Daily Reviews of major currencies from Globe Gain Forex Rebates

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07/02/2012 The euroarea tensions do not allow EUR to join the market rally

EUR/USD



The Greeks haven’t agreed on the tougher austerity programme yet. The European leaders, in their turn, are increasing their pressure on the country, urging it to carry out the expenditure cuts sooner. Yesterday the euro had been falling until it reached 1.3030, but then another wave of stop-orders pulled the pair back above 1.31. It happened on the news that the government agreed to dismiss 15000 public sector workers. But it is not enough, and today the debates will be carried out against the background of large-scale strikes. Since the events are long-term, traders currently have a great deal of short positions, which does not allow the pair to fall lower in the absence of really important news, like, for instance, sharp easing of the monetary policy by the ECB or the uncontrollable default in Greece. It’s really interesting that the number of long dollar positions has been decreasing in the last few weeks. This has been mainly due to the recovery of the demand for risky assets in the global markets. Thus, it’s possible to say now that at present the single currency is mainly moving on its own regional news and is less than usual dependent on risk demand fluctuations and carry-trade...

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08/02/2012 The Greeks only dropped a hint about the agreement, but the euro jumped to 1.3250

EUR/USD



Greek Prime Minister Lucas Papademos has signaled that he is close to reaching the agreement over further austerity measures with the three major parties of the country. The agreement was to be concluded on Tuesday evening, but the event was postponed to Wednesday. Nevertheless, the markets reacted very positively to this news. The single currency jumped from 1.31 to 1.3260. As we know, such sharp jumps are caused by the negative positioning against the euro. The abundance of short positions triggers bursts in the euro on any rumors. However, facts shouldn’t be overlooked either. Yesterday Destatis published very poor statistics on the industrial production in Germany, showing a decline of 2.9% m/m and 0.9% y/y. It proved much worse than expected. Still, market participants hold out hope that the trend towards increasing business sentiment indexes is of great importance and soon will have a positive impact on the real economy. Time will show. Despite the positive news from Europe, the U.S. stock markets showed rather cautious growth: new highs are being taken with caution. The Fed’s chief in his turn gave quite restrained comments about Friday’s positive data on the labour market when speaking before Congress yesterday. He pointed out that the recovery is extremely slow. Basically, his speech was focused on the call for legislators to decide on the extension of the Bush tax cuts as soon as possible since uncertainty can considerably unsettle the markets...

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09/02/2012 EUR short-covering gains momentum

EUR/USD



The chances that Greece will receive another 130 billion package from the EU and the IMF significantly grew on Wednesday. On Thursday Eurogroup chairman Juncker convened the meeting of finance ministers to allocate money to Greece for it to avoid default. This news supports the single currency rate. The euro has already risen to 1.3280 against the dollar and is significantly growing against the pound and the yen. Later in the day the ECB will hold its regular meeting. Just a few are expecting a change in the rate, though some speak about the necessity of its lowering. The market participants mainly focus their attention on the comments of the Bank and its chairman Draghi about the Greek debt and further steps to maintain the market liquidity. These two issues more than anything now affect the ability of the region to survive the sovereign debt crisis. Earlier there were rumours in the market that the ECB could exchange the Greek debts into EFSF securities at prices lower than face value. It would be a concession to the debtor and could help private investors feel that they are not the only ones who bear direct losses. However, it’s rather doubtful if the ECB's losses on 40 billion debt securities will be this very factor which will help Greece to get out of the crisis. Nevertheless, the favourable news from the euro area may support a short-covering rally in the euro, triggering its bounce above 1.34....

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10/02/2012 The Greek tragedy is not over yet

EUR/USD



The story with Greece’s adoption of the austerity package in exchange for private debt restructuring and another aid package from the EU/IMF has virtually wearied everyone. And formally this story is not over yet. As it turned out, the Greek Prime Minister negotiated the details of austerity measures with representatives of the troika, who said they first wanted to see the legislative approval of saving measures and only then would consider the aid payment. Of course, the last point will be mainly formal and therefore quick to settle. It is to take place at the upcoming weekend. However, the troika’s fears are not at all groundless. Actually, Greece is on the threshold of elections, which will be held already in April. At such a moment none of the parties wants to be the one to promote tough economy. The meeting of the ECB’s governing council was also of great interest for the markets. There Draghi stated that the Bank plans to ease its collateral rules as, in their opinion, it is sure to help small banks and then to revive lending to households and companies. The euro rewrote the local maximum yesterday, having risen to 1.3320, but then sank to Thursday’s opening levels on the profit fixations in the stock markets. Now it is still holding there, around 1.3260.

GBP/USD

The Bank of England met expectations of the market, having extended QE by 50 billion pounds up to 325 bln... Read full review

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13/02/2012 Greeks agreed on austerity - euro-bulls breathed a sigh of relief

EUR/USD



The Greek parties adopted a package of fiscal austerity. 199 out of 300 deputies voted for the adoption of the package. 43 voted against and thereafter were expelled from their parties. The voting was held against the background of fierce riots in the streets of Athens and other large cities. However, all that along with the approaching elections did not prevent the austerity adoption which is to be followed by the allocation of money from the EU/IMF. The news in itself is good; the euro bounced up to 1.3260 during the Asian session, thus having almost made up for the decline on Friday afternoon. It’s interesting that the positioning against the euro should be, though less aggressive, but still close to the historic lows. This means that the euro in the coming weeks will have more room to move up than down. Judging by the charts, the euro has the potential to rise above 1.42 next month. At the same time the stock markets remain overbought. And it would be really interesting to know which of the market forces will prove stronger in the near future. The American S&P holds in the area of highs, from where it was falling in May and July last year. It is quite probable that for the next couple of weeks the purchases of risky assets will be still dominating the market on the strong data from the United States and the improved situation on the European interbank market. At the end of this week the ECB will hold the second LTRO auction.

GBP/USD

Following the euro, the British pound has been rising since the start of trading in Asia on the recovery of demand for risky assets and the dollar retreat.... Read full review

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14/02/2012 Moody’s EU rating cuts put pressure on the markets

EUR/USD



Moody's unexpected decision to downgrade 6 European countries has provoked an increase in demand for safe assets during the London session. The single currency didn’t manage to push the attack, having stopped at 1.3283. The EUR sales brought the currency pair below Friday’s low in the area of 1.3250. It’s really of interest for what time the pair will stay under pressure. After all, the market is already so much lopsided in relation to positioning plus the information about the ratings can hardly be called new as well. As a rule, the markets show the strongest reaction to the first steps taken by the rating agencies, while the further ones (and this is the case now) are generally ignored. It’s notable that despite the fact that ratings were cut mainly in Europe, the major movements today are observed not in the euro/dollar. There is enough news on other currencies as well.

GBP/USD

Yesterday the British pound got a heavy blow, from which it cannot recover even today. Rating agency Moody's put the British top rating to review for possible downgrade... Read full review

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15/02/2012 Another pledge of China to help Europe supported EUR

EUR/USD



Yesterday the euro was moving as if it were on a swing. After a certain growth above 1.32 at the start of trading in London there followed sales of the single currency. The euro weakened on the speech of Mr. Samaras, the New Democratic Party leader, who said that the adopted austerity measures wouldn’t last for long and that already after the elections they would be ignored. The most disturbing thing in this story is that Samaras is the leading candidate according to the preliminary polls. On springing fears the single currency fell to 1.3080 at the end of the day yesterday. Later, however, the euro was supported by the speech of China Central Bank Chief, who expressed his approval of the reforms, carried out by the European authorities to handle the crisis. The most important thing is that he promised to actively participate in the recapitalization of the European countries. On such news the euro as well as stock markets surged upwards, however it happened at the time when the trading range was narrow and volumes - small. Now the single currency is trading near 1.3170. The US retail sales figures showed a 0.4% increase in January, but at the same time December's growth of 0.1% was revised to 0.0%. Besides, judging by the annual growth, sales went up by 2% with the deduction of the inflation rate, which is not a particularly good signal. Major World CBs keep carrying out quantitative easing. The next step is to be taken by the Fed.

