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09/04/2012 The weekend stole volatility
EUR/USD
To discern the market reaction to Friday’s payrolls you’ll probably have to use a microscope. It’s somewhat surprising as usually the release of the figure causes much movement in the markets and can even set the trend for the further month. Apart from the strong market reaction the indicator is also famous for its unpredictability: there is always a range of diverging forecasts and a wide discrepancy markets turned out mistaken in their estimates. The released data showed that employment growth made only 120K against the forecasted “above 200K”. According to the updated statistics the employment growth peaked in January, when the number of jobs rose up to 275K, in February employment increased by 240K. Can it be really true that this year the growth rate has started to slow down earlier than last year? A year ago the peak of labour growth fell on April (+251) and then was followed by a sharp drop in May (+54). Nearly the same scenario has been expected this year. If the published data are not a one-time failure, we should give a serious consideration to the dollar perspectives: perhaps they are not that rosy. Recent weeks the growth of the American currency has been stimulated by positive economic data and dwindling chances of further QE from Fed. But now it has suddenly turned out that improvement is running not that smoothly. How will the market react to it, when it comes back from the prolonged weekend on Tuesday, we wonder? For justice’ sake we should mention the positive aspects of the report as well. Employment in manufacture keeps growing at quite a high pace. And many even call the manufacturing data preliminary for the whole economy. If true, the dollar has chances for better performance. Another positive aspect concerns the decrease of unemployment down to 8.2% against 8.3%. In addition, average hourly earnings have grown a bit (+0,2% m/m, 2,1% y/y), which is also a favourable signal for the future. So, at least in this direction the situation unfolds in a healthy way. Probably, the current figures will prove just a slight misfire similar to that we saw in weekly reports on unemployment claims in February and March, when the number of initial claims first jumped up, but then again decreased.
EUR/USD
The British pound makes no headway, hovering around 1.5850 for the fourth consecutive day. The continuing advance of the pound against the euro should be also mentioned. This cross is fluctuating around 0.8230 now, while at the end of March it was close to 0.8380...Read full review
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10/04/2012 Bernanke calls on banks to increase their capital buffers – markets don’t like it
EUR/USD
On Monday evening markets started to recoup the losses suffered on poor employment data from the US. And since chances of the monetary policy toughening in the US diminished the dollar began to decline. The payrolls themselves were minutely described in our yesterday’s review, so we are passing over to other news. This night in Atlanta Bernanke made a speech in which he mentioned about the necessity of bigger bank capital buffers. This statement was quite alarming for banks and has already led to heavy losses of their stocks. Yet, Bernanke was his usual self, i.e. quite gentle, as he made a reservation that it’ll probably take much time to set these higher levels. Curiously enough, this very day the Institute of International Finance has lobbied for the break in the use of the Basel III bank rules. It’s interesting that the idea to toughen the regulatory standards and to accumulate larger capital buffers should be extremely popular among the European regulators despite the fact that the regional banks are suffering most at the moment. The Fed was carrying out asset purchases for a longer time to save banks from toxic assets and was introducing lower interest rates to make the capital more available. As a result, now American companies (not only banks) are sitting on huge sacks with cash, but fear to use them, feeling uncertain about the future. It follows that despite all the efforts taken “Japanization” of the USA is running at full tilt. Since 90s this country has also been suffering chronic budget deficits and stumbling economic growth on the very slightest signs of toughening lending conditions. But for all that corporations have a huge pool of idle liquidity, which goes preferably into production of the developing regions or of market outlets. Turning back to the euro/dollar, though the US news points at a slower pace of recovery in the country, the European debt markets feel none the better, again suffering the widening of spreads of the periphery bonds against their German counterparts. Apparently, today the euro will remain close to the current level of 1.31 or will tend to decline.
