Gloom and Doom as equity markets fall and Germany makes the Semis

Stock markets around the world once again called the shots for the forex market.
New 2010 lows for many equity markets caused the largely usual knee jerks in currency markets. The Yen and Swiss Franc were the biggest winners particularly at the expense of the commodity currencies(AUS and CAN Dollars) some 5% plus gains.
Where things did turn out a little different was the EURO and GBP which made up ground against the US Dollar the Euro closing the week at close to 1.2550. Already commentators are talking the decoupling of the Euro US dollar relationship visa vi general risk aversion. On balance though that seems a little to early to call on one weeks price action. Gold also faired unexpectedly badly closing down at just over 1200 .
All the statistics were pretty much market negative and it is difficult to see any real change next week.
It seems as if something will need to rescue the stock markets for things to stop getting worse.Technically the picture seems to be getting slowly more adverse for equity markets and while Forex markets can decouple from this it looks unlikely. The end result could see a reemergence of US Dollar strength against the Euro.
As for the World Cup , Holland Spain would be nice but would you really bet against the Germans

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.

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.
 

Weekly Forex Update. Goldman Sacked?

Sentiment change swings market back.

After last weekends announcements on Greece and the knee jerk positive move for the Euro things fizzled out and then reversed.

Firstly after initial improvements in Greek bonds and a stronger Euro the market fully digested the continued lack of clarity and reversed both gains.

Fridays shock announcement that the SEC was prosecuting Goldman Sachs for fraud in connection with sales of Mortgage Backed Securities pushed equities lower and led to further strength of the dollar and particularly the Yen
The much known risk averse play kicked in for the first time in some while leaving the Japanese Yen some 2% stronger against the Aust$ and NZ$ and 1% against the US dollar.
The EUR/USD finished much the same as last week at 1.35 having touched almost 1.37 at the beginning of the week.

It remains to be seen if the Goldman issue was merely the catalyst for a perhaps overdue technical correction for equities or whether the markets will shrug this off next week and return to a more positive mood.
It does, however seem likely that the Forex markets will take there lead from equities this week especially as far as the YEN is concerned.

With regard to the Greece situation,the swiftness of the bond markets reaction does not bode well for a happy ending on this story. Furthermore talk of a legal challenge in Germany will only add to what is becoming a really serious threat to the Euro area. Even with IMF and Euro money it appears that the markets remain unconvinced that these measure will prove anything more than a temporary solution to the problems in Greece.However much the Euro area old guard rally around with positive statements about unity and support there really is a growing feeling that the end game could be very different, all be that a while off.

Sterling and the Gilt market seem to have once again escaped unscathed for the week dispite the opinion polls pointing ever more so to a hung parliament. They surely have to have a wobble soon.

Back in the real world most of Northern Europe continues to be stuck without air travel , do I hear a bid for airline shares on Monday.

Weekly Update

Risk appetite improves on economic data and no Greek tragedy.

Generally positive Economic data encouraged equity rallies which helped arrest any further dollar rally and led to the Japanese Yen losing ground against most currencies. The Canadian Dollar and Australian Dollar led the gains against the yen as commodities rose, Crude oil closing at 81.50.
In the week ahead any continuation of this may see further declines for the Yen and US Dollar.The Euro remained unchanged against the dollar despite improved risk appetite and marginally improved sentiment for Greece, who managed to secure their Euro 5 Billion 10 year Bond auction successfully.However, it may be that this week that the Euro is able to make more headway against the dollar particularly if the equity markets continue to improve.
Sterling which began the week in free fall on the back of weekend opinion polls and rumors regarding the Prudential , AIA takeover recovered to close the week much as it had started. The sell off , however, does indicate how fragile the currency is. In the build up to the election it offers the prospect of some serious volatility and generally sentiment remains poor despite some better economic data.

I stick with the view of seeing 1.40 Euro/US Dollar before 1.30. The week ahead offers very little in the way of exiting economic data so currency markets may well take their lead from equity markets.

Finally,I have to include a comment of the week which comes from Greece.

The Greek prime minister said he will fight to ensure speculators don’t undermine his push to restore order to the country’s economy. It’s unjust and undemocratic that his efforts are being undermined “by some ‘kids’ in New York and elsewhere sitting in front of a computer,” he said yesterday.

Well George they were the same boys who helped you fudge the budget numbers to get in the Euro in the first place.