GBP/USD

Yesterday the British pound was falling for the most part of the day and received support only at 1.5650. The data on inflation mainly justified the forecasts, without causing any agitation in the markets... Read full review

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16/02/2012 EU plays Russian roulette with Greece

EUR/USD



As it turned out, the very change of the status of the eurozone finance ministers meeting into a conference call signaled that no serious decisions would be taken. The lenders preferred to postpone the decision on the 130 billion allocation to the EU summit on February 20. It served as a sort of punishment for the political game of the Greek opposition. As has already been discussed, earlier this week Samaras, the leader of the New Democracy Party, mentioned that Greece would observe the severe austerity measures only for a couple of months. It was a purely political trick. And though Samaras wrote a letter of apology on this issue and vowed to honour the terms of the agreement, the Europeans didn’t find the joke funny. Now politicians promise to help Greece to avoid default in March, but are not very eager to enter into a long-term commitment. The lenders require a tighter control. It looks as though the Northern countries didn’t want to see Greece in the euro area at all and that’s why lay down harsher and harsher conditions, waiting when Greece refuses to fulfill them. A compromise is also possible: the country will be allocated the money required to keep it afloat and meet the obligations, but the size of allocations will be agreed on beforehand each time and the very fact of allocation will depend on how well Greece will be implementing the reforms. It’s quite logical that the euro should decline on such news. The single currency has already fallen down to 1.3010, its lowest level since late January. Even the data on the EU GDP, which actually exceeded the expectations, couldn’t help the euro. The decline in the fourth quarter made 0.3%. Germany lost 0.2% against the expected 0.3%. Compare it with the U.S. GDP growth of 0.7% over the same period.

GBP/USD

The data on the British labour market didn’t manage to smooth over the news background. The number of people on the dole increased by 6.9K in January... Read full review

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17/02/2012 Euro has bounced up on hopes around the Greek agreement

EUR/USD



The single currency fell below 1.30 during yesterday’s trading, but the increased optimism about the Greek deal caused a surge of growth in the single currency and it is now trading at 1.3130. The Greek politicians have announced that Europe’s finance ministers will decide on the allocation of funds on Monday, February 20. This is exactly one month before the crucial payment to redeem the bonds by €14.4 billion. Now we can only keep our fingers crossed that neither Greek nor any other politicians will invent something worse over Friday and the weekend. Remember that earlier the markets expected the decision on the allocation of 130 billion not until the election, scheduled for April. We believe that the probability of such an outcome has become lower, but hasn’t completely disappeared: over the past two years we’ve faced too many nasty surprises. Yesterday’s statistics were relatively good. U.S. producer prices has risen to 0.1%, which is actually less than expected and suggests that inflation still lets the Fed carry out additional easing. The annual rate of price growth has fallen to the lowest level since January 2011. At the same time the housing market is showing some signs of life. Last month housing starts made 699K at an annual rate, which is 48% more than the lowest figure, recorded during the recession. Though from a historical perspective, all these fluctuations look like scarcely conspicuous ripples on the bottom.

GBP/USD

The British pound feels better than the euro despite the fact that the latest news mainly concerns the eurozone. The sterling managed to rise from 1.5670 to 1.58 yesterday... Read full review

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20/02/2012 Growth in demand for risk on the optimism around the Greek deal and Chinese easing

EUR/USD



The week began with quite an optimistic growth in global stock markets and strengthening of risk-sensitive currencies. The euro didn’t stand aside either, having risen up to 1.3230 at the opening. The euro is growing as, fortunately, over the weekend there haven’t appeared any factors that could prevent or postpone the Greek deal. The decision on another 130 bln aid package to Greece is to be taken today. The confidence of markets has increased after Merkel made it clear that the finance ministers are prepared to support the allocation of funds to Greece. This would be a logical step since the country adopted the required cost-saving measures at the legislative level. But, as we know, the issue with Greece consists in the very implementation of the adopted laws. It is a problem because, first, Greece has poor fiscal management and a large share of shadow economy and, secondly, the country suffers a sharp economic slowdown because of fierce austerity measures and investment outflow. And all that is the result of uncertainty around the country. Friday’s U.S. statistics showed a bit weaker monthly rise in prices (0.2% vs. 0.3%), but a higher annual growth rate (2.9% vs. 2.8%) than expected. The U.S. CPI has been slowing down since September - it has fallen from 3.9% over that time. Core inflation, on the contrary, is gathering pace. In January it made 2.3%, a year ago it was 1.0%, and in October 2010 it totaled just 0.6%. If the Fed paid as much attention to inflation as before, it wouldn’t be preparing to further ease the monetary policy, but would be looking to raise the rates. Have times changed? Today is President’s Day in the U.S., so there won’t be large trade volumes in the afternoon.

GBP/USD

The British pound displays a very good reaction to the statistics. In this sense it may be called the most convenient currency to trade on the news (or inconvenient, if you’ve got the opposite viewpoint)... Read full review

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EUR/USD



Private lenders have agreed to write off the Greek debt by 53.5%, though earlier it was negotiated to cut the nominal face value by 50%, which corresponds to the 70% loss of the net present value. In addition, it’s been reported that an agreement on the second bailout package was also reached. Actually, rumours about a good state of affairs were circulating around the market all day yesterday, thus maintaining a high demand for the euro. The single currency got stronger yesterday and is now trading near 1.3270, compared with Monday’s opening level of 1.3150. Now it’s possible to say that risks of the unfavourable turn of events have significantly decreased, but this still doesn’t make up for the weakness of the economies, now facing considerable cuts in spending. However, the market is likely to celebrate the deal first and only then will switch over to this issue. We remind that the market now abounds in the euro short positions. Now EUR/USD is close to local highs, which means that the upward movement will trigger a wave of stop-losses. This, in its turn, may give rise to a wave of spikes, which can easily bring the euro to 1.35 after breaking the 1.33 level.

GBP/USD

The news from Greece has produced an invigorating effect on the pound as well. However, overnight the pair closed the gap, which started to form since the opening on Monday, but then it continued to move upwards again.... Read full review

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EUR/USD



The single currency didn’t manage to show any significant dynamics yesterday. Despite the positive reaction of the market to the approval of a Greek bailout package, the euro sales broke out. But as there were no strong reasons to sell the euro, the downward movement didn’t get any support either. The euro got stuck between 1.32 and 1.33. But this concerns only EUR/USD. Against the Aussie, yen and pound, EUR feels much stronger. Risk demand manifests itself in the strengthening of equity markets and rise in the price of gold. Oil rides its own wave - geopolitics - but on the whole its trend coincides with the general movement. Under such circumstances the dollar usually declines, against the common currency as well, but this time it is different. Investors fear that the Greek deal will eventually fail, as there is still a lot to be done. The biggest risk factor here is obtaining the approval of the national parliaments, which will hardly be an easy matter. Americans are tired of waiting for the Syrian opposition to seize the initiative, so in Washington and the U.S. State Department it’s been decided to help the opposition. It will probably boost the dollar sales as well, because demand for commodities is likely to go up on such news, as was the case with Iraq and Libya. More tension may shortly come up from Iran as the country is unwilling to become the next field for Americans to sow their seeds of democracy.

