Daily Reviews of major currencies from Globe Gain Forex Rebates

[Globe Gain]

04/05/2012 Even Dove Draghi turns into Hawk Draghi with time

EUR/USD

Mario Draghi started yesterday’s press-conference with quite an unexpected statement pointing to the low possibility of further rate cut or another LTRO. It is a really surprising stance, especially at the time when the European countries one after another slide into recession. Apparently, the atmosphere in the ECB is such that no matter how peace-loving the ECB’s head is he will eventually turn into a hawk. Of course, it wasn’t without the heavy pressure from Germany, all the ruling top of which reacted nervously to the latest actions of the ECB in regard to long money and easing of collateral requirements. However, to Draghi’s credit, he honestly pointed out his readiness to consider further measures of economic stimulation should the political risks grow. At the coming weekend the presidential elections in France and parliamentary ones in Greece will take place. The people’s dissatisfaction with the current authorities is quite natural, however there is a big question if the new authorities will be able to change the situation for the better or if they just ruin all the groundwork, laid with such difficulty. At the very beginning of Draghi’s performance the euro dropped by 30bp, but then immediately started to grow and reached the daily high of 1.3180. However, nothing of particular interest was said, so the pair closed out the day exactly at that very level from which it started the day, i.e. 1.3150. This day promises to be very quiet before the release of the US employment data. On average the market analysts expect the 170K growth after the increase just by 120K a month earlier. Yet, in our opinion, there is risk that today’s data will be similar to those of March. The ISM Non-Manufacturing PMI, published yesterday, shrank sharply in April from 56.0 to 53.5, though a much softer lending to 55.5 had been expected. The employment component of the index also slowed down, promising a lower growth rate than in the preceding month. It’s really important as the services sector makes 80% of GDP.

GBP/USD

Yesterday the British pound worried about its continental vis-à-vis, but still managed to do just the 60 bp journey from its daily low to daily high, which is not much for such a volatile pair. As a result, the gradual downward slide in the first half of the day was diluted with two relatively sharp fluctuations down and up, after which the pair calmed down...Read full review

 

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07/05/2012 The wind of change

EUR/USD

Last weekend was really eventful. Besides, all the published news contributed to the reduction of risk appetite. The euro opened the week with a huge gap down, broke the 1.30 level and stopped just at 1.2950, though Friday’s trading was closed at 1.3080. To begin with, the American employment data turned out to be utterly disappointing. The number of jobs in the non-farm sectors grew by 115K. Remember that the earlier market optimism in regard to this indicator was gradually melting away last week. At its beginning the markets forecasted the 200K growth, while by its end the jobs were expected to increase just by 160K. But the factual data proved to be even lower than this. The current growth rate is the lowest since October 2011. The manufacturing industry added just 16K, which is the minimal level since November. The bitter pill was sugared only by the backdated increase of the figures for the previous two months. All this didn’t smooth the slowdown much. Again and again the winter impetus dies away by summer and economy falls into stagnation. Investors shouldn’t be too happy about the reduction of unemployment down to its 3-year low of 8.1%, as it was a result of the sharp 342K decline in the participation rate in April. The average hourly earnings rate showed even a stronger slowdown and totaled just 1.8%. For all that, it would be interesting to know how the FOMC, the members of which almost unanimously claimed last week that there was no need in further stimulation of economy, feels under such circumstances. Further about Europe. The elections in France have ended with the victory of Hollande, which accordingly implies the end of the “Mercozy” era. What’s really unpleasant is that Merkel and Hollande had already addressed each other with stinging remarks before it became known that Germany would have to save Europe alone, without the support of the eccentric French president. The Greek affairs are far from being perfect as well. The two ruling parties, New Democrats and the socialist movement PASOK, managed to retain only half of the seats in the Parliament. Remember that only these parties openly support the bail-out terms of UE/IMF/ECB. Others have been indulged in populism and, one or another way, spoke about the possible secession from the EU. There remains only to see what they will do when in power. One thing is sure: it’s period of change in Europe.

GBP/USD

It looks as though the wind had changed its direction for the sterling as well. Following the 10 ½ -day rally, the correction phase has set in. It’s too early to speak about the all-out sales now, but the fact, that for 6 trading sessions in a row the pound has been falling vs. the dollar, cannot be overlooked either...Read full review

 

[Globe Gain]

