Forex Forecast – Voltrex

Dollar - Thursday saw the dollar gain against the euro and sterling, knocking the common currency off a two week high after forex traders as had second thoughts about the Greek austerity plans.  We also saw dollar sentiment lifted by a drop in the number of Americas filling new claims for unemployment benefits.  The figures where closely examined to give an indication of today US employment report.  There is widely varying estimates for lost jobs have persuaded forex traders to cool their heels, so today so far has been very quiet on the trading front.

Sterling – Yesterday saw the Bank of England offer sterling some support as the BoE left interest rates unchanged it has also decided against restarting it s bond buying program.

As Britain’s financial woes mount, one suspects that we may need a fresh line in chirpiness, because far from being sound, the sterling is looking softer than Mr Whippy in a heatwave. As forex traders wonder how honest the government is being in its pledge to slow the growth of state debt, the enthusiasm for holding sterling is dwindling.  And who can blame them?

Britain’s budget deficit, as percentage of GDP, is the worst in the G20, with total debt expected to reach 100% of GDP. A lower level for the sterling is not all bad news: exporters can sell goods and services more cheaply to overseas buyers, without having to slice into profit margins.  There are however, significant benefits attached to a devalued currency: the increased cost of importing material feeds into prices, which in turn makes it more likely the need of higher interest rates.

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Euro – The latest exchanges over Greece’s efforts to resolve its public deficit and debt crises appeared to undo some of the goodwill generated on Wednesday when Athens announced an additional set of austerity measures.  The euro fell against the dollar and to a lesser extent the sterling,  It seems the more vocal the Greeks are about everyone else bailing them out, the more pressure the pour onto the Euro.

Forex Forecast – Voltrex Fx

Sterling has nightmare day on political concerns

GBPUSD falls over 3.5 cents during morning trade

EUR/USD rally come grinding to a halt

Greek bond issue is postponed

US Dollar:

The Dollar continued to shine yesterday as markets resumed the flight to safety policy and traders poured out of both the Pound and the Euro in favour of the greenback. The US economic figures posted during the day were reasonably poor but it mattered not, FX traders had much larger concerns in hand such as the events going on across the pond in the UK and Europe. The dollar staged a remarkable rally against Sterling, stretching over 4 cents at one point during mid morning trade in London. As cable traders paused for breath just before lunch, the US trading desks fired up and duly sent EURUSD spinning 2 cents lower from 1.3650 to 1.3458 as the end of the month rally came crashing down in flames.

Other than risk aversion, the US Dollar may benefit from unem-ployment data due out this week with Non farm payroll being released on Friday and its private counterpart, ADP payroll being released on Wednesday.
Data— US Oil inventories (FEB), ABC Consumer Confidence (FEB) Total Vehicle Sales (FEB)

Sterling:

Sterling was hammered into oblivion yesterday as the Times raised the prospect of an early general election along side the very real possibility of a hung parliament. Although this may seem like a side issue, market par-ticipants are concerned that a hung parliament would reduce the ability of any ruling party to execute the wide range spending cuts which are needed to bring the UK ballooning deficit under control. At one stage the pound which had traded at 1.5247 on Friday evening, fell to 1.4784 before rallying. Against the Euro, it plummeted from a Friday high of 1.12 to a 3 month low of 1.0960 before recovering over the 1.10 level. It was sterling’s worst day since February last year and analysts warned it could sink further as the political uncertainty continues.

With Labour being required to hold an election before early June we do not expect the Pound to find any favour in the short term. Also weighing heavily on the UK currency was the announcement by the Prudential that they are to buy AIA, the Asian insurance arm of AIG for 35 billion USD.

As this will be primarily funded by UK investors, a few large GBP/USD trades will be carried out, putting further pressure on the Pound. With no eco-nomic data of importance out in the UK today or tomorrow, traders will be looking for the Bank of England interest rate setting meeting on Thursday to give them another excuse to sell, sell, sell.
Data— UK PMI Cons (FEB)

Euro:

The single currency had a mixed day yesterday, ascending over 2 cents against Sterling while giving up 2 cents against the Dollar. On the whole, the Euro was sold by traders as concerns over sovereign debt of its members and a general flight to safety took hold.

