Two main stories dominate currency markets; the unexpected rise of the Euro and the almost inevitable decline of the US Dollar. The Euro is currently hovering at levels just below US$1.30 after a week in which the Greek debt auction impressed and in which there have been few reasons to sell the EU single currency. Next week may bring a few more negative reports because we will get the results of the stress testing of EU banks and the rumours are rife of a smattering of headline failures. Profit taking before the weekend and before the results are published would make sense and ought to keep the Euro pinned below $1.30 and above €1.18 against the Pound.
Nevertheless, the fact that the Euro is above $1.2750 is significant because it would be the first time it has closed above the trend since this pattern started in November 2009. If it can stay here through the New York close, then that could be a major change of trading pattern and chartists will spend their weekends assessing the medium and long term implications of such a move. It opens the possibility of a push to $1.3125, a major Fibonacci retracement level. This all happened after yesterday’s Empire state manufacturing index and the Philadelphia Fed business sentiment index both came in much lower than forecast levels and this contracted quite sharply with the recent EU and UK data which have been much nearer to market estimates. The fact that the US data has disappointed is enough to see pressure on the US Dollar itself. We will get a batch of market moving US data today with an expected decline in consumer inflation and a probable reduction in long term treasury purchases as investors have eased funds out of this, the king of the safe havens, in order to invest in more profitable assets elsewhere.
Sterling for its part is trading in middling ranges against all except the US Dollar. Sterling has pushed through the roof of a trading range that has confined this pair for over 8 months and if this pair closes above $1.53 in New York the possibility of a push to $1.55 is well and truly on with another drive to $1.57 waiting in the wings. Those with US Dollar sales to contemplate would do well to protect themselves against such a move through stop loss orders or forward cover or a combination of both.
The poor Chinese data released yesterday is still causing concerns. The debate rages over whether the Chinese government will succeed in engineering a soft landing for the Chinese economy. They are probably best placed of any country to do so because so much of their growth has been state sponsored anyway. It would take very little extra government input to restart the economy if the slowdown starts to look more like a slump.
The New Zealand Dollar is weaker this morning after the fears that a slowing China will wreck the commodity markets that are so important to New Zealand and after a report showing slower inflation than most analysts had predicted. At 0.3%, this was below the consensus forecast of 0.4% and well below the previous quarter’s figure of 1.3%. It gives an annualised inflation rate of 1.8% which is mild enough to allow the Reserve Bank of New Zealand room to hike interest rates in the year ahead which is precisely what the bond markets have allowed for.
Other than this, the day’s data diary is pretty light so we can expect technical and risk based trading as investors set themselves up for next week’s crucial data releases.
And finally, when you read a headline that says. DOG SHOOTS MAN, you just have to read the story don’t you.... well I do anyway. Apparently a chap in New Zealand was getting into hit 4X4 and put his rifle on the passenger seat while he sorted the dog out. The dog jumped into the seat and stood on the trigger of the rifle, discharging a bullet which passed through the seat and got stuck in the chap’s buttock. After an emergency ambulance helicopter had sorted the chap’s derriere out, he told the police he thought the gun was empty. Well it probably was .... after the incident but perhaps prudent use of the safety or a gun rack or getting rid of the rifle is the best policy. Or maybe being nicer to your dog is the first step to stopping him from shooting you. It might not have been an accident; that’s all I’m saying.