08/05/2012 No news is good news

EUR/USD

Monday’s trading was mainly quiet. After the drop, caused by the results of French and Greek elections, the single currency managed to recover from 1.2955 to 1.3065. But still technically the morning gap remained uncovered. To do that EUR/USD needs to rise up to 1.3080. The old saying - ‘no news is good news’ – is evermore true now. Yesterday that stance helped the euro to grow and it may do it today as well. Frankly speaking, this statement is only partially true: there was some news coming, but it was not of great importance. Thus, the German Factory Orders came in a bit beyond expectations (+2.2% against +0.5%). Still in the annual terms this indicator remains negative, showing a 1.3% decline. However, the favourable effect of this news was nullified by the Sentix Investor Confidence data. This index fell below the bottom of its December figure and proved to be at the lowest level since July 2009, when Europe was already coming out of the recession. Once again the sentiment indices point to that period, the hardest and gloomiest in the history of Modern Europe. The USA, on the contrary, enjoyed a surge in the consumer credit sector in March: 21.4bln against 9.3bln a month before. Of course, it doesn’t necessarily imply the beginning of the steady growth of the indicator. The surges of the kind have already occurred before and can indicate not only the stronger confidence in the future, but also the need of Americans for credits to pay their bills. The salaries are growing slower than inflation, and the interest rates are low in accord with the historical standards. By the way, the above-mentioned news hasn’t received any significant feedback from the markets.

GBP/USD

The British pound felt a bit better than the euro yesterday. It’s quite natural as it is not Britain which suffers the political uncertainty now.... Read full review

 

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09/05/2012 Greece again provokes risk aversion

EUR/USD

Yesterday we mentioned that the best variant for Europe is the absence of news. However, that situation couldn’t last for long. The political uncertainty in Greece again revived market agitation. The Greek Left Coalition leader declared that the bailout terms set by the EU and IMF should be nullified. For now these statements haven’t taken the form of laws yet and probably will never take it. But the European leaders will now think twice before issuing of another aid tranche to Greece. The country quite easily managed to disclaim the private debt obligations. That happened with the help of the EU leaders. So now they won’t find it easy to withdraw from further performance of their obligations. Most likely, the leaders of the Greek parties don’t realize all the political and economic risks of such statements. Besides, there was another unpleasant rumour stirring the markets yesterday. One of the Spanish magazines messaged that the government is going to nationalize the largest banking group in the country, Bankia. To better understand the scale of the problem note that Bankia’s assets make 1/3 of all the country’s economy and the government a few days earlier announced the plans to issue special debt securities meant to support the suffering regions. Spain is burdened with too many obligations. Will Rajoy bear that heavy load? It’s quite natural that under such circumstances the single currency should be under pressure – it again has fallen down to 1.2960. The euro would be much lower if there weren’t so many short positions, opened earlier. But the market concerns are observed clearly in other instruments, which are rewriting their months-long lows.

GBP/USD

Despite a certain slackening in the recent few days, the British pound is still rather expensive. It is at the 1.6150 level now, which is 3 points higher than the average annual figure (200-day moving average)... Read full review

 

[Globe Gain]

10/05/2012 EUR rewrites the four-month low

EUR/USD

The Spanish government has received the 45% share in Bankia, the third largest banking group in the country. 4.47 bln of the governmental aid will be converted into equities, thus allowing the group to build up its capital and confirm its solvency. The talks concerning the necessity of this step put pressure on the stock exchanges on Wednesday and also contributed to the euro sales. Even the rhetoric of Weidmann, president of Deutsche Bundesbank, hasn’t helped the euro. Weidmann keeps persisting in his opinion that the current measures, proposed by the ECB, are temporary and that the Bank shouldn’t be required to take any further steps to maintain the stability. Yesterday the single currency rewrote the four-month low, having fallen down to 1.2910. And today the pair hasn’t found any sound reason to bounce up yet and is trading around 1.2950. Technically it looks as though the common currency had broken through the bottom, which it was bouncing off for the preceding three months. The situation similar to this happened a bit earlier to the Aussie and there the breakdown proved to be real. With the single currency it’s a bit different as there are more factors to consider, so there are still those who believe that the current breakdown is false and that the pair has the potential to grow. It is quite possible, especially if we take into account the fact that over the recent three days the March statistics for Germany have come in beyond expectations. On Monday it was the release of Factory Order data (+2,2% m/m), on Tuesday – of Industrial Production figures(+2,8% m/m) and on Wednesday – of Trade Balance statistics (13,7bln), which proved to be higher-than-expected against the growth of both imports and exports. Euro-bulls feel more and more confident that, having shown fairly good growth in 1Q, Germany will evade falling into recession and will even manage to pull up some other countries in the region in the coming months.

