t is no surprise that financial markets are volatile; the data is just too confusing. Take the example of the UK housing data; yesterday we heard from the Nationwide that UK house prices are now just 9.5% below their peak in 2007 and 12.2% above the bottom of the slump we saw in Feb 2009 and yet only the day before we heard from the Bank of England that mortgage lending fell in April. So the fact is that fewer houses are being sold but the ones that are selling are clearly so sought after that they can command the higher prices. It isn’t such a good news story as we had hoped really but that hasn’t stopped the Pound revisiting its highest level in 18 months against the Euro and testing the tops of the ranges against the Aussie, Kiwi and Canadian Dollars. The Pound is a little more subdued against the US Dollar but that is explained below.
Despite the markets enthusiasm for the UK housing data, yesterday’s trading was largely confined to the ranges seen the previous few days. Sterling remains trapped between €1.17 and € 1.2050; it remains caught between US$ 1.43 and US$ 1.48 and it is in tight ranges against the Australasian Dollars and the Canadian Dollar as well.
The market movers that traders are waiting for are things like a clearer picture of when UK, EU and US interest rates are likely to rise along with news on when their respective central banks will start reducing their involvement in the bond markets and debt repurchases. The timeframes for these factors are slipping; driven mainly by the fear of debt contagion from the Eurozone and nervousness over the extent to which China’s slowing economy could cause slower growth elsewhere. Currently there is an East - West split in the pace of recovery with the Eastern hemisphere doing rather better than Europe, the US and the UK. Canada is better placed than others but a drop in commodity demand could have a negative effect on Canada too.
Investors and traders get an insight into the US economy with this afternoon’s release of May US employment data. Some are forecasting one of the most positive non-farm payroll counts in 27 years and that, combined with the fact that the Euro - US Dollar exchange rate is sitting on a crucial technical level may change the whole market picture for the next 6 months. A break below that 50% Fibonacci level (€1.2148) would herald further significant US Dollar strength and potentially equally significant Euro weakness. All will be revealed at 13:30 UK time. Whatever the outcome of this report, we expect substantial volatility at the time so whether you are a buyer or seller and you missed some of last week’s excitement and opportunity today would be a great day to place orders to capture the currency you need at a price that suits.
We will also get Canadian employment data today; this has delivered four consecutive rises in employment levels and a fifth is highly likely. If this is the result and Canada’s major export market, America, also posts strong data, we can expect strength in the Canadian Dollar as the day and perhaps month progresses. Those with Canadian Dollars to buy who were waiting for better levels may have their ait extended unless they take advantage of this morning’s levels and cover some of their requirements.
The other newsworthy event of the next few days is the meeting of the finance ministers from the G20; the group of 20 of the wealthiest nations. Nothing of any substance is likely to come from the meeting in South Korea even though there is always great expectation expressed before these meetings. One day we will all come to terms with the fact that neither G7, G8 nor G20 meeting are ever likely to yield significant change but in the meantime, it is all very exciting isn’t it.
And then we have a weekend. The UK weekend looks set to provide lovely sunshine for most and that would be great. I hope yours is a doozy.