Daily Currency update for SF members courtesy of Halo Financial

(Catharine Higginson) #1

We have some signs of just how much Nick Clegg is revelling in his new political stardom; he has set out a series of measures he hopes to see through in this parliament. These are largely removal of privacy infringements and overzealous regulation and he is asking us all to name the laws we want to repeal. Start your list now because we only have 4 years and 51 weeks to go before the next election. I’m on page six…of A3 sheets…and I am writing really small.

We had various obvious market moving pieces of data yesterday. UK inflation was the headline with a sharp rise to 3.7 percent on the CPI measure which excludes housing costs and an alarming 18 year high of 5.3 percent on the RPI measure which includes such things. This prompted yet another letter from the Governor of the Bank of England but this time it is to the new Chancellor, explaining why things are awry. The result of the UK data was inevitable; Sterling gained a little as the pressure mounted on the BoE to hike UK interest rates or at least curb financial stimulus to the markets. It would appear unlikely we will see any early interest rate hikes as the BoE downplayed the inflation fears and suggested the recent rise would iron itself out in time without BoE intervention. EU inflation also picked up to 2.0 percent and US producers were paying 0.1% less for goods in April compared to March. Neither of these latter results were market moving.

However, the UK data was overshadowed by the increase in US Dollar buying amongst nervous investors seeking somewhere safe to keep their money and the Euro reaction was entirely overshadowed by the decision by the German government to ban what is known as ‘naked short selling’ of specific asset classes. But before you ask, this has nothing to do with naturism and having seen a lot of bond traders in my time, we should all be grateful for that. Naked shorting refers to the actions by traders when they sell something they don’t own in order to try to buy it back at a later date at a lower price. If you have seen the scenes in the open outcry pit in the 1983 movie ‘Trading Places’ Eddie Murphy and Dan Ackroyd did a spot of naked shorting of orange juice.

In what is widely seen as a break away from ECB control, Germany has decided to protect Eurozone government bonds, the shares of the 10 most important German financial institutions and it has stopped what it sees as an abuse of the credit default swap market on these assets as well in banning naked shorting of these assets. In banning traders from betting on a negative future for these assets, the German’s are trying to stop market distortions through excessive short selling. It has been done on a minor scale before but this is both a unilateral decision when it may well be assumed that such moves should be Eurozone wide rather than the prerogative of individual nations, and it was always likely to cause significant weakness in the Euro. And perhaps that is the rub because a weak euro is very good news for German exporters and Angela Merkel needed some positive news after she was viewed as weak in her handling of the Greek debt package. Whatever the underlying reasons, the fact is that the Euro is under even more pressure than it was before and that creates a great opportunity for anyone with Euros to buy.

And that opportunity may well be enhanced during Wednesday’s trade because bond traders are forecasting one of the most volatile days in living memory after the German decision. That will inevitably cause volatility in all markets and this is a terrific day to place automated orders at level we might not expect in the normal course of events. Anything could happen and it probably will.

The Sterling - Euro exchange rate appears to be trapped below €1.1750 but it may only be a matter of time before we see another test of €1.1930, the technical top of the current range; although as mentioned in the previous paragraph, orders around here could be triggered as early as this morning. Against the US Dollar, the Euro fell to a 4 year low and briefly pushed below $1.22 but is back above that line as I write on Wednesday morning. €1.20 is an obvious psychological target but €1.18 is the most significant technical support level.

Elsewhere, you may not have noticed at the pump price level but crude oil has dropped from the peak of $86 odd per barrel to around $70 and, whilst, as we all know, falling crude prices don’t result in lower pump prices, the drop does have an effect on oil producers like Canada. The Canadian Dollar is ludicrously strong in historical terms but it dipped a little in the last 24 hours on the back of this oil price adjustment.

The Australasian dollars are both a little weaker this morning as the flow of investor funds away from riskier trades is starting to gather pace. Germany’s moves have shocked the markets and just as a startled rabbit will run for its burrow, startled investors run for gold, US Treasuries and Swiss Francs. Also, a very well respected Australian market analyst has stated very firmly that the Reserve Bank of Australia is not going to raise interest rates until September at the very earliest and the pressure to raise interest rates in New Zealand is also waning as the global economic growth shows signs of slowing.

And finally, if you were thinking of having plastic surgery, be warned, it is clearly a drug from which there may be no return. I offer as exhibits A and B, the brothers Igor and Grichka Bogdanoff. Google the image of them attending the Chopard 150th anniversary party and you will never look at an advert for cosmetic surgery again. Just say NO has never been more appropriate.

And absolutely finally, a new study has revealed that men tell more lies than women and feel less stress when they do. Apparently, the most common fib told by women is “Nothing’s wrong, I’m fine”. Although, in the experience of your humble writer, it is generally said in a tone of voice that makes it perfectly obvious that something is wrong and no she is not fine. So is it a lie at all or more of an overt request for further questioning and concern? It’s a rhetorical question; I’ll leave you to debate it. But if that means this is not a lie, then men really are much much much worse.

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