GBP/USD

This day is very important for the sterling as the Bank of England will announce its decision concerning the interest rate and asset purchase programme. Most market participants suppose that the Bank will take a break and won’t extend its QE programme...Read full review

 

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11/05/2012 Keeping our fingers crossed for Greece

EUR/USD

‘Hedging failed’ – that’s the way Jamie Dimon, JPMorgan CEO, has described the trading loss of $2bln. In fact, the losses will hardly end there and in this quarter there will be further losses resulting from market volatility. Some especially meticulous analysts suppose that the company will possibly lose another $3bln. It’s a hard blow for the reputation of the company and its managers. Such unexpectedly bad news not only put pressure on the stocks at the end of the American session, but also can become an eventful moment in the fight of investors against Walker’s rule. All this may or may not have far-reaching consequences. However, the fact is that the single currency has again rewritten another local low. To be honest, for the three consecutive years the beginning of May has been associated with the massive euro sales. But even despite the drop the single currency looks more confident than in 2010 and 2011. Those years the difference between the max and min levels made 10 points in the first two weeks of May. This time the euro has sunk only by 4 points. Well, not bad for the barely alive euro. This week the markets are to plunge into the disturbing time of teetering on the brink, when decisions concerning Greece may be taken just a few hours before the deadline. Today is the last day when the Greek parties will try to form the coalition. If there is no coalition formed, the president of the Republic will have to announce the rerun of elections.

GBP/USD

Yesterday we proved to be wrong in regard to the BOE’s actions. The Bank preferred to do nothing, keeping the size of the QE programme at the level of £325bln...Read full review

 

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14/05/2012 EUR plunged below 1.29. Politicians consider the losses the Greek secession may inflict

EUR/USD

The single currency opened the day with a drop below 1.29, caused by the persisting political uncertainty in Greece. Apart from the Bloomberg’s survey which forecasts the more than 50 % probability that “at least one country will leave EU by the end of the year”, some European officials already say that the consequences of this step are discussed at the summit level. As many times before, the deadline for the political decisions on Greece has been passed with no certain decision taken. The country still doesn’t have the government. The ECB’s Honohan said that “technically” Greece can disintegrate the euro, but it may damage the currency. Germany’s Finance Minister Schäuble pointed out that none of those who demands austerity from Greece cannot make the country stay. The European Finance Ministers will meet today to discuss the fate of further tranches to Greece and the situation in Spain. We believe that the worst point of Greece’s quitting is that it will severely damage the confidence in the banks and companies in other troubled countries like Spain and Portugal. Perhaps, even Italy will be affected. If officials are really weighing up the probable exit of one of the countries, they should, for a start, think over and agree on the mechanisms to assure the markets that this is really ‘an exceptional case’. As you remember, the attempt to make the markets believe that the Greek debt restructuring was this very exceptional case proved to be vain.

GBP/USD

The British pound has been gradually declining for two days. The level of 1.6180 became the starting point of sales in the currency after the upsurge on Thursday. The sterling has reached the strong support level of 1.6060 and is trying to break lower...Read full review

 

[Globe Gain]

15/05/2012 Markets paint the countries black and white, without any shades of grey

EUR/USD

Obama decided to seize the chance and surf the wave of people’s wrath with large banks. The US President pointed out that the JPMorgan loss would lead to tougher regulation of financial institutions. This is just what we feared when spoke about the $2bln loss of businesses (further it may even amount to 3bln). Such perspectives are favoured neither by investors nor by companies. As a rule, at these important points, when the fate of such bills hangs in the balance, the markets go down. Since the USA is heading for presidential elections, Obama will try to play his card as well as possible. It’s hardly good news for the markets. The regulation issue may appear on the agenda in a couple of months. However, at present the markets also have something to worry about. Stock exchanges remain under pressure of risk asset sales. For all that the single currency looks surprisingly steady against other high beta currencies. Thus, though EUR/USD edged close to 1.28 earlier today, EUR/AUD has been gradually growing since the beginning of the month. The thing is that the European debt markets still see everything black and white, without any shades of grey. The countries, where politicians declare their intention to reject the austerity, are severely punished by the markets. The spreads of French, Spanish and Greek bonds are growing against Bunds, the yield of which hits record lows. Earlier medium-term bonds served as a good indicator of inflationary sentiments, but now they do not. The yield of German 5-year bonds makes 0.5% at present, despite the fact that some of the country’s officials have already claimed their readiness to be more tolerant towards the inflationary pressure, allowing for a bit faster price growth.

GBP/USD

The British pound survived Monday with credit, having managed to hold the important level of 1.6060. The pound was at that point when the single currency was rewriting its 4-month lows against the dollar. And when the euro stabilized the sterling became much in demand...Read full review

 

[Globe Gain]