GBP/USD

The pound is falling against the dollar and the euro, having dropped by 0.5% and 0.3% respectively. It’s mainly caused by investors’ anticipations that Britain will have to pay higher prices for oil imports after Iran stops its deliveries to the country... Read full review

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23/02/2012 The euro gradually strengthens its positions

EUR/USD



The euro is slowly but steadily recouping its losses against the dollar. The single currency is oscillating around 1.3255, but can already boast a series of rising lows. This means that the currency is bought on the dips and that it is ready to take higher levels. As to news, Spanish appeal for mercy is of real interest. Spain’s Prime Minister asked the EU to raise the budget deficit target from 4.4% to 5%. Rajoy called it impossible to reach such a tough budget austerity. He is right, but all this suggests that the EU’s numerous concessions to Greece take their effect now. The precedent is set and now each troubled country will try to better its lot, asking for a bigger piece. The market has generally ignored this news, trying to concentrate on the positive aspects. The demand for risk continues to gain momentum, which cannot but result in strengthening of the single currency in the long run. This state of affairs is also supported by the U.S. statistics. The housing market in the States demonstrates a greater vitality than before. In January the secondary housing market showed the sales growth by 4.3% up to 4.57 million at an annual rate. This is the highest sale pace since May 2010. But then the market was supported by the government, and now - by falling housing prices. The average price of a house on sale dropped to 154.7 thousand dollars, which is ten thousand less than last year’s average price. Obviously, Americans are ready to buy houses, but only the cheapest ones and at historically lowest interest rates. Nevertheless, banks offer such conditions, as money in the markets is relatively cheap.

GBP/USD

The sterling received a serious blow on the publication of the MPC meeting minutes yesterday. In the minutes it was said that two members of the monetary committee advocated a greater expansion of the programme... Read full review

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24/02/2012 Euro area rose to two-month highs on triggering of stop orders

EUR/USD



The single currency has moved up on triggering stop orders and reached 1.3360. This level is the highest since mid-December. The rising optimism in stock markets and subsiding fears around Greece lead to partial liquidation of short positions in the euro. As has already been mentioned, the market is heavily tilted against the euro, yet its exchange rate has remained relatively stable so far. Thus, the upward movement of EUR/ USD has good chances to go on. This rally is supported by strengthening of stock markets on good reports and rise in prices of raw materials. Until recently the inverse correlation between commodity markets and the dollar has served well, helping the single currency to climb up. This time the long-term steadiness of this correlation is questionable because of the shifts in the euro area, which may keep exerting pressure on the performance of the eurozone economies for a long time to come. However, in the near term the single currency may get support from the markets. It’s not likely that the euro will face serious obstacles on its way to 1.35. European banks are supported by speculators on the threshold of the second 3-year LTRO auction. It is scheduled for the next week. The previous auction demonstrated the bank demand at 500 billion euro, and this time the volume is likely to be the same. With this tool at hand the ECB helps banks to ease the need for refinancing and to increase demand for government bonds.

GBP/USD

The punishment of the pound for ‘weak’ MPC minutes hasn’t lasted for long. Already throughout yesterday’s trading the pound managed to recoup most of its losses and return above 1.57... Read full review

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27/02/2012 G20 promises to secure $2 trln in firepower

EUR/USD



On Friday the single currency continued to rally and reached 1.3485. The growth was supported by positive expectations in regard to Europe, as well as by the trigger of stop orders in the euro short positions. The impulsive rise in the single currency may hold for some more time, but it is unlikely to last for long. Now Spain steps onto that very spiral Greece has been lately moving along. The Spanish government more and more realizes its inability to fulfill the budget plans. Haircuts have just begun. Nevertheless, the markets mostly ignore this fact, being happy with the G20’s promise to increase the firepower of international lenders up to $2 trln over the next two months. One thing is of interest – who will pay for this? By the way, the major developing countries (BRICS) are said to negotiate in detail the foundation of a bank for developing countries at the G20 meeting. It seems that the dynamic economies are not willing to participate in financing of the troubled euro area and prefer to focus on the growth in their own states and on the cooperation with other developing countries. However, one of factors sparking off the euro rally was China's statement about its readiness to provide the euro area with greater support. China heavily depends on the investor sentiment, so it is the country’s vested interest to maintain as much stability as possible in the euro zone, with which it has very close trading relations. Stock markets today will seek to take profits after a week of remarkable growth, which may eventually lead to the euro correction and drive the currency down to 1.34. However, there will surely be some more attempts to break above 1.35 this week.

GBP/USD

Britain's Chancellor manifested its firm stance towards tax cuts and stimulation of the economic growth through government spending... Read full review

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28/02/2012 Greece’s rating is cut to selective default, but who cares?

EUR/USD



S&P has downgraded Greece’s credit rating to selective default (SD). This decision hasn’t come as a surprise, as the agency already promised to do it a couple of months ago. For this reason, there haven’t been any sharp euro sales. The agency has also pointed out that if there aren’t enough private investors engaged in debt swap, the country will inevitably face outright default. However, as the technical analysis shows, the euro sales were just held during the day yesterday, not longer. EUR/USD fell to 1.3366 during Monday’s session, but already now trading is again conducted around 1.3440. Demand in stock and commodity markets remains strong. And current traders’ talks more and more resemble those of early 2008. Traders underestimate the consequences of the European issues now just like they underestimated the graveness of the situation in the US and the UK banking sector then. Investors turn their eyes to the developed countries, performing rather well at the moment, as if the poor state of affairs in Europe wasn’t likely to impact developing China and Russia. Of course, there has been a certain shift in the economic models of China over this time, but the fact still is that all the developing BRIC countries heavily depend on demand in foreign markets. Moreover, most of their capitals come from the U.S., Europe and Japan, which is a result of the soft monetary policy in these countries.

GBP/USD

Following the market recovery, the British pound also tries to demonstrate some growth. However, its dynamics leave much to be desired, which is especially noticeable in the pair with the euro...Read full review

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29/02/2012 Markets see the positive everywhere

EUR/USD



The US dollar continues the retreat started on Tuesday. The currency is declining while the markets generally remain optimistic, thus generating demand for risky assets. Yesterday’s data on investor sentiment supported the markets. Conference Board’s Index of Consumer Confidence has exceeded everyone’s expectations, having risen to 70.8 in February, the highest level in a year. The data on Durable Goods Orders and the S&P/Case-Shiller Home Price Index proved to be a bit disappointing. However, the orders largely increased over the previous months (4.2% in November, 3.2% in December), so together with the 4.2% decline in January the figures have restored to the trend levels. Housing prices in the U.S. remain low or in the downtrend. But it is no news as this trend has already been indicated in other reports. The Americans are not very enthusiastic about purchasing single-family homes; they look for more affordable offers, despite the low interest rates on mortgages and the opportunity of a lower down payment. Europe still remains in the limelight of traders and investors. Today we’ll see the results of the ECB’s 3-year auction repos. The sums close to the previous LTRO levels are seen as the most favourable for the markets. High figures will reflect the need for serious refinancing in Europe, and low ones will generate fears that the situation won’t change much in the long run and that the banks will remain highly dependent on the goodwill of the markets.

