A Sterling performance by GBP but more of a YEN for the YEN

There was a mixed bag of performances in forex markets last week.
Equity markets failed to sustain any sort of rally and indeed lost ground on the week.This prompted the best performance from the Japanese Yen hitting a low of 89.20 against the US Dollar
Elsewhere the usual market scenario on Risk Aversion did not quite play out as usual.The US Dollar was generally weaker over the week with the exception of commodity currencies. Sterling which I tipped last week did perform exceptionally well considering the equity markets. It did indeed manage a break eventually through 1.50 closing at 1.5065 GBP/USD and reaching levels above 1.22 against the EURO.The UK budget was well received by markets and commentators as the UK seems to be making big efforts to address its deficit problems.
Early in the week things had looked a little better as the Peoples Bank of China pointed to more flexibility on the Chinese Currency. However, reactions to this soon evaporated and it appears little more than a peace offering ahead of the G20 meeting.
I suspect it will again be all eyes on equity markets this week. Technically it looks a decidedly dodgy for markets so we can expect generally the usual currency plays. That said the US Dollar as I mentioned was somewhat detached from the norm last week so this needs to be watched.
There is a wealth of statistics out next week all capable of generating some reaction. Far to many to go into when I am sunning myself on a beach anyway.
On balance though I do remain concerned about the equity markets in the short term and we could at least see another 4 or 5 % off markets if this weeks figures prove negative with the customary knee jerk for forex markets
As for the world cup surely the markets are pointing to an English victory over the Germans……….please……..and does anyone know who trades the Ghana Cedi .But my tip for the week is Chile, have you seen their stock markets performance…watch out Brazil

Forex World Cup Report

As if to prove they are kings like their currency the Swiss beat Spain in the Football World Cup (That’s soccer for our American friends). France capitulate, Germany trip up badly, Italy very very poor and England well, the usual mess and progress goes down to the wire.
This could almost be the currency report this year……….

In the forex world things were much the same. The Swiss franc certainly shone the most, the Swiss National Bank signaling a break in intervention. Elsewhere it was echoes of the previous week. Equity markets held up well and so too the Euro. Commodity currencies ( Ausie and Canadian) better, all at the expense of the Yen and dollar. That said the Euro/USD is close to reasonable resistance under 1.24. It would need continued confidence in the equity markets next week and risk generally to continue any progress.
It could prove to be an interesting week for the British Pound. The long awaited emergency budget will be introduced.The usual drip feed leaks of what is to be expected seems to point to the Chancellor Osborne trying to get all the bad news in terms of cuts in spending and taxes out all together. They may be fazed in but should get a good response from the market, all be the flip side on growth will be a negative.
On balance I feel the risk reward right now could be for a good move up in GBP/USD ( CABLE). Maybe owning some short term GBP Call Options could be a good play.

In the longer term I still think there will be another shake out in equity markets. The Euro situation while somewhat quieter is a sleeping giant of a problem. It maybe that a double dip does not occur in Europe bailed out by China and Emerging Markets. However, the austerity packages are definitely causing extreme economic pain for many countries. One fears that there will inevitably be social unrest this summer. To what degree may be the deciding factor for markets.

Elsewhere, notably gold made another high of 1263.75 against the dollar with little or no fuss. One suspects that given the excuse of some crisis we could finish the year much higher. On the other hand maybe it was just all those World Cup medals and football WAGS presents.They love their bling.

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Markets look East for Hope

Forex markets continued to trade off the back of equity markets and risk sentiment generally. The good news all came from the far east in terms of a big jump in Chinese exports and Japan 1st quarter GDP revision.
This helped steady and eventually rally the equity markets. So it was a softer dollar and yen against the Euro but even more so against the commodity currencies.The Ausie dollar in particular against the Yen.

At this stage it seems far to early to be thinking in terms of a low for equities even if we do see further improvements next week. For sure forex markets will continue to take their lead from risk sentiment and technically both equity market and forex market trends may just be enjoying a breather before we see an about turn for sentiment and a return of dollar strength.
This week sees a good deal of inflation data so probably less market sensitive although the German ZEW Economic Sentiment Index my shed more light on the mood in Europe.
Sterling faired less well last week on some disappointing data but has enjoyed a good run against the Euro so some pull back was to be expected. It does look as though BP will be needing quite a lot of dollars at some time in the future but difficult to see how that might directly impact the currency markets at this stage. The UK budget the week after next will definitely be a major market watch.
 

Appetite for US Dollar increases on Hungary

Most of the weeks dramatic action was reserved for Friday.
The bad news for equity markets and the Euro began with some strange comments from Hungary. The prime ministers official spokesman said the economy was in a grave situation and that default on its debt was possible.
The comments ignited fears that a debt crisis could be beginning in Eastern Europe. In a mirror image of Greece it appears that previous economic data had been falsified by the previous government. Hungary of course is not a member of the Euro so its currency the Florint can take some of the strain. However, this was easily enough to unsettle markets.
Close on the heels of this came the much awaited US employment data.The job growth not only came in lower than expected at 431,000 in May but more importantly showed that of those jobs just a paltry 41,000 was in the private sector.
These events left equity markets much weaker the Dow closing some 3% lower to 9930. The Euro fell to a four year low against the US Dollar closing at 1.1970 and 110 against a slightly stronger yen.
The Swiss Franc surged again against the Euro closing under the 1.40 level with the Swiss National Bank fighting a losing battle.
To add further woes to the Euro the Iranian State Television said the central bank had begun the process of reducing their holdings of Euro Reserves from 55% to 20-25%. This was reportedly going to US dollars and gold.Thus far according to their reports some 15 Billion of 45 Billion Euros have been sold. All in all some own goal for a country previously trying to cock a snoop at the US.Dollar.

Technically nothing has changed over the week. The equity markets remain very vulnerable to further sell offs with the Dow possibly targeting 9430 level now. This if it happens increases the likelihood that the forex markets will continue to sell the Euro lower. There remains good resistance between 1.1650 and the 1.1209 ( Key Fibonacci level). A break of the latter technically would signal an attack at the parity level for Euro /US dollar.

Thus far we have heard nothing from the G20 and that leads one to believe that we are in for more of the same over the coming days and weeks.Please do let us know if their is anything on the horizon to change sentiment…………..Now where did I put the can opener