16/05/2012 Escape velocity

EUR/USD

«Greece is close to the end of the road” said Swedish Finance Minister yesterday, referring to the country’s membership in the euro-zone. Two and a half years ago, when the analogy with the road was drawn, it was emphasized that it was the beginning of a long and hard journey towards financial stabilization. Apparently, Greece has successfully finished the journey, but in the wrong direction. Yesterday it became absolutely clear that the country will not manage to form a coalition government, so reelections will be held in a month. This news, coming prior to the active American session, hit the single currency and afterwards affected other risk-sensitive assets. It should be mentioned here that this is not the case when reaction lasts for a short period of time and then is followed by purchases of cheaper assets. The euro makes stops from time to time, but then again falls under selling pressure. Now EUR/USD is at 1.2730, which is a point lower than the daily opening price and a point higher than the lows of January 2011 and August 2010. S&P struggled not to fall lower at the start of trading, but eventually dropped to close out the day. Except for almost inconspicuous corrections on May 7 and 10, the Americans stocks depreciated each day this month. To be fair, however, it should be noted that the current market reaction is more restrained than a year ago. Those looking for good news may find it in yesterday’s euro-zone preliminary GDP statistics, which proved to surpass the expectations. The economy didn’t sink, but showed the zero growth against the levels of the preceding quarter and also of the same quarter a year ago. That happened due to 0.5%, by which the German economy went up. It’s an unexpectedly strong growth, especially when compared to the forecasted level of 0.1%. The newly-elected French President Hollande yesterday arrived in Germany to meet Merkel. Eventually they said that they had managed to come to terms with each other. It’s not clear yet what language prevailed in their discourse, French or German, but the talks about ‘fleeing to safety’ are becoming more and more wide-spread.

GBP/USD

The British Trade Balance once again brought to the surface the hardships of the country’s manufacturers. The Visible Trade Balance remained roughly at the same level as a month ago, having shown the £8.6bln excess of imports over exports... Read full review

 

[Globe Gain]

17/05/2012 Markets are sick and tired of falling and make feeble attempts of correction

EUR/USD

Yesterday the markets rewrote their local lows on growing concerns around Greece. EUR/USD sank as low as 1.2680, but by now has slightly bounced up to 1.2745. We cannot say that the situation has changed much for the better, so the current movement should be regarded as nothing more than a mere correction after a rather large anti-rally. Since the beginning of May the pair has dropped by 6 points from the 1.3260 level. As has already been mentioned, this year’s movement resembles those of the previous two years, however this time the decline is half as strong as before. The reason for that is not only the fact that the poor news from Greece has been a real cause for concern over the last three years, but also that money, flowing out of the troubled European countries, goes into the bonds of more fortunate states of the same Euro-Zone. Literally, it seems to be a simple transfer of money from one pocket into another. The mischief of this is that these pockets belong to different parties. Since there is no tight fiscal unity (and there’s not many who want it now), the current situation with weak and strong EU countries cannot be compared to the way money is distributed between rich and subsidized regions in one particular country. However, inside Europe there exist very close ties, that is why the periphery’s issues tell badly on the business sentiment of the core countries. In long term it adversely affects the region’s potential, putting off the time when the economy will be finally able to afford the normalization of interest rates. Standing in contrast to all that, the USA keeps carving its way upwards. The housing market is moving with more than a measured tread, but this is not a decline already, but a steady organic growth, absolutely different from that boom period. In April the Housing Starts grew up to the annual rate of 717K. A year ago the figure was 552K. The graph clearly shows that the market is still in the uptrend. It’s also surprising that physical capacity should be utilized that much. Yesterday’s data on industrial production have recorded the capacity utilization at the level of 79.2%. In the boom years that indicator was a bit above 80% and in the depths of decline went down to 66.8%. The industrial sector has recouped 80% of the losses incurred during the crisis. In this regard, the USA has a more strained situation with the inflationary pressure. However, in the released FOMC meeting minutes it is clearly seen that the Fed has preferred to focus on the possible risks on the side of the euro-zone. That’s true, we are more concerned about the things which are unamenable to our control.

GBP/USD

The idea that we worry most about the things which are out of our control was also confirmed by the BOE King’s speech yesterday. Rendering another quarterly inflation report, King also said that the consequences of the EU disintegration are unpredictable...Read full review

 

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18/05/2012 Rating agencies are again armed with knives