GBP/USD

The British pound managed to rise to 1.59 during yesterday’s trading, as we promised. Today, it is already trading above the 200-day moving average, which is actually the middle level of the year...Read full review

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1/03/2012 Is EUR becoming the carry-trade funding currency?

EUR/USD



The data on the ECB’s direct loans proved adverse for the common currency and eventually generated demand for the dollar. It is quite an interesting result as the figures turned out to be close to the middle of the predicted values. Three-year loans totaled 530 billion euro. However, the euro failed to make any gains on the news. On the other hand, the peripheral bond yields began to decline straight away, thus indicating that the fears for the fate of these countries subsided. Judging by the influence such loans produce on the currency, they can be definitely attributed to quantitative easing, which makes borrowings in the currency cheaper. In the end, it should trigger off demand for risky assets and support lending. But at the initial stage, we are most likely to see the sales of the euro as the currency with lowered rates. Looking back to December, after the publication of the first 3-year LTRO the euro held to the same level for a few days at and then began to decline. It must be noted that then the euro sales were accompanied by the growth in stock markets, in contrast to what we had observed earlier. By the way, is it possible to say that with Draghi’s getting into office and the unfolding debt crisis in Europe the euro will become the funding currency? It all depends on how long it will take Europe to handle its current issues. So far treatment deals only with the symptoms while the disease itself remains unaffected and is progressing here and there.

GBP/USD

The data on the UK lending proved really surprising. Net Consumer Credit figures, published on Wednesday, came well above the expected values and proved to be the best over the long term...Read full review

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2/03/2012 ISDA report helps the banking sector, but renders no support to risk demand

EUR/USD



Yesterday’s market events can be well packed into two stories. The first one concerns the ISDA’s (International Swaps and Derivatives Association) conclusion that the swap for private Greek debt holders is not a credit event and therefore will not trigger CDS. This news has supported equity markets, especially the banking sector, which feels somewhat mystically feared at the word "default". The other story is about rather unimpressive data on the economy. That’s all in relation to expectations, of course. If earlier the U.S. unemployment claims totaling 351 thousand gave rise to the most optimistic sentiments in the markets, now these figures don’t seem to be enough. Again too optimistic market expectations concerning the economy are somewhat alarming. In a week, on Friday, markets will see data on the US labour market. In general, economists expect the employment increase to go above 200,000. Such monthly rates of job creation have been observed only in the best of times. Now the state of affairs is not that perfect, so it would be better if the markets moderated their optimism. U.S. consumer spending rose by 0.3% in January, which is lower than the forecasted 0.5%. The manufacturing ISM figure hasn’t met the expectations, having fallen from 54.1to 52.4. It is still the phase of growth, but of a more moderate one. The markets however expected acceleration. The same trend has been also seen in the report on durable goods orders. The economy gained momentum in October-December, having built up ample reserves, so now it may slow down for a while, and though not being at risk of recession (yet) it is unlikely to show the same impressive acceleration as in winter. The single currency is falling, which goes along with the model we’ve observed earlier: the ECB’s loans cause weakness of the euro. The EUR/USD is now close to 1.33 and two days ago tried to break above 1.35.

GBP/USD

The British pound is trying hard to resist the across-the-board strengthening of the dollar. At the same time the pound is gradually crawling up and feels all the more freely above 1.59, which is also the level of the 200-day moving average...Read full review

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5/03/2012 Monday’s demand for risk remains weak

EUR/USD



On Friday the euro dropped below 1.32 on the sales of technology stocks. During the Asian session the stocks were recouping the losses suffered on Friday's falling of U.S. stock markets, while the euro/dollar remained almost unchanged - just below 1.32. If the pattern we saw in December repeats itself, the single currency may fall into decline for a week or two. The fact is that the "soft money", issued by the ECB, is primarily directed to ease crediting conditions, which, in its turn, leads to lower euro borrowing rates. But after all, it positively affects the economy and spurs inflation, which is sure to support the single currency in the near future. However, that’s all about the future, and now it is important to see the clear signs of the European economic recovery. In this connection, today’s PMI report on services is of interest. The index has cooled the markets’ ardour, having fallen down to 48,8 against 50,4 in January and shown the preliminary data revised down to 49,4. As we see, February’s final reading confirmed the activity reduction. At the same time, business and consumer sentiment indicators are turned upwards, which promises further improvement in the coming months. Thus, if no extreme scenarios unfold, the eurozone economy will show a better performance in the near future. In case this improvement turns impressive and involves not only Germany and France, but also the periphery, investors will probably turn away from the bond sales in the region’s peripheral countries. Time will tell. But for now we warn you against going too far with these expectations.

GBP/USD

It looks as though traders had decided that the British pound has climbed too high and too fast. On Friday and during the Asian session on Monday the sterling suffered a big sale, having dropped to 1.5820...Read full review

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6/03/2012 Euro’s holding at 1.32 despite the reduced risk demand

EUR/USD



The euro gained almost no momentum yesterday. Some factors offset other ones and, as a result, EUR/USD remained at 1.32. Yesterday markets saw a batch of PMI figures. Interestingly enough, statistics have again confirmed the old observation that recovery of the U.S. real economy happens 3-6 months earlier than that of the European one. Thus February’s PMI for the euro area was unexpectedly revised down to 48.8 against the pre-estimate of 49.4. The most depressing thing about this is that a month earlier the service sector displayed growth and the index figure made 50.4. In other words, in January the service sector was intensifying its activity yet, but already in February the situation changed for the worse and the sector’s activity was swiftly fading away. In contrast, ISM’s PMI data for U.S. reflected the increase in the service sector growth. The indicator rose to 57.3 from the previous 56.8. Such strong data generally support the demand for risk in stock markets and risk-sensitive currencies. However, it was different this time. Markets didn’t manage to recover from the sales triggered by lowering of China’s targeted growth. We consider it to be an exaggerated reaction to the expectations. The facts themselves may prove completely different. But the market is still pretty heavy after 2 1/2 months of the persistent rally. On the other hand, heavy sales need a good reason, for instance, a weak report on labour markets this Friday. Until then the sideways trend is likely to dominate.

GBP/USD

The British pound had managed to recover by the end of the day and rose to 1.5850 during Asian session. As we mentioned earlier when commenting on the UK Services PMI data, the statistics are too good to let the sterling fall...Read full review

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7/03/2012 Markets fall on ongoing concerns around Greece, but the euro doesn’t look worse than its counterparts

EUR/USD


Tuesday proved to be a hard day for stock markets. Frankly speaking, it came as the worst one since the beginning of the year. Some commentators attribute such dynamics to the higher probability of Greece’s default on its debt. It’s no secret that international institutions are evaluating the expense at which this deadly scenario may unfold. Institute of International Finance yesterday mouthed its assessment of default in Greece, forecasting possible losses at $1 trillion. The Dutch right-wing party held its own research which showed that the bailout of the troubled countries may eventually cost 2.4 trillion. With stakes being so high, the market players’ desire to give up breaking even is quite natural at the moment. This is what Dutch Freedom Party leader advocates. With such talks around, markets keep rather skeptical about Greece’s deal to get a sufficient number of claims. For now we know only about the participation of large holders, accounting for 20%of the claims. It is still far from 66% required to successfully close the deal. Meanwhile, the market is kept in suspense and volatility is gaining momentum. In our case, the rising volatility, preceded by a continuous rally, marks the market’s tendency to decline. However, we will hardly see any shift in the currencies before facts come out. The end of this week may become really crucial for the further movement in the markets.