Rumours of an elite group of hedge funds, betting on the collapse of the single currency did nothing to help the situation. EURJPY is currently sat near its 12 month low and EURUSD break below 1.3460 will open the psychological level of 1.30. Any ongoing weakness could benefit the UK importers though as traders are looking for the pound to befit and move into the 1.16 to 1.20 level during the course of 2010.
Data– EUR Italian CPI MoM/YoY (FEB) EUR CPI YoY (FEB)

General: Australian central bank hike rates to 4% as inflation is on or close to target

UK banks see surge in bad debts. Institutions write off £4.12 bn in Credit card loans

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Forex Trader News – Currencies Direct

Disastrous start for the pound in the FX markets continuing the bearish trend witnessed last week. The pound has dropped to a near 3 month low against the euro, a 10 month low against the USD and a near year low against the JPY. The UK is under heavy selling pressure with unwanted attention and unease with the fiscal deficit combined with further indications that the general election will result in a hung parliament. A hung parliament would severely limit the ability of a divided parliament to act decisively on the UK’s deficit spelling danger for sterling. In addition to this the potential purchase of the Asian life insurance unit of AIG from Prudential is causing large negative M&A flows out of sterling and into the USD.  So all in all not a bright picture for the pound which is looking alarmingly fragile and dropping sharply.

Lots on the table this week for economic data with interest rate decisions in Australia, UK, Canada and Europe- the expectation is for another rise in Australia of 25 basis points. We will also have feedback from all major economies in relation to PMI data which will give a good gauge on the services and manufacturing sectors.

The Greece situation is still ongoing- a few rumblings of solutions have dissolved into nothing leaving the markets still uncertain and leaning to the safe havens of the USD, JPY and AUD performing well on the hint of another rate rise.

Forex Forecast – Voltrex FX

Us Dollar – The dollar continued with a mixed bias in the Asian session, holding on to slight gains against the Yen but losing ground on the Euro against a risk sentiment.  In his testimony Ben Nernanke noted that regulators where looking into a number of questions, concerning Goldman Sachs derivative arrangements with Greece and whther they could of helped the country mask the reality of soaring deficits.

Sterling - Sterling traded lower against most major currencies as forex traders perpared for the fourth quarter GDP report to be announced.  Sterling only managed to advance against the Yen, which broadly declined on increased risk sentiment.  The GDP showed that Uk added 0.2% in the fourth quater, topping the 0.1 percent increase.  However traders are likely to look past the headline figure for the source of the expansion amid the fading effects of stimulus measures.

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Eur0 – The euro neared a nine month low against the dollar and hit a one year low against the yen as worries about soverign debt increased after the ratings agency Standard and Poor said late on Wednesday , it may cut Greece’s rating by one or two notches within the month.

The Euro retraced 1.3636 on increase risk sentiment but forex traders should remain cautious about reading too much into this as the overall sentiment remains bearish on this currency.

Forex Forecast – Voltrex FX

US Dollar – Investors are moving into safe instruments again as worries mount in Europe and the Fed speak about continued low interest rates in the US as world economies struggle with the financial recovery.  The issue that Greece’s debt problems could spread to Spain and other southern European countries, as make forex traders run for the safe haven currencies such as dollar and yen.

Morgan Stanley’s John Mack has stated that Greece has spooked the market and the firm expects EURUSD to end the year in the region of 1.25.

Sterling – A mixed day for sterling saw the pound hold its ground against the single currency but give up all the gains it made against the dollar last week.  A run for cover in the forex markets saw funds flow out the pound and euro to the the safe haven currencies.  Against the euro, we did see some support around the 1.14 mark as the euro currency continues to battle with it s own demons.  We had the RBS bank figures which somehow a £3.5bn loss for 2009 compared to £24 bn it lost in 2008.

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Euro - The Euro took another hit against the dollar and has continued to be agrressively sold off in this mronings trading session. Greece in weighing on investors minds as thousands of people took to the streets in Athens, to protest against the austerity measures aimed at ending the crisis.

The Euro looks like it is doomed to fall further this year, though there might be a short term reprieve.

Cracks seemed to be appearing in the Eurozone as the Deputy Prime Minister of Greece said that Germany had no right to reproach Greece for anything after it devastated the country under the Nazi occupation.  As far as we can see, not a clever way of asking your biggest financial backer to help you out in the hour of need.

US consumer confidence fragile

Yesterdays US consumer confidence data came in weaker than expected and highlights the delicate recovery phase for the US economy. This also backs up recent dovish comments from the Fed asserting that interest rates will need to remain low for a prolonged period and that liquidity withdrawal may not be a foregone conclusion. The data helped to spook the markets and strengthened the natural safe havens of the JPY and USD. The Yen was also lifted on good export data pushing GBP/JPY back below 140.00 and USD/JPY down to 90.00. At the moment for recovery we have an east and west divide with robust recovery coming from China, Malaysia, Honk Kong contrasting the jitters in Europe, the UK and the US. The tide has shifted.