EUR/USD

Yesterday morning the markets were trying to change the situation with the oversold risky assets. However they failed. EUR/USD was actively sold at the 1.2745 level on the rumours that investors had withdrawn over a billion out of the suffering Spanish banking network. Now the markets closer than usually watch the situation with deposits as the sharp investment outflow can knock down any bank. Leaving aside the fact that exactly the capital withdrawal is frequently called a trigger of the Great Depression, let’s remember the year of 2007 and insolvency of the British Northern Rock. Further, let’s recall the story with Lehman which was seriously affected by overagression of investors, who altogether rushed to withdraw their assets. Going back to the present, two days ago it was bruited that over Monday on the futile attempt to form a coalition government the Greek banks had to give about €800bln back to their investors – this rumour was then refuted by officials. Now, from hearsay, over the first two days the withdrawn volume has amounted to over 1bln. And during the whole period of crisis the banking deposits have shrunk approximately by a third. Yesterday it also became known that Moody’s cut down the ratings of 16 Spanish banks, including the largest Santander and Bilbao Vizcaya Argentaria. This downgrade quite naturally followed the cut of the Spanish government rating. On Monday 26 Italian banks suffered a downgrade. The talks about the probable exit of Greece reached another agency. Fitch again revised down the rating of Greece to CCC, though it was raised just in March. Apparently, the agency will keep working with its sharp virtual knife in the future. They say that in Ancient China there was a torture called “death by a thousand cuts”… Taking into account such external conditions, the euro looks quite confident versus other currencies. Though day after day it’s been hitting new local lows against the dollar. And already today the daily minimum makes 1.2641 against 1.2660 that we saw yesterday. From day to day the intraday high has been declining, each day coming lower than a day before. To make sure that the similar dynamics is seen from a broader perspective as well, let’s consider the dynamics of the last 4 years. The peaks of the major trends have been as follows: 1.6037 in 2008, 1.5144 in 2009 and 1.4939 in 2011. The greatest lows, which were starting points of euro sales, were reported only twice: 1.2328 in 2008 and 1.1876 in 2010. If this dynamics persists further, the next low may be found below 1.17. There is a high probability of this even if Greece doesn’t quit the euro bloc. There are too many problems besides this small country.

GBP/USD

The top British officials to the full employ their means to impact the national currency rate in order to enhance the competitiveness of the domestic economy. On Thursday Premier Cameron stated that the BoE can and must do more to support the economy...Read full review

 

[Globe Gain]

21/05/2012 Just a correction, nothing more

EUR/USD

The markets cannot move in one and the same direction for long, even if there are reasons for that. Thus, Friday became the day of correction, when demand for risky assets was growing and the euro was appreciating since the start of European trading. Moreover, the single currency also managed to extend its modest gains during the Asian session. Earlier today EUR/USD successfully recovered from Friday’s lows of 1.2640 to 1.2810. It’s quite possible that being under high pressure since the beginning of the month the euro will try to close out this trading day positive as well. This run of events can be well contributed by the fact that concerns around Greece are currently subsiding as the G8 leaders have expressed their will and desire to keep Greece in the euro bloc, emphasizing the need for economic recovery incentives (the Anglo-Saxon approach), but at the same time keeping in force the demand for the balanced austerity (the German approach). Although this formal support doesn’t promise to ease Greece’s lot, it still can make the markets which for the last two weeks considered the question with Greece’s exit settled feel more optimistic. It’s not surprising that the leaders of the largest developed countries should pay such a careful attention to this rather small country. Roughly half of the EU countries are in recession judging by the data for 1Q. Despite quite favourable figures posted in the first quarter the recovery in the USA is evidently losing steam and experts suppose that by the end of the year the Fed will probably have to adopt some new non-standard policies to maintain low interest rates in the economy. There won’t be much statistics and therefore any obstacles to the correction today. The only thing of interest is the Construction Output release scheduled for today. This indicator remains in the down trend, and even lost at once 7.1% in February. The year-to-year reduction then made 12.9% and the overall loss from the peak levels in 2007 amounted to more than a quarter. As we see, in contrast to the USA, which have demonstrated no decline in the sector and even posted some gains there, the European affairs are far from being stabilized. So, we can hardly rely on a quick reversal here.

GBP/USD

The British pound finished the free fall of the previous week with the consolidation around the 200-day moving average level. The consolidation is now at 1.5820 after testing the low of 1.5730 on Monday morning...Read full review

 

[Globe Gain]

22/05/2012 Chinese incentives are to benefit EUR

EUR/USD

On Monday the markets managed to extend correction. The most reassuring thing is that the correction was performed simultaneously in different markets. In the previous review we mentioned that the growth of the euro against the background of the falling stock markets is nothing but a mere technical bounce. However, yesterday the demand for risky assets was supported in the stock markets as well. The American exchanges posted the largest growth in two months, speculating on the expectations that China is heading for a new wave of incentives. It looks as though the politicians of the Celestial Empire were afraid themselves that they stepped too hard on the brake and that the economy is now running the risk of hard landing. To confirm it, let’s turn to the Conference Board’s Coincident Index published overnight. It is the second time the index is on the decline over the last 4 months. And if in January the decrease could be regarded as a consequence of the public holidays in the country, April’s decline of 0.8% makes us ponder over the hardships the economy might suffer under the current financial conditions. The balancing Chinese officials are to carry out won’t be easy, as at the same time they will have to restrain property speculations. The Chinese affairs have a significant impact on the attitude to risk and, as has been repeatedly noticed, the stronger growth in Asia supports the euro. Of course, traders need to glance back at the state of affairs in the region itself. However, for now there is nothing of interest there, except for the French support of the idea of common bonds. This news is potentially favourable, but we all know how easily this potential disperses behind closed doors of numerous EU summits. EUR/USD has settled around 1.28, being too weak to go lower because of a record number of speculative short positions in the pair. Under such circumstances the market has no chance to go down, so the support at 1.2620 can remain intact over another couple of weeks.