GBP/USD
The sterling has run out of steam. Though against the dollar it remained at the same level as at the opening (1.5890), it continued declining against the yen and set a reversal in the pair with the euro. The bulls picked up the pair around 0.8230 and are set to turn the situation in their favour...Read full review
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11/04/2012 The European politicians say that the worst is over, but banks feel none the better for it
EUR/USD
On the first full trading day after the long holidays markets failed to fight down the across-the-board pessimism and declined by over 1.5 % on average. Actually, markets didn’t have much choice due to the rising fears of another aggravation of the situation in Europe. In addition, hope for improvement of the exterior affairs also fades, as China’s and America’s economies are now slowing down as well. Under such circumstances all eyes are turned to the European politicians, who are looking for means to improve the market sentiment. For instance, the spokesman of the German ministry of finance stated yesterday that the perspectives of the Euro-Zone improved for this year and Germany itself successfully got over the peak of its slowdown. To some extent they are right, especially if we take into account that in the fourth quarter of the previous year the world’s largest economy lost 0.2% in GDP growth. The first quarter is likely to be marked by growth, but the question is how strong it will be and how events will unfold in the further quarters. The improvement in the European economy has already been indicated earlier by Premier-technocrat Mario Monti. But behind these words stands the desire to inspire confidence in the markets rather than the real observation of improvement. Usually the European economic cycle lags behind the US one by a quarter or two, so the region is likely to face the biggest problems in 2-3Q of this year. Another question that disturbs investors concerns the capital buffer standards. New regulations demand the 9% increase of the capital buffer by June. However, the time limit can be extended due to the poor economic situation. Nevertheless, if the politicians say that “it’s all fine”, banks will have either to attract capital or to sell their assets and reduce their loan portfolios. The price of the deal is €100bln. In fact, it will be almost impossible to attract the capital and the reduction of the loan portfolio will be painful not only for the finance system, but also for business and private sector. The only hope lies in the postponement of rebalancing. Let’s wish good luck to the euro, the currency will really need it in the coming months.
GBP/USD
The British pound nearly wavered yesterday under sellers’ pressure triggered by the stock market decline. At some point GBP/USD fell to 1.58 and broke down its 200-day moving average...Read full review
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12/04/2012 Markets don’t dare to attack the lows and correct the decline instead
EUR/USD
Exactly at the moment when commentators lost hope and stopped looking for the causes to buy assets the markets went up. As a rule, news feeds tend to account for the past trends and movements, which don’t always have further development. Thus, yesterday morning the business press abounded in commentaries concerning the drastic state of affairs in different corners of the Earth, but from the very beginning of the European session the markets didn’t feel any difficulty in finding buyers for the troubled securities. The positive impulse has played its role in the movement of the euro/dollar. The single currency again has broken up the 1.3140 level and moved to the highs of this week’s trading range. Compared with the levels at which the pair started the month (above 1.33), the current levels look rather low and are nothing more than the minimal bounce off the bottom at 1.3020. ECB’s men have come to the pair’s rescue as well. They stated that the bond purchase programme can be revived to curb the yield growth of Spanish government stocks. A bit earlier alarm was brought by the caution of markets against the periphery debtors. It adversely affected Italy. Faced with the yield growth, the latter managed to sell its debts, albeit with a skid. Hardly any of the European officials wants to see the nightmare of the previous months again. Probably, they will be able to breathe with relief for a few coming days, but hardly longer. The markets have significantly declined since last week, having brought to naught the gains of one of the most powerful quarter of growth in the stock markets. It’s curious that despite all this the single currency and other risk-sensitives should fail to generate the usual demand and to show a conspicuous growth. It looks as though the nature of the risky asset purchases had changed a bit since the beginning of the year. The priority has shifted from the developing exchanges to the developed ones. It’s is especially clearly seen in the USA. There’s more and more proof to the hypothesis that the American companies, which earlier staked on investing abroad, prefer to invest into the domestic innovations and production at the first stages of the economic cycle.
GBP/USD
No vital statistics were seen from Britain in the first half of this week, so the cable was mainly driven by the outer forces. Today the situation has somewhat changed after the release of data on the external trade. Suddenly luck has left Britain...Read full review
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13/04/2012 Maybe another QE? Pretty please…
EUR/USD
At first sight the current picture is not that bad. The markets have been growing for two consecutive days. Moreover, yesterday’s after-sale moderate purchases at the bottom have been followed by quite a confident leap in stock prices. Partly the demand for risky assets can be explained by the recent commentaries of Fed’s officials. Thus, if last week and the first half of this week abounded in hawks’ speeches, the last two days have been rich in the statements from more moderate representatives of the FOMC. Yesterday the markets breathed a sigh of relief when Sarah Raskin spoke about the Fed’s readiness to further support the economy and some other reassuring news. That was a good addition to the earlier statement of Janet Yellen who also pointed out that the CB was “quite willing” to make further asset purchases. Of course, the Fed’s ranks are not serried. For instance, Plosser wishes that the CB didn’t set any definite targets in regard to the monetary policy and acted depending on the situation, while Dudley mainly focuses on the fragility of the recovery process. Anyway, the markets have received a signal that the Fed is still considering the further measures to stimulate the economy. Meanwhile, the decreasing inflation pressure is getting obstacles out of this way. The producer prices figure reported yesterday remained unchanged in March against the forecasted growth of 0.3%. In its turn it caused the slowdown in the annual inflation from 3.3% to 2.8%. By this indicator we can clearly see the even decline from the second quarter of the last year, when the figures were as high as 7.1%. The first quarterly reports also produced a favourable impact on the markets. Eventually, all these factors triggered a confident market growth, which continued during the Asian session. As we said, at first sight everything looks quite good. Still we shouldn’t forget that the Fed won’t dish out money and expand their balances by means of low-quality stocks for no particular reason. Very likely, without a towrope the economy won’t be able to get out of the morass.