GBP/USD

The sterling reveals its dependence on the stock market sentiments. The day, which came for stock markets as the worst one since the beginning of the year, proved to be equally bad for GBP/USD and GBP/JPY...Read full review

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8/03/2012 Big day for markets and, more so, for the euro

EUR/USD



After Tuesday's fears and profit-taking in risky assets, the euro is gradually coming round. And though the day promises to be eventful, stock markets are trading positive. As a result, EUR/USD rose from the lows below 1.31 and is now trading at 1.3170. Today the ECB will hold a regular meeting on the monetary policy. However, the markets will want to pay more attention to Draghi’s press-conference, where he will probably lay his own assessment of the second LTRO auction and speak on the further plans and views of the Bank. For all its importance, the ECB’s meeting won’t probably come as the most risky event of the day. The fact is that later on Thursday or early on Friday markets will see data on private sector investor participation in the Greek debt swap. Remember that for the deal to close successfully the participation rate of all creditors have to be over 66%. However, even this won’t be enough. Even if the deal will be regarded as done, 90% of all money should be involved to reach the required level of "participation". It is rumored that 14% of the creditors are not obligated to participate, and if they take the opportunity, it may eventually ruin the whole deal. However, today’s agenda brings us good news as well. ADP Non-Farm Employment Change in February came in at 216K, which allows us to expect the Non-Farm Payrolls reach the 235K level. The figure is above the average market forecasts and may partly explain the moderate positive, currently dominating in the markets.

GBP/USD

Just like the euro, the sterling is gradually recovering from the weak start of the week. The Cable is now trading at 1.5760 against the 1.57 low, hit on Wednesday night. Today the Bank of England will announce its decision on Interest Rate...Read full review

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9/03/2012 Greek deal is done and markets wait for payrolls

EUR/USD



Thursday proved to be quite a favourable day for the markets. Tuesday’s losses in the stock markets were recouped, and the single currency climbed pretty much higher. EUR/USD is trading near 1.3250 now. Most likely, it will stick to this level until the release of data on the US employment. The results of the private investor participation in the debt swap were postponed to Friday morning. The good news is that the 66% threshold has been crossed, which, actually, was already evident from the leaks yesterday. With the collective action clauses applied, the level of participation in the swap amounted to 95.7%. Such relatively good news allows us to speak about the successful closing of the hardest and most nerve-racking deal, which took six months to be clinched. However, the market reaction to this long-awaited news was not very strong, having come just with a few sales of the single currency. The analogy with what we saw after the summits inevitably comes to mind. The euro is supported on expectations, and invariably depreciated on facts. Something of the kind may happen this time as well. Yet the main motion will most probably fall on the US publication of non-farm payrolls. Remember that the markets are expecting the employment growth of 209,000. After ADP’s data release (the 216K growth in the private sector) we assumed that the official figures would indicate the 235K increase or so. However, yesterday’s data on unemployment claims force to be more cautious. Let’s see. We're not going to change our expectations, suggesting strong data, growth in the stock markets and also higher demand for risk. But in the coming months the statistics may prove much weaker.

GBP/USD

As expected by most market participants, the Bank of England did not change anything in its policy, keeping the rate at 0.5% and the size of the QE programme at 325bln. However, that did not prevent the sterling bulls from taking GBP/USD above 1.58...Read full review

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12/03/2012 Good news does not always excite the market growth

EUR/USD



EUR/USD has been falling since Friday and has lost almost two big figures over this time. The single currency is now worth $1.3080, which is a four-week low. Against our expectations the market did not wait for the publication of statistics on the US employment to start selling risky assets, including the euro. As a result, at the time the non-farm payrolls were released, the euro was already trading as high as 1.3125. The labour market statistics has come in almost as good as expected, showing the 227K increase in the number of jobs (we predicted 235K, while the general market forecast was 206K). Moreover, it can’t but be noticed that almost all sectors can boast improvement now. Employment in manufacturing has been steadily growing for three consecutive months, having added 31K in February after 28K in December and 52K in January. Private sector employment has been averaging out at above 200K over the last six months and grew by 227K in February. The unemployment rate remains at 8.3%, however the disappointing data of January, when the index went down only due to the participation rate reduction, have been a little bit smoothed away. This figure made 63.9% in February against 63.7% in January and 64.2% a year ago. These positive data make the Fed’s extension of its QE programme less possible. But despite the obvious positive data context such expectations triggered the decline in stock markets and reduced the demand for risk. Turning to today, Europeans are expected to back another aid tranche for Greece, which will help the country to avoid a disorderly default. This is also good news, but over recently it’s been too often the case that the market has fallen on the positive news. Technical analysts assume that the common currency will shortly drop below 1.29 on the rising bearish sentiment. However, there is a feeling that the market will be allowed some rest after a strong movement on Friday.

GBP/USD

Friday was an eventful day not only for the U.S. and Europe. Britain also brought us a batch of important news. However, it didn’t boost any optimism in the market. Industrial production did not surpass the expectations, having lost 0.4% against the previous month and 3.8% against the previous year....Read full review

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13/03/2012 Does Greece take a back seat, giving way to Spain?

EUR/USD



The single currency didn’t continue last week’s downturn yesterday. It was good news, but at the same time the currency didn’t grow on the subsiding fears around Greece. And this is already the signal to give a closer look to the issues currently disturbing the markets. As always there are two directions: Europe and the USA. However, while concerns about America seem to be the whims of a spoilt child, European issues look like life-and-death ones. Tonight we’ll see the Fed’s decision on the monetary policy. No factual action is expected: everybody looks forward to learning the committee’s evaluation of the economic health and their sentiment concerning the economic prospects. After the release of strong employment data market participants expect the mid-year QE to be carried out on a smaller scale than before. The markets behave as if they were given ordinary porridge instead of a delicious apple pie. This is unlikely to last for long. Money is still very, very cheap; inflation will likely speed up because of the rise in energy prices; economic activity is following the right path. Hardly had Europe breathed a sigh of relief concerning Greece, when similar issues started to pop up in other troubled countries. Spain claims that it won’t be able to meet its agreed budget deficit targets, especially under the circumstances of a severe economic recession expected this year. Assuming that the markets will treat Spain in the way they treated Greece, the size of bailout / debt write-off may amount not to hundreds of billions, but to trillions. However, at this stage markets see a great deal of good news and key central banks mainly stick to the expansionary policy. It means that the single currency may get some support and find buyers on the dips.

GBP/USD

The British housing market is gradually stabilizing. According to RICS, house price balance is at 13% (i.e. the number of those who expect the further decline in prices is 13% larger than that of those who await their growth)...Read full review

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14/03/2012 Rare occurrence: both markets and dollar grow

EUR/USD



Generally, when markets grow the dollar falls. However, there can be rare exceptions to this correlation. And now it seems to be the case. Last night the Federal Committee published its monetary policy statement. On the one hand, the markets got the expected commentary. The data on the labour market finally convinced most analysts that the economy is on the mend, although the recovery is rather slow. Such sentiments are supported by the increase in the consumer sentiment (and consequently in spending) and by the production growth. So, the markets wanted to hear this from Bernanke and Co. and they did. As a result, the dollar as well as the stock exchanges rallied. Since concerns around Greece have subsided, the markets have a chance to give a closer consideration to the economic outlook. And here, as is often the case, the U.S. economy is the first to decline and recover. While Europe is suffering from fiscal austerity and prolonged recessions in the peripheral countries, the U.S. economy tends towards trend growth rates. And this means that the monetary policy toughening will first take place in the U.S. and only then in Europe. The ECB’s balance sheet already contains the sum equivalent to $ 3 trln., which is far beyond the Fed’s parameters. Overnight the euro fell down to 1.3030. Market participants less tend to expect the further QE from the Fed now, and the inflation rise, triggered by the surge of energy prices, boosts the yield growth of U.S. government bonds.

