Another fascinating week in the F/X markets, with my forecast of 1.1800 falling quite a way short of the mark as we saw the pound burst through the 1.1940 level at one point on Thursday. At least I managed to get the direction right! The week ended at 1.1910, leaving many licking their lips in anticipation of the magic 1.20 level. More about that later.
The Hangover
David Cameron’s, that is. It must have been hugely dispiriting to arrive back home to a hero’s welcome on his trusty steed to find that all his new lackeys are the same bunch that he’s been trying to ignore for years, those embarrassing Eurosceptics. And worse still, his new best mate Nick disappears off in a sulk, only to reappear later in the week, all guns blazing, letting anyone who cares to listen (including Sarko) what he thinks about this new wave of scepticism and xenophobia.
Fact and Fiction
Fact: The Euro is still in trouble. The currency has accurately reflected this over the past week. The achievements of last weekend’s summit fell way short of solving any of the problems. Indeed it probably created more to worry about. The markets like to see action, not words, and they haven’t seen any yet. The new treaty being entered into by the group of 26 is already starting to show some cracks, with Hungary and the Czech Republic wavering yet again (they already changed their minds once). Nothing is to be announced on this new treaty before March, but the ECB is making it quite clear that they do not want to be promoted to the position of lender of last resort to the European basket cases. On top of this, Angela Merkel is facing growing pressures on the home front. She too is in a coalition, and that may have been the reason behind a conciliatory phone call to DC this week.
Fiction: Sterling is ideally placed to take advantage of this and surge back up towards the levels we used to enjoy up to 2007. Far from it. We have a lot of problems to deal with in the UK economy. I’m writing this during a Christmas visit back to the UK, and can see at first hand what is happening to UK high streets. I’m in a smallish town in Lincolnshire, and at least half of the stores are either boarded up or let on short term contracts to ‘pile it high and sell it cheap’ outlets. UK unemployment is at its highest level for 17 years, and the public deficit is proving to be much more stubborn than George Osborne must have hoped for.
Don’t be greedy
That 1.20 level could easily be a step too far for now. The big boys, international speculators and multinational corporations, are in front of the queue for the best deals in the market. For the likes of you or I to get to buy Euros at 1.20 the rate will probably reed to get to at least 1.21, possibly higher. If the market professionals decide that 1.20 is where they all want to but Euros, or more accurately sell sterling, it will all be done when the rate is at 1.2005, and if there is enough selling of sterling at that level the next stage will see us back at 1.16 or even lower. The best advice I can offer you if you need to convert sterling to Euro is do it early, and be happy with say 1.1850 or 1.19. If you are what I call ‘mini speculators’, and have money in the UK that you will eventually need to convert, you can take a longer term view, but be prepared to be disappointed.
Hols
Any F/X trader worth his salt will have started his holiday break by now, and the markets traditionally stagnate over this period. With this in mind I’m going to take a break this week, and will return to action to launch the New Year. Between now and then please have a great time, and try to forget about politics and economics, as I certainly will!
Saturday, December 17, 2011
Saturday, December 10, 2011
F/X weekly comment
Unless you've had your heads completely buried in the sand this week you'll probably have noticed that there has been a bit of a dust-up on the UK/Euro front over the last few days. If not, you'd hardly be likely to be reading this anyway, so I will assume that you have at least heard David Cameron's name mentioned a few times...
SuperCam - Hero or Villain?
I think you might have guessed which side of the argument I'm on. I am quite genuinely astonished at the crass hypocrisy of opposition (and some coalition) politicians complaining that David Cameron has marginalised the UK and despatched us to the outer wildernesses of Europe where no-one will listen to us and our views on the Euro will not be taken into account.
What on earth was the alternative? Can you imagine the furore if he had signed up with the rest of the lemmings at the cliff top? I doubt very much if he would have been let back into the country, let alone the houses of parliament. Sovereignty surrendered, budgets to be submitted to Brussels? Good grief, we might even have to convert to the Euro. Get real you lot, he had no choice whatsoever.
Nobby no-mates.
Let's not pretend otherwise, we are not popular in Europe now, although I suspect a few million European citizens might secretly be on our side. The sight of Sarkozy blanking Cameron in Brussels on Friday evening was a scene of pure childish petulance. I for one prefer my political leaders to have maturity and stature. Sarkozy lacks all three (stature twice).