GBP/USD

This day doesn’t promise to be easy for Britain. As we mentioned yesterday, today the markets will pay their attention to the publication of borrowing volumes in the public sector. Thus, the markets will be able to check how well the British exchequer is filled and how close Cameron is to keeping his pledges...Read full review

 

[Globe Gain]

23/05/2012 Good news for USD: the housing market in the USA looks better and better

EUR/USD

The former Prime Minister of Greece, Lucas Papademos, said that the country is hardly likely to exit the euro zone, though mentioned that the risk still remains. As we predicted, the recovery of the single currency has proved to be weak and short-term. Already yesterday the euro/dollar was falling without any serious news background involved. Sales grew only at the end of the day. Yet, it is of interest that the American exchanges closed the day at the opening levels, having made an attempt to grow prior to that. We again see that the markets don’t act in unison. Such a picture is usually observed when the market participants are focused on the technical side of trading and rebalance their portfolios. We’ve already mentioned that EUR/USD cannot break below 1.2640 straight off. However, after a certain consolidation, the chances that the pair will manage to do that will grow, should the events unfold in the negative way. Besides, the dollar will be in greater demand if America posts more improvements on concerns about the European integrity. The American bulls received a good reason to act yesterday on the release of the US Existing Home Sales data. The sales rate grew by 3.4% in April, which is within a slightly upward trend that we indicated after the reports on the housing starts. Another positive factor is that the median home price has grown right by $12.6K, up to $177.4K. We should also say that the stock of unsold homes has increased, nevertheless these fluctuations are within the normal limits and stay far from those extreme levels which were observed during the crisis and even a year ago. Tonight our optimism concerning the US housing market can be proved or disproved by the New Home Sales data. Investors forecast growth. It’s also expected that the House Price Index from FHFA will demonstrate positive dynamics as well. At the same time analysts feel more and more skeptical about the chances of the European leaders to come to an agreement in Brussels today.

GBP/USD

Yesterday’s news from Britain turned out to be quite favourable for those who are concerned about the country’s economy. The British government managed to achieve the budget surplus in April. The net debt repayment made £18.8bln...Read full review

 

[Globe Gain]

24/05/2012 Due south

EUR/USD

It didn’t take much time for the market participants to rebalance their positions, and yesterday the common currency was again pushed down to new local lows. This time it was much easier to break through the defence line, once really strong at 1.2620. Last week the attempt was foiled just like in January 2012 and at the end of August 2010. The talks of the EU politicians about the development of the Greek exit plan tipped the scale. Earlier from February till the end of April the consolidation was mainly held within the corridor above 1.30 and below 1.34. Something like that was happening in 2011, when from April till August the euro/dollar was fluctuating within a relatively steady channel. Only a keen eye may notice that now as well as then the pair is mainly controlled by the bears, posting lower highs and lower lows time after time. Breaking through the support level (when the bulls finally gave in at 1.40) sent the pair down to 1.31. Only then the sales stopped for a while. We’ll probably see something like that this time as well. The single currency is moving stepwise from 1.40 to 1.30. So the next stop is now expected only at 1.20. If it is caused by mere concerns about Greece’s disintegration and Greece itself remains in the euro bloc, many periphery markets will get a chance to enhance their competitiveness, which is so much dreamt of. Of course, the healthy manufacture of Germany and large investments into this country on the capital outflow from other states will play right in the hand of the German locomotive. We’ve described a rather smooth run of events. But the anticipation of a tougher turn is weighing more and more heavily on the market participants. It is feared that at the elections in June Greece will select the secession from the euro zone and again adopt the drachma. It’s not clear yet how the country’s debts will be converted then. But what really alarms is the growing accord among the EU leaders. Cameron has nothing against Greece’s exit and, as rumoured, Merkel is also ready to put up with it.

GBP/USD

The sterling is even more technical than the euro. Having fallen out of the channel, it was accelerating for three days in a row. Then for a while it consolidated at the 200-day moving average level, to which the pair has frequently stuck this spring... Read full review

 

[Globe Gain]