GBP/USD

The British pound was moving along quite a bumpy road yesterday. In spite of quite positive data on the trade balance (yesterday we mentioned that the statistics came in better than expected, but on the whole it doesn’t suggest any significant shift), at the beginning of trading in London the pound went through sales as a result of the capital outflow from the European currencies...Read full review

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15/03/2012 The carry trade is dead - Long live the carry trade!

USD



Yesterday the dollar managed to take some more gains against most of its rivals. In particular, the single currency fell to 1.3020 against 1.3060 a day before and overnight even closely approached 1.30. It should be mentioned that now interest in the dollar is triggered by a bit different factors than in the midst of the crisis. Now the U.S. currency is bought as an instrument for investment in the U.S. markets, which are currently showing a better growth than the European ones. At the same time the large emerging markets are either trying to limit the capital inflow to their countries (Korea, Brazil) or suffering a serious economic slowdown after the excessive boom (Russia, China, India). In addition, other traditional high-yielders have ceased to be that high-yielding, and investors are currently considering the chances of the further policy easing (Australia, New Zealand). So, the carry trade, we knew before the crisis, is not in that great demand any longer. Of course, we do not say that the currencies have ceased to fluctuate on the interest rate changes, but the range has definitely become narrower. This has been clearly observed since the 4th quarter of the last year until now. Despite the speedy growth of the global economy and a fairly impressive rally in the stock markets, the dollar index has been growing pretty well over the past three weeks and is now close to 80.65, just as at the end of 2008, in the first quarter of 2010 and at the beginning of 2011. Regarding this, can we say that the world has turned topsy-turvy? Of course not. Simply with regard for the recent data it seems to be very probable that the rate in the U.S. will be raised earlier than in Europe, Switzerland, Japan, and that because of the rise in the Asian labour cost the U.S. companies will be more concentrated on the development of domestic production, thus saving on transport costs and delivery time. Consider the facts: despite the high cost of energy (similar to that of mid 2008), over the last quarters the U.S. current account deficit has been reduced by 40% compared to what was before the Great Recession. At the same time, China's trade surplus has severely declined. This is that much talked-about rebalancing. However, it’s proved to be much longer and more painful than expected.

GBP

Our story about the carry trade can’t but be amplified by the description of the situation in Britain. This country is also in a dire need of rebalancing. And this need is even more desperate than in the U.S., as the British total debt is much higher due to the large debt of financial institutions and households (507% of GDP as against 279% of GDP in the U.S.)...Read full review

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16/03/2012 When the good is not good

EUR/USD



Improvement in macroeconomic indicators does not always imply the recovery of the whole economy. Sometimes other factors come into play and distort the picture. That was the case with yesterday’s labour costs data in the euro area. The indicator showed a rather unexpected acceleration of the annual growth rate up to 2.8% in the last quarter of the previous year (when the economy declined by 0.3%). Meanwhile the analysts had quite reasonably expected it to slow down to 2.3%. The data on the employment change didn’t point out any positive changes either. Over the last quarter of the previous year employment fell by 0.2% quarterly and annually. So, why do employers all of a sudden pay more in the time of the economic downturn and job cuts? The answer is simple - the governments are raising taxes, thus forcing companies to make bigger tax deductions. Thus, the recent figures hardly indicate any improvement or possibility of the further inflation speed-up. It’s also very important to note that such distortions are likely to persist in the coming quarters, as most European countries have just stepped into the process of austerity implementation. Yet, improvements in the US are also hard to discern. The number of continuing claims is rapidly decreasing. Yesterday’s weekly data indicated the drop of the figure down to 3.343 million, which is the lowest level since August 2008. But this progress is partly explained by the fact that the period, when people could claim unemployment benefits, has expired. Here it is also possible to include those who have lost hope to find a new job and abandoned their attempts. For comparison, with the similar number of unemployed claimants now and in summer 2008, the current unemployment rate in the US is at 8.3% against 6.1% then, and the economically active population totals 63.9% against 66.1%. Thus, the Fed looks more sensible than the markets, being careful and admitting the possibility of further measures to support the economy. To realize that too markets will probably need a month or two.

GBP/USD
Yesterday didn’t abound in statistics on the UK, but that vacuum in the agenda was filled with various interesting speeches. MPC’s Ben Broadbent noted in his speech that though the recovery from financial crises is usually slow, the household over-indebtedness in Britain shouldn’t be so much fussed over...Read full review

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19/03/2012 Expensive oil: stimulus to spend or threat to growth?

EUR/USD



Last Friday was a quiet day for European markets, but quite a busy one for the US exchanges. Actually, it doesn’t seem to be a surprise, considering loads of important statistics which came from the States on Friday. First, data on inflation were published. Due to the fuel price growth the consumer price index gained 0.4% in February and the annual growth rate remained at 2.9%, as was generally expected by economists. It’s quite reassuring to hear about easing of the core inflation. However, in the coming months it most likely will go up due to the effect of energy prices on the prices of other goods. The industrial production data failed to surprise with any significant growth, though on the whole statistics are still very strong. The annual output growth rate made 4.0% in February against 3.4% in January. Capacity utilization slightly dropped down to 78.7% instead of going up to 78.9% as expected. However, for the most part it can be explained by the increase in capacity itself, which is a good sign, indeed. The March preliminary UoM data on inflation expectations have leaped, showing that consumers are expecting the annual price growth to come in at 4.0% against 3.3% a month earlier. No doubt, it is the result of the pernicious impact of energy prices. So, we just need to see how Americans will react to it. Will they start buying goods at cheaper prices now or will they reduce consumption of other goods because of the increased spending on fuel and food? With Americans the answer to this question is not so obvious as with Europeans, who already now are extremely concerned about the rising oil prices and talking (in particular French-born IMF Chief Lagarde) the pernicious impact it may produce on the just-started recovery process. But leaving the statements of politicians aside, it may be noted that the expectations of higher inflation and the energy price surge play against the dollar, as it was observed on Friday, when traders preferred to take profits after a several-week growth in USD. The single currency shot up from 1.3040 to 1.3180 in a few hours.

GBP/USD

The British pound also took part in this high-demand-for-risk party. The sterling jumped to 1.5860 from 1.57 at the beginning of the day. That upswing was generally spurred by triggering of stop-losses on the break through the resistance around 1.5740...Read full review

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20/03/2012 By fits and starts EUR’s moving up

EUR/USD



The single currency is moving by fits and starts. Apparently, big players prefer to hold back from systematical buying, and trading is now driven mainly by technical factors. Yesterday, just like on Friday, the euro/dollar spent the most part of the day in a narrow corridor. However, within the first two hours of the US session it leapt dramatically from 1.3150 to 1.3260 and then again resumed tracking sideways. The current Forex movement in EUR/USD can be compared to what we saw after the 1st LTRO auction. For a while the single currency was falling as a result of the interbank interest rate cuts, but soon the general improvement in the markets spilt over into buying of risky assets. Then the euro sagged from 1.3050 to 1.26. The current range of the currency’s decline makes 1.34 - 1.30. Thus, the shift ranges as well as the ECB auction sizes are almost the same. What happened next and what shall we expect now? Then, in mid-January, the single currency grew from 1.26 to 1.35. So, in our situation we may well expect that the single currency will reach the area of 1.40 in the coming 4-6 weeks. In addition, both the U.S. and European economic indicators more and more often point at improvement. It’s rather doubtful if these signals of improvement will keep coming in steadily in the coming months (it mainly concerns Europe), but within the next few weeks this very sentiment will most likely dominate the markets, in this way supporting the demand for the euro and triggering the dollar sales.