For a while on Friday we were not alone. A few other EU but non Euro members' initial reaction was 'Your having a Turkish'*, but they soon succumbed to the herd mentality and toed the line. Countries like Ireland, Greece and Portugal had no choice of course. Firstly they are already in the Euro, and secondly they desperately need the continuing support of the Eurozone. But alone in Europe we now definitely are. There are 27 members of the EU, and 26 of them have signed up for the new financial treaty.
Should we care?
Unfortunately yes. There was no way we could actually gain from this mess that the Euro has got itself into. There is no way we can agree to be a part of this group, but being isolated will very probably harm us. We will not be able to influence any course of action that they decide to take regarding the financial stability of the Euro, but the UK is an absolutely vital part of Europe, and as full members of the European Union we maintain a very large say in what goes on. So large in fact that nothing can be done to force us into any measures we don't want to take, even by the 26 Eurozone (and wannabees) countries. Having said that though, the lemmings will have the power to act in ways contrary to our best interests.
What now?
They will continue to muddle through, at best. Precious little came out of last week in terms of saving the Euro. Germany and France may look like willing bedmates, but there is a lot of bickering going on under the sheets. The much vaunted new treaty doesn't actually introduce any new rules or constraints, it just repeats existing rules that everyone, including France, has been breaking consistently over the last ten years. Do we really expect anything to change? One commentator got it right when comparing it to having a speed limit on a motorway that no-one ever enforces. Now apparently there will be traffic police. We'll see. Maybe the Greeks will start paying their motorway toll fees. And maybe not.
1.1800 for me next week.
* Turkish bath (= laugh)
SuperCam - Hero or Villain?
I think you might have guessed which side of the argument I'm on. I am quite genuinely astonished at the crass hypocrisy of opposition (and some coalition) politicians complaining that David Cameron has marginalised the UK and despatched us to the outer wildernesses of Europe where no-one will listen to us and our views on the Euro will not be taken into account.
What on earth was the alternative? Can you imagine the furore if he had signed up with the rest of the lemmings at the cliff top? I doubt very much if he would have been let back into the country, let alone the houses of parliament. Sovereignty surrendered, budgets to be submitted to Brussels? Good grief, we might even have to convert to the Euro. Get real you lot, he had no choice whatsoever.
Nobby no-mates.
Let's not pretend otherwise, we are not popular in Europe now, although I suspect a few million European citizens might secretly be on our side. The sight of Sarkozy blanking Cameron in Brussels on Friday evening was a scene of pure childish petulance. I for one prefer my political leaders to have maturity and stature. Sarkozy lacks all three (stature twice).
For a while on Friday we were not alone. A few other EU but non Euro members' initial reaction was 'Your having a Turkish'*, but they soon succumbed to the herd mentality and toed the line. Countries like Ireland, Greece and Portugal had no choice of course. Firstly they are already in the Euro, and secondly they desperately need the continuing support of the Eurozone. But alone in Europe we now definitely are. There are 27 members of the EU, and 26 of them have signed up for the new financial treaty.
Should we care?
Unfortunately yes. There was no way we could actually gain from this mess that the Euro has got itself into. There is no way we can agree to be a part of this group, but being isolated will very probably harm us. We will not be able to influence any course of action that they decide to take regarding the financial stability of the Euro, but the UK is an absolutely vital part of Europe, and as full members of the European Union we maintain a very large say in what goes on. So large in fact that nothing can be done to force us into any measures we don't want to take, even by the 26 Eurozone (and wannabees) countries. Having said that though, the lemmings will have the power to act in ways contrary to our best interests.
What now?
They will continue to muddle through, at best. Precious little came out of last week in terms of saving the Euro. Germany and France may look like willing bedmates, but there is a lot of bickering going on under the sheets. The much vaunted new treaty doesn't actually introduce any new rules or constraints, it just repeats existing rules that everyone, including France, has been breaking consistently over the last ten years. Do we really expect anything to change? One commentator got it right when comparing it to having a speed limit on a motorway that no-one ever enforces. Now apparently there will be traffic police. We'll see. Maybe the Greeks will start paying their motorway toll fees. And maybe not.
1.1800 for me next week.
* Turkish bath (= laugh)
Saturday, December 3, 2011
F/X weekly comment
Dazzling 'price action' this week. Instead of finishing unchanged against the Euro at 1.1670 we ended up miles away at 1.1650 At one stage it looked as though I might be claiming a rare success, when sterling defied all odds and went bounding into 1.17 territory after the Autumn Statement, quite the opposite direction proffered by most commentators apart from me. But lo and behold, the rally petered out and the market settled back into its recent snooze pattern, waiting for something really exciting to happen. And happen it just might...
