Daily Currency update for SF members courtesy of Halo Financial

(Catharine Higginson) #1

I hope your long weekend was a good one. A lot happened while the UK was basking in glorious bank holiday sunshine and yes I am being ironic; it was probably just as changeable where you were I guess but I’m not lying about the activity; a lot really has happened in the last 72 hours.
A package of measures has been agreed to support Greece. Some €110 billion of loans and loan guarantees was agreed after a change of core European Central Bank policy allowed them to accept Greek government bonds as security even though these are now rates as ‘junk’ by one of the credit ratings agencies. That was previously uber-verboten but is now acceptable but only for Greece. It will be very interesting to see what happens if the same ‘junk’ status gets applied to Portuguese or Ireland bonds in the future. This move has been roundly criticised by analysts and commentators, not for the action itself but for the fact that it sets a poor precedent, weakens the ECB’s credibility and has only become an issue because the ECB prevaricated for so long before making a decision. It was only last week that the credit ratings agency, Standard and Poors downgraded Greece’s rating so if the ECB had acted even a week earlier, it wouldn’t have had to loosen its own rules.
And the problems aren’t all over yet. Greece still has to implement a package of severely austere plans which are likely to cause further civil unrest; we have already seen terrible scenes of rioting in Athens and a strike has been called for 5th (tomorrow as I write). The German parliament still has to ratify the German commitment to the joint EU and International Monetary Fund deal and we have yet to see whether €110 billion is enough. As you might expect, the decision was so overdue that the Euro barely budged on the news.
Another central bank has been in the news; the Reserve Bank of Australia hiked its base interest rate by 0.25 percent to 4.5 percent overnight. This was the 6th hike in 7 meetings and it was widely expected but does get the RBA nearer to the ‘average’ level that its governor has been talking about lately. The Aussie dollar strengthened initially but flattened off as traders absorbed the fact that we are unlikely to see too many more hikes from the RBA in the medium term. And the Australian government has announced plans to tax the mining industry more heavily to cash in on this sectors phenomenal profit growth as Asian economies suck in Aussie exports at increasingly high commodity market prices.
Also in Australasia, the New Zealand Dollar is gaining strength on the expectation of higher interest rates at a time when the Australian base interest rate is nearing equilibrium. In fact the NZ Dollar hit its strongest level; against the pound in 31 years overnight and now sits on a support line at the 76.4% Fibonacci retracement level measured from the 1972 low to the 1992 high. NZ$ 2.07 is a target we have been watching and writing about for some time and now that it has been hit, we would hope to see some gains in the Pound but a break below this level would be very worrying. It could herald a move to the 1976 low of NZ$ 1.64 or even the 1972 low of NZ$ 1.56; fantastic news for those who have Kiwi Dollars to sell but very concerning for anyone on the other side of the equation. I hasten to add that this is only if we see a move below NZ$ 2.07; while it is above here, we ought to expect some kind of bounce in this pair which would suggest NZD sellers should be moving now on at least some of their requirements in order to take advantage of the best rates in over 30 years.
Nearer to home we are in the last phase of a general election and the weekend polls suggest the conservative party is edging nearer to an overall majority. The advent of a working majority for any one party is viewed as positive for the Pound and the Tories are clearly the City’s favourite option and that explains why Sterling hasn’t dropped against the Euro or Australian Dollar in the last couple of days. However, it will be an edgy few days with more opinion polls to absorb and enough potential for ‘bigoted woman’ moment to destabilise the main contenders. Perhaps that is another disadvantage of making the election a one man per party battle; that one man could ruin it for all the other candidates. And the furore over postal ballots is gathering momentum with allegations of fraud being reported in many areas, especially with overseas voters.
So as we step cautiously into election week, there is plenty of other news to keep us busy. Today’s data releases are less troublesome perhaps with UK lending number and money supply data starting us off, followed by EU producer price data and ending with US pending home sales. But this week will also bring Friday’s all important US employment data and, before that, the European Central Bank will be making an interest rate decision. No change is forecast but traders will be very interested in any comments coming from the press conference regarding Greece.
And finally, I’m all for promoting healthy eating for children but staff at a nursery in Greater Manchester appears to have lost the plot. They confiscated a cheese sandwich from a two year old boy because it wasn’t healthy enough. If it had included lettuce or tomato, it would have made the grade but plain cheese just was too offensive and not in keeping with the nursery’s food code, so it had to be taken away from the boy. He cried. It’s ironic really, he was only provided with a packed lunch after the nursery’s food upset his stomach. His mother has since moved him to a new nursery where cheese sarnies are not considered life threatening. God only knows what they would make of my lunch; I’d probably be expelled after writing ‘I must eat healthy food’ a billion times but what is wrong with deep fried chocolate coated battered kebabs anyway?

Cheese quotes

Swiss Cheese is a rip-off! It’s the only cheese I can bite into and miss! Mitch Hedberg
The clever cat eats cheese and breathes down rat holes with baited breath. W. C. Fields

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