GBP/USD

Today is an eventful day for Britain. We’ll see data on the Consumer Price Index, CBI’s Industrial Order Expectations and Selling Prices. As for CPI, we don’t see any serious cause for concern. It is expected that the February inflation rate will go up by 0.4% monthly, but will come in at 3.4% against the previous 3.9% annually...Read full review

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21/03/2012 Another tiny little jump of EUR

EUR/USD



Tuesday turned out to be a fairly quiet day for most of the markets. The American exchanges were generally dominated by the correction sentiment, but the scope of correction didn’t give any particular cause for concern, as stocks recouped most of the losses to close out the day. It is noteworthy that the single currency managed to stay almost unaffected by the initial impetus for decline in the US. Regarding the results of the day, the EUR/USD rate remained almost unchanged, and now makes about 1.3260. Such dynamics supports our supposition that the euro has good chances to grow in the coming weeks. Formally, buying was triggered by the news that Greek legislators agreed on the acceptance of the troika’s aid package with the significant majority voting in its favour. Wednesday is unlikely to spring any unpleasant surprises either. Bernanke in his pre-published statement has pointed at conspicuous progress made by the European financial markets. However, he also mentioned that it is too early for the European policymakers to get relaxed on the path of reforms. Improvements in the US construction industry are also worth mentioning. We are no longer that ironic about the possible recovery in this sector, although with reservation that it’s highly probable that the figures similar to those of 2006 (over 2 million new homes yearly) won’t be recorded for another decade. Nevertheless, from the bottom of recession (about 500K) the volume of monthly building permits increased by 40%, having reached the annual growth rate of 698K (in February). As seen in other reports the Americans tend to buy cheaper and plainer homes now.

GBP/USD

The inflation rate in Britain formally proved higher than expected, but the gap between the factual and expected figures can hardly be called significant. Monthly consumer prices added 0.6% against the predicted 0.4%, while the annual growth rate coincided with the expected slowdown to 3.4% in February against 3.6% a month earlier...Read full review

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22/03/2012 Are Gold and Aussie out of favour?

EUR/USD



Yesterday the US market remained in the mode of slight correction, which actually failed to produce any significant impact on the EUR/USD rate. At some point the single currency rose to the two-week high of 1.3280, but didn’t manage to consolidate at this level. Apparently, the markets needed a larger batch of news to decide on the further action. The only interesting statistics came in on the existing home sales. According to the data published by the National Association of Realtors, home sales fell by 0.9% in February to the annual pace of 4.59 million. However, last month sales jumped by 5.7%, so there’s no cause for concern about the stability of recovery in this sector. As was mentioned yesterday, the Americans tend to purchase more homes when their prices go up. This report has shown the reverse side. The decline occurred on the rise in the average sale price from $154.6K to $156.6K. When compared with the minimum levels at the height of recession, the market volume have grown by 40%. Besides, as you remember, the new home sales have increased by about 50%. Thus, finally we get the picture of quite a healthy growth. Today’s data on the European flash PMI for March have come in surprisingly weak. The composite index has fallen to 47.7 against the expected 49.6 and 49.0 a month earlier. The services sector doesn’t feel better. Instead of going up to 49.3 the composite indicator has fallen to 48.7 from 48.8 a month earlier. This index is a creditable indicator, so its weak figures have served as a strong impetus for selling, nipping in the bud all attempts of the bulls to fight for the 1.33 point.

GBP/USD

The British government made every effort to smooth out the release of the new budget. And we should say, they have succeeded. As has been generally expected, the 50% income tax for the wealthy will be replaced by the 45% one starting next year...Read full review

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23/03/2012 Eurozone PMI has become a real cause for concern, but will it be long-lasting?

EUR/USD



The European PMI data caused quite a stir yesterday. Prior to their release markets had been cheered up by the more or less stabilizing situation in Greece and decrease in spreads of peripheral bonds to the corresponding bonds of the core countries. However, yesterday's PMI figures proved to be really alarming and triggered sales of the single currency, which eventually fell down to 1.3130. Yesterday we mentioned that PMI is a good GDP indicator. To show it more vividly Markit publishes the PMI and GDP graphs. According to them the eurozone is likely to slide into recession in the first quarter. This goes in contrast with what has been promised by German indicators. But don’t forget that Germany is just a part of the euro area. As a result of tough austerity measures the periphery keeps suffering a severe economic downturn. So, even Germany cannot escape this lot, because most of its production is targeted at the export to other European countries. The US, on the contrary, enjoys a batch of quite positive news. The number of initial claims for unemployment insurance benefits continues to go down. At the same time, the total number of those who are currently entitled for the benefits is decreasing as well. According to most recent data, last week the number of initial claims fell to 348K, the figure we haven’t seen since the beginning of 2008. Nevertheless, we still consider that Europe keeps following the path of recovery, though perhaps not as quickly as wanted. Liquidity provided by the ECB has done its part in smoothing over the effects of the sovereign debt crisis. The single currency may quickly recover from yesterday's sales and rush to new local highs in the coming days.

GBP/USD

Yesterday the British pound fell innocent victim to the euro decline. While the single currency managed to recover and recoup its losses by the end of the day, the pound closed out the day negative, just above 1.58...Read full review

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26/03/2012 USD prefers to close out the week on a declining note

EUR/USD



For two weeks in a row the dollar experienced heavy sales, which started on Thursday afternoon and reached their hottest point on Friday. As highlighted in the press, last week the dollar decline was caused by growing concerns about the US and Chinese economic growth. This explanation sounds a bit controversial though, as Friday’s data indicated a sudden 4.1% rise in the level of the Chinese coincident indicators in February. Of course, we shouldn’t forget that this happened after the 2% decline a month ago, but even with this fact considered the current pace is good. Technically, the markets were disappointed by the statistics on new homes sales. The annual sales rate totaled 313K in February, against 318K a month earlier and the expected growth of 326K. But here again we come across a familiar pattern: a small decline in sales occurs when prices rise. In our case the median home sale price leaped up from 215,700 to 233,700. Under such circumstances the 1.6% decline in sales m/m is more than a good result. In addition, compared to the figures reported the same month a year ago the sales have grown by 11.4%. The market actually doesn’t seem to have strong reasons to sell risky assets now. Even the ECB's head Draghi mentioned that the euro area is already over the worst. It can be true with the financial system, but it’s hardly so with the regional economies, which are still to face a long period of fiscal austerity and economic hardships.

GBP/USD

The British pound has been displaying an enviable steadiness over the last few days, holding tight to the bargaining mark of 1.5860, which coincides with the level of the annual moving average (200 days MA)...Read full review

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27/03/2012 Bernanke: more, more, more…

EUR/USD



Ben Bernanke’s speech stirred up the market yesterday, reviving hopes for the Fed’s further support of the economy through asset buying and other unconventional measures. The Fed’s chief emphasized that to reduce unemployment the country needs a higher growth rate. He also mentioned that in the near future unemployment might decline even at a slower pace than now. Unfortunately, markets preferred to ignore Bernanke’s doubts and interpreted them as hints at new bond purchases. This interpretation immediately spurred the across-the-board weakening of the dollar. The single currency fluctuated wildly. In the European session it fell below 1.32, but at the end of the day it was making advances already to 1.3370. The growth pattern of the pair – by fits and starts – is still preserved. The single currency grows on execution of sell orders at local highs. Such dynamics may hold for several more days or even weeks, while markets, on the one hand, feel confident about further economic stimulation and, on the other hand, see real improvement in economic indicators. All this will allow for further asset purchases on the overall positive and high risk appetite. But why should Bernanke be so enthusiastic to support the economy? He is not sure that economic indicators will keep indicating improvement in the future. Over the last few years he proved right, in fact. The economy and labour market suffer a stronger slowdown in summer, when there are more workers. In spring many still believe that sparse green shoots will grow into dense fields, and only then notice that soil has been sucked dry and can yield a good crop only when nourished.