GBP/USD
The British trade balance data must have poured a cold shower over the local politicians, bringing them down to earth. The trade deficit significantly grew in February, bringing to naught almost all the modest gains of the preceding months...Read full review
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16/04/2012 The euro retests 1.30, demand for safety grows
EUR/USD
It’s hard to decide what to do with the dollar when a batch of good news is followed by a series of poor figures. The dollar was actively bought after the Fed’s policy had been revised in favour of greater strictness, but then the poor news on employment and inflation added to the tough rhetoric from the FOMC officials. That uncertainty made the euro/dollar fluctuate between 1.30 – 1.31. In the middle of the week the pair attempted to draw the reversal pattern on the speeches of the CB’s officials which boosted the market growth and consequently supported the demand for risky assets and helped the euro to find its buyers. However, already on Friday the growing fears for the euro zone and Spain in particular changed the situation. At the beginning of the last week the widening of Spanish bond spreads caught the eye of economists only, but since Friday the eurozone affairs have been bothering traders, forcing them to get rid of the bonds and sell the single currency. On Friday the cost of protection against default of Spanish government bonds hit the historic high. Today the markets have resumed their decline. The Japanese Nikkei has fallen down to 1.6%, pushing EUR/USD to 1.30. In February and March there were two attempts to drive the pair below the key support level, but both times ended up with a bounce. There is a feeling that this time the bulls will gain the upper hand. The wave of sales has risen from as low as 1.32 against 1.33 and 1.34 in the previous two months. In addition, as has already been mentioned, by summer the American economy is expected to slow down heavily and Europe is forecasted to bear the brunt of expenditure cuts. Without going too far, this Thursday Spain is likely to enjoy the market favour as the government needs to put up its 2 and 10-year bonds.
GBP/USD
The optimism about Britain vanished swiftly when the markets got seized by the fear for the stability of the Spanish banking sector. The sterling didn’t manage to go above 1.60 and the failure to test new highs triggered a wave of stop orders, which pushed the pound/dollar down to 1.5830...Read full review
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17/04/2012 Asian bears against American bulls
EUR/USD
The single currency with credit tested the 1.30 level yesterday. The bears didn’t manage to push down the currency in Asian and European trading hours. Meanwhile Americans were already buying the euro, having driven EUR/USD a safe distance up. The euro jumped up to 1.3150, but this morning Asians resumed their attempts to press the pair, which is now trading at 1.31. The Asians’ caution and demand for safety look quite natural. The nations with the current account surplus are in constant search of promising investment directions. And now the profitability of investments in the euro is rather doubtful. In fact, the matter isn’t even about the chances to get profit from government bonds, but about the ongoing fears that the Greek cut will happen again with another country. In addition, some commentators note that under the market pressure the ECB and IMF won’t be able to retain their privileged positions. Even the fact that India has decided to cut its interest rates for the first time since 2009 doesn’t help to inspire the markets with confidence. The further easing of the monetary policy is expected from China and required from Japan and Australia. Meanwhile, the US stock markets look quite attractive. Strategically these markets are again favoured since the speculative demand for the Asian assets has subsided. The stability of the Asian growth is now questionable. The strength of recovery in the USA is also doubtful. But with the equal uncertainty at and out of home investors prefer to make closer-to-home investments. Thus, the markets remain cautious and the euro cannot tear itself away from the 1.30 level. A lot of traders report on a bunch of orders around the 1.2970 level, breaking of which may trigger a dramatic decline.
EUR/GBP
Activity in EUR/GBP gains momentum. The pair is still formally trading flat, but the fluctuation range has widened significantly since last week. The mini rally in the euro gave the currency a boost in this pair as well and didn’t let the latter go below 0.82...Read full review
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18/04/2012 Fear has a thousand eyes
EUR/USD
On Friday and Monday the markets went bearish on the concerns around the Spanish bond auction, which eventually ran smoothly. Spain managed to sell €3.18 bln of bills, so the demand was satisfying. And though the yield grew, the markets still favoured the results of the auction, which is confirmed by the 15 bp decline of the CDS price. Yet, we look forward to Thursday, when long-term bonds will be auctioned off. The German ZEW Economic Sentiment performed a pleasant growth. Instead of going down from 22.3 to 19 as forecasted the indicator grew from 37.6 to 40.7, which is the highest level since last September. Now we are expecting strong data from Ifo at the end of the week and with optimism look to the future of the euro-zone. Probably, the situation is not as bad as it seemed a couple of weeks ago, don’t you think so? Even the American statistics on the housing market look encouraging. In March the annual rate of building permits made 747K. Unlike the housing starts it is a leading indicator. The housing starts figures didn’t prove to be very impressive, in fact. They reflected the 5.8% decline in March – 654K against the expected 705K. The Capacity Utilization Rate has grown, however the industrial production has been declining for 2 months in a row. It may well signal reductions in the capacity utilization. Is it a real cause for concern? Most likely it is not, as the year-to-year growth rate looks good, showing the 3.8% growth. Under such circumstances stock markets have some room for growth, however for now it cannot turn into the euro strengthening. The latter is still nailed to 1.31.