25/05/2012 While Europe is living a nightmare, America … doesn’t care

EUR/USD

Interesting enough, when America’s affairs are in a dreadful state, the whole world prays for mercy, but when the whole world goes to pieces, the States doesn’t seem to care at all. The American S&P hasn’t managed to perform any impressive bounce since the middle of the week, but still keeps edging up steadily. Meanwhile, Asian stocks are posting 5-week lows and the single currency doesn’t have enough strength to recover from the sales yet. For three consecutive days certain stabilization in active European trading has been followed by the euro sales at the end of the American session. Leaving aside the sharp drop on triggering stop orders yesterday, this dynamics can be easily explained. The euro is quite steady in Europe, as the European investors are simply shifting money from one country to another, without changing the currency. At the same time, American investors prefer to hedge their external risks, buying the stocks of the US companies and selling the euro and Asian assets. It’s of interest that the news from Europe should have a short-term impact only. Yesterday‘s PMI data came in very poor, showing a sharp decline in the German manufacturing activity (for the third consecutive month). The Business Climate figure also tumbled down from 109.9 to 106.9, which is the lowest level since last October. Such bounces are not typical of this indicator, in fact. The Current Assessment sub-index sank down to its lowest rates since July 2010. Need we say that the whole euro zone feels worse now? While the German Flash Services PMI stays afloat, demonstrating the same rate of growth as a month ago (the figure is 52.2), the similar indicator for the euro area has declined from 46.9 to 46.5, which is really low. The Flash PMI Composite is now at 45.9 against 46.7 a month ago. For now the signs of slowdown in the USA are little: Durable Goods Orders increased by 0.2% in April, while the Core Orders shrank by 0.6% against the expected 1.1% growth. Yet, it is just a leading indicator, so the growth won’t necessarily stop. Apparently, the economic slowdown is built in the rates of stocks, which have significantly depreciated since the beginning of March.

GBP/USD

Britain is suffering a recession, but yet the sterling can hardly be called a whipping boy. The revised GDP figure for 1Q has proved to be even worse than the preliminary one. When the first estimate came in, many said that the 0.2% decline might be revised up... Read full review

 

[Globe Gain]

28/05/2012 Buying on dips?

EUR/USD

They say that the most successful deals to buy stocks are made when the markets are quaking with fear and the forecasts differ only in the shades of black. Last week it seemed that the American stock exchange was involved in that very buying on the dips. But it should be mentioned that at the same time the euro and high-beta currencies hit new local lows. Against our expectations, speculators decided to make the most of the decline last week, thus triggering further sales on Friday. The euro sank close to 1.25. The markets first spread the rumour that Greece would use the coming long weekend to announce their exit from the euro bloc. However, by day’s end the attention had shifted to Spain, whose autonomous region Catalonia was said to be on the verge of bankruptcy. If true, the country’s debt situation would be much aggravated. However, nothing of the kind happened during the weekend, so the single currency breathed a sigh of relief, having jumped from the Friday level of 1.25 up to the 1.2590 level at early trading on Monday. This is close to the highs of the preceding session. So, no bad news is good news again. Let’s turn back to the US stock market despite the fact that there won’t be any trading today. Judging by the charts, the market participants are actively buying assets on the dips now. The charts show the birth of a bounce, which can well affect the course of trading today. With such a mood the euro can try to break above 1.2630/50. However, be careful when opening long-term positions. In our opinion, the current recovery attempt is nothing more than a bounce with a chance to turn into consolidation. The government supported Spanish Bankia asks for the €19bln bailout and plans to get it from the ECB, using government bonds as collateral. It looks as though the ECB was now involved not only in bailing out sovereign states, but also in saving the banking sector. If the Bank doesn’t mind it, it will be a new stage of integration as the CBs of Japan, Britain and the USA have already taken an active part in saving their banking sectors from collapse.

GBP/USD

As there is no important domestic news, the British pound has to follow the major market sentiments and movements. Thus, coming after the euro it is now consolidating a bit below 1.57... Read full review

 

[Globe Gain]

29/05/2012 EUR skips the short-covering rally, for the time being

EUR/USD

The correction bounce of the euro couldn’t last for long on Monday. Already by the end of the day the pair sank to its 2-year lows and closed out the day around 1.2530, where it keeps trading today. Meanwhile the markets are showing a slight increase. However, the current trend has hardly been triggered by growth in risk demand. Apparently, various funds are involved in rebalancing of their portfolios, collecting cheap stocks in accord with their trading strategies. That’s why the current bounce in the markets isn’t very helpful for the euro. The ongoing concerns around Greece and the Spanish banking sector put heavy pressure on the government bonds of these countries. The yield of 10yr bonds has already amounted to 6.5%. Remember that already the yield of 7% is considered to be unstable and can urge the country to beg the troika (EU/Fed/ECB) for a helping hand. Yet it should be mentioned that last year the yield of the Spanish bonds already reached that mark, then the collapse of the financial system was averted thanks to the interference of the ECB. This time the situation seems to be tenser. Again the markets see that Greece is not the only country which feels difficulty in observing tough austerity measures. Spain is also unable to meet the challenge. Despite the strenuous efforts of the central government, the regions cannot handle their deficits and the banks are in a dire need for the inflow of fresh capitals to liquidate the toxic debts. Yet we shouldn’t forget that since the beginning of summer the banks will have to meet new, tougher capital requirements. In that rule, however, there has been a reservation relating to the case of a sharp deterioration of the financial conditions. Can they be worse than now? As the spread between the yields of the ‘trustworthy’ countries and the Latin bloc is growing, Europe can do nothing but speed up the creation of euro bonds. The leaders have to reach a compromise as soon as possible.