The Heavy Mob
The gang held a reunion during the week with surprise joint action by the world's central banks. The FED, the European Central Bank and the central banks of the UK, Canada, Japan and Switzerland agreed to cut the cost of existing dollar credit terms by 0.5% in a bid to help European banks damaged by the Eurozone debt crisis. China also said it would free up money for its banks to lend. This pushed sterling down against the Euro, dampening Euro weakness.
Same old Sterling figures
UK manufacturing data out this week did little to impress the market despite being marginally higher than forecast at 47.6. Below 50 is bad, above 50 is good, so these figures continue to show the tough climate the UK economy is facing. This latest round of data is likely to weaken sterling in the short term as the market increases their expectation for further QE early in the new year.
AAA (not the batteries)
The Autumn Statement was actually seen internationally as setting out a credible plan to tackle the budget deficit, and is likely to help the UK retain its AAA status and encourage investors to hold UK government bonds. This is therefore likely to give some support to the pound despite the threat of further quantitative easing as the economy looks set to hit another recession.
Note the balancing tendencies of the last two paras!
The Doomsday Scenario
After all the toing and froing (I know that looks really odd, but Google says it doesn't need a hyphen), the future of the Euro remains apparently in the balance. Olli Rehn, EU economic and monetary affairs commissioner, warned of a 10 day deadline to the save the Euro. The alternative could potentially the breakup of the Eurozone and create serious issues for the UK economy (and a few others I'd wager). Yesterday (Thursday) Merv and the boys released their Financial Stability Report in which it calls the current mess "exceptionally threatening". Merv then said that the central bank action was only temporary relief and confirmed that his henchmen had contingency plans in case of a breakup of the Eurozone. Just to add to the mix, Sarkozy (he's half of Merkozy) gave a major speech in Toulon, in which he said that the Euro could not continue to exist unless Eurozone economies
pulled together. He said that he would meet with German Chancellor Angela Merkel on Monday to discuss steps to ensure the euro is saved. Is this the realisation of the masterplan?
Actually, I don't think so, but it is fantastic theatre. Sterling's woes are on the backburner at present. Euro woes are bigger and better. Much more fun. I'm buying small amounts of Euros every time the rate goes above 1.17, but then I'm a financial coward at heart.
The Heavy Mob
The gang held a reunion during the week with surprise joint action by the world's central banks. The FED, the European Central Bank and the central banks of the UK, Canada, Japan and Switzerland agreed to cut the cost of existing dollar credit terms by 0.5% in a bid to help European banks damaged by the Eurozone debt crisis. China also said it would free up money for its banks to lend. This pushed sterling down against the Euro, dampening Euro weakness.
Same old Sterling figures
UK manufacturing data out this week did little to impress the market despite being marginally higher than forecast at 47.6. Below 50 is bad, above 50 is good, so these figures continue to show the tough climate the UK economy is facing. This latest round of data is likely to weaken sterling in the short term as the market increases their expectation for further QE early in the new year.
AAA (not the batteries)
The Autumn Statement was actually seen internationally as setting out a credible plan to tackle the budget deficit, and is likely to help the UK retain its AAA status and encourage investors to hold UK government bonds. This is therefore likely to give some support to the pound despite the threat of further quantitative easing as the economy looks set to hit another recession.
Note the balancing tendencies of the last two paras!
The Doomsday Scenario
After all the toing and froing (I know that looks really odd, but Google says it doesn't need a hyphen), the future of the Euro remains apparently in the balance. Olli Rehn, EU economic and monetary affairs commissioner, warned of a 10 day deadline to the save the Euro. The alternative could potentially the breakup of the Eurozone and create serious issues for the UK economy (and a few others I'd wager). Yesterday (Thursday) Merv and the boys released their Financial Stability Report in which it calls the current mess "exceptionally threatening". Merv then said that the central bank action was only temporary relief and confirmed that his henchmen had contingency plans in case of a breakup of the Eurozone. Just to add to the mix, Sarkozy (he's half of Merkozy) gave a major speech in Toulon, in which he said that the Euro could not continue to exist unless Eurozone economies
pulled together. He said that he would meet with German Chancellor Angela Merkel on Monday to discuss steps to ensure the euro is saved. Is this the realisation of the masterplan?
Actually, I don't think so, but it is fantastic theatre. Sterling's woes are on the backburner at present. Euro woes are bigger and better. Much more fun. I'm buying small amounts of Euros every time the rate goes above 1.17, but then I'm a financial coward at heart.
Subscribe to:
Posts (Atom)
Posts