The Greece debacle is still ongoing and Fitch downgraded the 4 largest banks to BBB with a negative outlook to boot. The situation was not helped by a German Lawmaker of the ruling conservative party commenting that Germany must ensure that it does not pay for Greece as it could trigger the demand for more aid. In addition the Czech finance minister said that the Greek pledge to cut the deficit to 3% in 3 years is “nonsense” in his view. No beating around the bush there!

Sterling remains subdued after yesterdays dovish sentiments from the MPC. This was again reiterated in case the markets did not get the message by Mr Posen today who opined that we will keep the door open for more QE- “if we have to we will”. Don’t expect any big moves for sterling today. The tone of the MPC, the deficit and the election is leaving Sterling stuck in the mud at the moment with more rain forecast.

Today we have Ben Bernanke’s testimony to congress on monetary policy- it will be interesting to judge his tone going forward and his feedback as regards the hike in the discount rate.

Forex Trading News – Voltrex FX

Talk of quantitative easing dents sterling

US Markets holding its breath ahead of Testimony

Australian dollar rises to a one month high

Euro undermined by fall in German IFO business sentiment

Forex Forecast – US Dollar

The US Dollar retreated overnight after touching an eight-month high in North America trading, as the market mulled the outcome of Feb Reserve Chairman Ben Bernankes testimony to congress.  “Today, the market will focus on Fed Chairman semi annual testimony on monetary policy to the House Committee”, analysts at Credit Suisse said in a note to clients.  Bernanke is scheduled to deliver his testimony today.  “The Fed Chairman’s testimony is always a big event for the forex markets because the central bank governor will be asked tough questions about the economy and monetary policy, this is especially true at this critical juncture of monetary policy”

Forex Forecast – Sterling

Sterling fall yesterday after Mervyn King, said he could not rule out the possibility of further quantitative easing.  Mr King, testifying said he was concerned that there was little evidence of  a pick up in the country’s trade in spite of weakness of the pound.  If last week’s poor economic figures were not sufficient evidence of the fact that the economy remained fragile, then Mr King drove the point further home.  The comments where enough to ignite fears of a double dip recession. The combination of slow growth, terrible public finances and the risk of a hung parliament after the spring election is not good for sterling.

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Forex Forecast – Euro

The euro was undermined by an unexpected fall in German IFO business sentiment index. Some analysts felt it might reflect signs of slowing momentum in the recovery after the recent drop in ZEW investor sentiment and flat eurozone purchasing managers indices.  A sharp drop in consumer spending in France in January also undermined stimulus wound down.  Germany was flat, Italy contracted again, Spain and Greece were still in recession.  Outside EMU, the Czech, Hungarian and Romanian economies all shrank.

Forex Trader News – Currencies Direct

As fiscal concerns and a continuation of the dovish stance from the MPC continue to weigh on the pound. Throw into the mix increased political uncertainty with the narrowing of the polls and the future does not look bright for the pound. Today we had members of the MPC commenting on the quarterly inflation report where the bank lowered its growth and inflation forecasts underlining a dovish stance on monetary policy.

King was his usual cautious self and highlighted the fragility in the UK economy and reaffirmed that inflation is likely to come down later in 2010. On the deficit he did note that we have a very large fiscal deficit and that rating agencies are to remain “somewhat uncertain” until the deficit is tackled. King affirmed that he would be immensely surprised if rating agencies downgraded the UK…not so confident myself- you can read about my opinion on this in the following link:-

http://business.timesonline.co.uk/tol/business/economics/article7037016.ece

Another MPC member David Miles noted that the decision not to raise QE was very finely balanced and this has contributed along with the dovish tone overall to sterling slipping 1% against the USD and over 0.5% against the euro. Later this week we have important feedback in the form of the second revision of UK GDP and also important numbers from RBS and Lloyds- especially critical due to the government involvement.

Elsewhere the euro is still looking shaky and lost further against the USD (although gained against the pound). The German IFO survey was pretty much as expected although slightly weaker. Over to the US and dovish comments from San Fransisco’s Federal reserve President Yellen got the markets thinking in regards to future Fed policy. This helped the USD to weaken on later trading last night, however it has paired those losses in this mornings trading. If a dovish policy starts to feed through from the Fed then we may see the USD lose some of its recent gains, especially if risk trades come back into play.