GBP/USD

Technically, the British pound enjoyed even a more advantageous position than the euro at the time of Bernanke’s address. As has already been mentioned, the pound had been trading near the 200-day moving average for several days in a row, but to make a decisive breakthrough it needed some important news...Read full review

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28/03/2012 Markets climb extremely high to launch correction next

EUR/USD



Markets cracked under their own weight and after an impressive rally on Monday launched a deep correction. Formally, the sales were triggered by a dramatic deterioration of the consumer confidence, recorded by Conference Board. In March the figure made 70.2 against 71.6 a month earlier. Besides, the worsening was mainly caused by ongoing concerns of the Americans about the employment situation in the country. Remember that just a few days ago everyone saw only positive changes in this sector and drew the parallel with the figures at the start of recession? Of course, the labour market issue may pale into significance this week, but next week it will again fully absorb investors’ attention as new data on employment are scheduled to be released then. Meanwhile, current movements in the market impress by their diversity. The unison we observed earlier in the phase “risk on/off” is missing. EUR/USD has been hovering around 1,33 for three days in a row. Many of the coming signals are discrepant. WTI Oil hasn’t seen any significant motion and trend in March. The stock markets are climbing up, though it’s often the case that they stumble on their way. For all that, the US growth rate remains higher than in any other countries, which is actually not surprising. In this connection we really wonder if improvement in the USA necessarily leads to the higher demand for such risky assets as the euro, Aussie and commodities.

GBP/USD

The British pound reached the 1.60 level yesterday, but the cautiousness, dominating the markets at the time, didn’t allow for setting of positive sentiments. The sterling rolled back a bit and is now trading around 1,5950. The final GDP figures for 4Q, published today, have been unexpectedly revised down to -0.3%...Read full review

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29/03/2012 Has ECB's liguidity reversed the falling lending trend?

EUR/USD



As reported in the press, the European leaders are considering the possible extending of bailout funds. Released at the end of the day, this news managed to restore confidence in the markets and hold the euro back from falling. As a result, EUR/USD is trading evenly at the same level as a day ago, around 1,3310. Not very prominent, but quite alarming news came in yesterday from the ECB. As shown in the regular statistics, M3 Money Supply grew from 2,5% to 2,8% in February. It indicates the reversal from the terrible figures of December and accounts for the ECB’s liquidity infusions at the time. Anyway, we should bear in mind that the main target was to boost lending to the real sector and this is the point where we have problems. The annual growth rate of private loans, published in the same report, instead of the expected increase showed a significant decline in the sector – from 1,1% down to 0,7%. It points to the fact that the ECB’s money was not spent on lending, as Draghi wanted, but just helped the banks to exchange poor bonds for more liquid ones. Eventually, a considerable part of this liquidity is likely to shortly go into reserves, as many banks have to draw large capitals to meet the new demands of capital adequacy by June. Still at closer consideration, the single currency displays certain stability, gradually winning back figure by figure from the dollar. It will last until the Eurozone indicators enter the red zone as a result of fiscal policy tightening. How much time does Europe have at its disposal, we wonder?

GBP/USD

Yesterday luck failed the pound. As we know, it was one of the strongest rivals of the dollar for a while, but yesterday even before the release of the Final GDP data the currency came under a strong pressure...Read full review

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30/03/2012 European bears, American bulls

EUR/USD



It’s great when officials pay their attention to the same figures as analysts do. Like was mentioned yesterday, although filling of the European banks with liquidity has helped to save the regional financial system from complete collapse, it still hasn’t reached the ultimate goal that Draghi talked about. Namely, it hasn’t managed to increase lending to the business and household sectors. However, as the ECB’s vice-president quite unexpectedly put in his speech, the Bank didn’t pursue the goal of supporting lending in the region. It’s a bit surprising. At the same time, the situation in Spain is becoming tenser and tenser. Yesterday trade unions launched a 24-hour strike against the labour market reform. The Spanish have been suffering for too long. They have stoically endured unemployment exceeding 20% (such figures can be hardly found anywhere else in Europe now), haven’t worried about the 30% decline in housing prices, but all at once have taken to the streets when their lifestyle has come under threat. The strike and negative sentiment across Europe put pressure on the quotes of equity futures, which had been declining for 3 days in a row. However, by the end of the day the situation had changed. The end-of-quarter effect went off. The stocks, which were strong at the beginning of the year and then fell in price due to the correction in the markets, again have attracted investors’ interest. This turn of events in the stock markets managed to change the situation with EUR/USD. Having fallen down to 1,3250 by the start of trading in the USA, the pair then reversed and during trading in Asia completely recouped its Thursday’s losses and reached 1,3365. These days we see abrupt reverses in the pair, so it’s of interest what it will look like in the second quarter. Will we possibly see the same situation as a year ago, when the markets and the euro went into decline in May after the sharp upward movement in April? Everything seems to be heading for this.

GBP/USD

The British pound cannot decide which way to go. Almost for the whole March EUR/GBP has been trading sideways, having a day of growth after a day of decline. For all that, for GBP/USD the end of March can be called quite favourable...Read full review

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02/04/2012 Forex got stuck in flat trading

EUR/USD



This Monday stock exchanges are mainly growing, though it’s hard to single out any dominating sentiments. The euro started the week with a positive gap, which was closed in a few hours though. EUR/USD jumped up to 1,3375 at the opening (which coincided with Friday’s maximum) and then again fell down to 1,3330. And at the beginning of the European session the quotes started to gradually crawl up and now trading is held approximately in the middle of the above-mentioned corridor. Today markets have received data on PMI of different European countries. On the whole, the data point at the conspicuous decline of manufacturing activity in the region, even despite the fact that statistics for Germany and Italy have been revised up. The German PMI made 48.4 in March against the prior estimation at 48.1. Anyway, the Euro-Zone Composite PMI has remained at the same level of 47.7, as was estimated at the beginning of the month. In contrast, the USA and Switzerland are mainly increasing their activity. There is a suspicion though that, judging by the results of 1Q, Euro-Zone has fallen into the technical recession after the slowdown in 4Q of the previous year. However, if the US economy manages to maintain the current pace of growth, it may tell favourably on the figures, demonstrated by Europe. The current week abounds in important news releases, which may produce a considerable impact on the course of trading for the whole month. Traders will have to face a difficult choice. The equity market has already climbed very high on the hopes that the global economy growth will speed up. If there aren’t any obstacles on the way, the current levels will seem to be acceptable for buying. But there is also a grave risk that by summer the economic and business activity will again (for the third time) wind down and financial losers of Europe will again force its leaders to call countless meetings.

GBP/USD

After a short hitch on Wednesday the sterling now again feels in the saddle. On Friday the pair went above 1.60 and managed to close out the week, month and quarter above this mark. This promising start of the new quarter gives the sterling strength for growth today...Read full review

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