GBP/USD
No surprises came from Britain yesterday. The inflation accelerated from 3.4% to 3.5%, which is at variance with the Bank’s forecasts of the gradual and steady slowdown in price growth. It’s interesting that the core indicator should have grown as well: in March the annual price growth rate excluding the fluctuations of commodity and food prices made 2.5%, mainly due to the clothes and shoes prices. But today’s statistics look even more interesting...Read full review
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19/04/2012 EUR: a long tightrope walk above the chasm
EUR/USD
For the last 12 trading days positive and negative news on the euro have been perfectly balancing each other, making the euro/dollar fluctuate up and down the 1.31 level. Today the markets are standing still in expectation of the long-term Spanish debt auction. Remember that despite the yield growth the short-term auction results were regarded as positive and brought down the CDS price. The same outcome can be expected this time, as the ECB will hardly let the situation run out of control at such an important moment. After all, if deterioration in Spain reaches the same point as in Greece, it will be simply impossible to find enough money to bail it out. Yet, in Spain support should be primarily given to the private sector, where every one in four is officially unemployed, and the banking sector, which suffers from the consequences of the property bubble blowup. In our opinion, if through the efforts of the ECB and the European leaders the markets function smoothly and the economy resumes growth, the situation may change for the better in the long run. However, the smooth functioning of the market and a single viewpoint are the hardest things to achieve for Europeans. Yet the all-round economic recovery can hardly be expected across the whole region. Along with the labour market where unemployment keeps growing, the construction sector is also suffering a slowdown. The Construction Output tumbled by 7.1% in February and by 12.9% y/y. The worst thing is that the index has been below the current level only twice since 1990. Yet both times it was just a quick drop immediately followed by a recovery. We can only hope that such a recovery will occur this time as well, though the trend gives a real cause for concern.
GBP/USD
The sterling managed to become the hero of the day yesterday. It broke up the 1.60 level in GBP/USD, fell below the 0.82 support level in GBP/EUR and consolidated below it. The pound-bulls are looking to resume the attack today. If they manage to break above 1.6050, they may get support on the triggering stop-orders and approach another local high above the 61 point (1.61, 1.6130, 1.6160)...Read full review
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20/04/2012 North America doesn’t hurry to help Europe
EUR/USD
This morning the Asian markets are under a slightly descending pressure, but the pressure is moderate and therefore doesn’t tell on the currency quotes. Yesterday the euro went through a few disturbing hours, but then investors resumed buying the currency. The disappointment in the high yield, which investors demanded of the Spanish long-term bonds, caused the decline of the euro/dollar from 1.3150 to 1.3070. The sales were also boosted by the rumours that Hollande, who is known to be against the earlier EU arrangements and agreements, is taking the lead in the French presidential race. The leaders of the largest economies of the region, Merkel and Cameron, are furious. That’s really what they haven’t expected. However, already in a few hours the euro grew back to the levels from which it had fallen earlier. Now the pair is quoted at 1.3150. Actually, it may be regarded as a bullish signal as the bears didn’t manage to push the pair down. In the short term the odds may turn in favour of the bulls. However, for a real movement there should be a strong reason, which actually may come up at the G20 and IMF meeting this weekend. Earlier this week we heard that, except for the American Continent, all the other European and Asian countries are ready to allocate money to curb and eventually put an end to the debt crisis. In this respect Europe and Asia depend on the state of exterior affairs. The USA and satellite- Canada can stew in their own juice, enjoying the growth of their local economies and staying immune to the European issues. This is what they think. But it is only partially true. They don’t have immunity, just time to get ready, but Americans are heading for elections, so hardly anything else can bother this country’s politicians now.
GBP/USD
The sterling keeps strengthening its positions, consolidating above 1.60. Now trading is held above 1.6060. Should the events develop positively today, we may see testing of the 1.61 level or even of the higher one...Read full review
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