GBP/USD

The dynamics of GBP/USD clearly shows how quiet the market keeps in wait for the further development of events. The bounce off the lows, the sterling performed on Monday has been fully recouped by today. The short-covering rally couldn’t gain momentum at thin trading... Read full review

 

[Globe Gain]

30/05/2012 American stocks up, EUR down

EUR/USD

The ongoing concerns around Spain impede an upward bounce in the euro. Yesterday EUR/USD hit a 2yr low, breaking through 1.25 and reaching the level of 1.2457 at some point. Portugal and Spain are still suffering the capital outflow. The yield spread between these countries’ 10yr bonds and German Bunds exceeds 1000bp for Portugal and 500bp for Spain. The German stocks cost more than their American counterparts (i.e. their yield is lower). This current state of affairs should hardly be attributed to investors’ confidence in the higher growth in Germany against the USA, but can be rather explained by the fact that the funds tend to withdraw their assets from the troubled countries, yet keeping them in the euro. It takes time to convert money into another currency, you know. Moreover, the euro is obviously oversold, so apparently the players will want to wait for a while to sell the euro on the bounce. Our supposition is also based on the fact that the American stock indexes keep appreciating. The drop of the euro and growth of the American stocks clearly show that the capitals deliberately flow to America which can supply much more assets of the proper quality. However, we should understand that the abnormally low yield of the German Bunds is connected with a huge volume of liquidity, which is now just waiting for its turn to quit the euro-zone. The German debt market, even when joined by the corresponding markets in the Netherlands and Scandinavian countries, simply doesn’t have such a great number of high-quality assets to satisfy the existing investor demand. Under such circumstances the market of joint Eurobonds would be of help, creating additional supply of reliable assets. However, on the other hand this idea entails subprime CDO. The world has paid a stiff price to learn this lesson. Probably, there is some sense in creating a kind of “subprime Eurobonds” which would generate money for weak European countries and have a corresponding medium rating. Their yield will be higher than that of the EU-wide bonds, but lower than the current yield of Greek, Spanish and Portuguese bonds taken separately. Besides, the yield of such bonds would be less volatile.

GBP/USD

The troubles of the euro don’t let the sterling grow or even consolidate at the same level. It can be explained not only by the correlation of the European currencies against the dollar or yen, but also by the fact that the Spanish banking sector issues put a heavy burden on Britain... Read full review

 

[Globe Gain]

31/05/2012 Hope dwindles

EUR/USD

As seen from yesterday’s rates, hopes that Spain would do without help of the EU were gradually melting away throughout the day. The pair neither bounced on bad news nor flew on an avalanche of triggering stop-orders. However, having started the day from 1.25, the euro/dollar closed it at 1.2370. Again it becomes evident that the single currency suffers the heaviest pressure at trading in America, while sessions in Asia and Europe go on by far more quietly. Yet, even then we don’t observe any significant corrections in the pair. The weak Italian auction with a low bid-to-cover ratio of 1.4 looks particularly prominent against the poor news background. The yield of the Italian 10yr bonds has grown up to 6.03% against 5.66% earlier this month. Their Spanish counterparts have even a higher yield of 6.66%. Both consumer and business confidence indicators keep falling, despite the fact that they’ve already been showing negative figures for several months in a row. There is a feeling that Mr. Draghi was wrong saying that the ‘moderate recession’ in the euro zone proved to be less hard than expected. The reality prompts that the decline in 4Q last year and stagnation in 1Q this year can be followed by a very undesirable run of events in the third and fourth quarters. The journalists now seem to have turned all their eyes from Greece to Spain, whose EU membership is up in the air at present. Our hopes that the euro would make a stop at 1.25 vanished yesterday. Apparently, even if the pair performs a correction bounce this week, it will prove to be rather insignificant in comparison with the drop, preceding to it. For the first two weeks of May we kept talking that the down trend in the euro, which over the last three years has become a common thing at this time of the year, has turned out to be half as strong as before. However, in 2011 the pair performed a correction bounce in the second half of the month, and as you know this time we’ve seen nothing of the kind. The current situation looks more like that in 2010 when the reversal took place in June below 1.28. Now hopes for June are great, as the middle of it will be marked with elections in Greece and its end – with the EU summit.

GBP/USD

Yesterday the pound-bulls finally lost their nerve. Considering the influence produced on the sterling, the bad news from Europe can be divided into two categories. For a while the negative sentiments in Europe were accompanied by purchases of the sterling, as investors sought refuge for their money and the market of high-quality assets, denominated in the euro, significantly shrank... Read full review