the manufacturing, construction and services sectors. October’s manufacturing PMI, printed on Monday, was the first positive surprise. Having been expected to be flat or slightly down on the month it in fact came in a point and a half higher at 54.9.

Wednesday’s services PMI was not quite so impressive, half a point higher at 53.2, but it, too, exceeded market expectations. The fly in the ointment was a two-point fall for the construction PMI, which temporarily took the shine off sterling on Tuesday.

Elsewhere in the CFDs markets,, the European Central Bank is imposing a one-size-fits-all policy because it has no alternative. That’s what currency union means.

As Greece and Ireland have discovered, jam yesterday means hard tack tomorrow. At the end of last week and the beginning of this one, investors were reminded that rich people (and nations) can borrow more cheaply and easily than poor people and impoverished nations. Germany is doing fine. Some of its partners are in the mire.

A good example was Germany’s services PMI, a point higher in October at 56.0, and the equivalent pan-Euroland measure which fell by three quarters of a point to 53.3. But the ECB cannot afford to pander to the laggards.

At Thursday’s policy meeting there was not the merest hint of any possibility of quantitative easing. The ECB is already keeping Mediterranean banks and governments afloat by providing unlimited short term loans to banks in the euro zone. As long as those in Spain and Portugal use the cash to buy Spanish and Portuguese government bonds the problem is postponed.

On the face of it, Britain’s efforts to put its fiscal house in order are not (yet) weighing on the UK economy. Many analysts think that will be inevitable in the medium term but they said as much a year ago and it is not happening. Buyers of the euro should continue to hedge half their requirement. Another run on the dollar would be disproportionately helpful to the euro.

By MoneyCorp.

CFDs, Forex and Financial Spread Trading carry a high level of risk to your capital and can result in losses larger than your initial stake/deposit. These forms of trading may not be suitable for everyone so please ensure you fully understand the risks involved. Where necessary, seek independent financial advice.