Monday, December 13, 2010

The US Dollar had quite a good week

FX Market Overview

Last week might have been frantic on a political and demonstration front but the markets were quite subdued. Sterling had quite a good week in spite of a largely lacklustre data diary but the fact that neither the Bank of England nor arch Sterling nemesis Governor Mervyn King talked the Pound down was probably enough to give the Pound a bit of a fillip. UK inflation, retail sales and employment figures are the biggies for Sterling traders and the spread of forecasts shows that these are pretty tricky to call. Consequently, we are expecting a very volatile week for the Pound.
The US Dollar had quite a good week as well as US data started and finished the week on a positive note. We get the interest rate decision from the US Federal Reserve this week; that won’t yield and change in the interest rate level and the announcement has already been made about the expansion of the quantitative easing program so we are not expecting too much change there either. The rest of the week is chock-a-block with US data. Everything from inflation to manufacturing and from producer price figures to housing market data will flood onto the market over the week and the US Dollar is likely to be pushed and pulled by events in Europe and elsewhere.
The announcement by China that inflation picked up to 5.1% means many traders are expecting action from the Peoples Bank of China to curb growth and spending. That could well have a positive impact on the US Dollar as investors slink away from riskier trades and find solace in the arms of the US treasury. We watch the east with interest.
The Euro faces an equally frantic data diary this week with just employment, industrial production and inflation data all due for release along with a vote of confidence in the Italian Prime Minister which could cause a minor tremor if he loses. That isn’t envisaged though because the press (most of which Mr Berlusconi owns) is supporting him. However, the major theme of debt problems in Portugal, Spain, Italy, Greece and Ireland continues to cause consternation and the Euro remains vulnerable to bad news. Sovereign bond yields are still under pressure as investors steer clear of Euro denominated bonds issued by the countries mentioned above. We were treated to reassurances by President Sarkozy and by Chancellor Merkel over the weekend but that doesn’t appear to have had much effect. And yet Sterling is struggling and failing to get to €1.20 and the Euro - US Dollar exchange rate is finding plenty of buyers at $1.3150. What will it take for the Euro to capitulate? I don’t know but, although the charts aren’t showing it, I have a feeling in my bones that it will.
Elsewhere, China’s inflation data and the lack of substantive action by the Chinese authorities to rein it in has played into the hands of China’s overseas suppliers. Suppliers in New Zealand and Australia will be very happy that they have a great export market which appears immune to global developments so it is no surprise that the Australian and New Zealand Dollars are both stronger this morning. I wrote last week about how the NZ Dollar struggled at the NZ$ 2.11 level against the Pound and guess what, it did it again. Well done to all of you who bought NZD around the NZ$ 2.09 to NZ$ 2.10 levels.
Quite apart from the data and politics of the situation, remember also that this is a very busy trading period as companies start to settle their December payments early and prepared to shut down for the Christmas break. The next 3 weeks have the potential to be some of the most volatile and unpredictable for the year. That may sound like a negative but it really isn’t. Volatility is opportunity when it comes to exchange rates so please do think about your requirements and let’s have a discussion about how you can get the best out of the market over the closing days of 2010.
Finally, proof that good and bad luck are sent by the masters of the universe to balance things out. A family who won $8 million on a lottery in Utah were so frightened of losing the lottery ticket as they travelled from Brigham City to Idaho to collect their winnings that they invested in a fire proof safe and put the ticket in the safe in the back seat of their trust (rusty) old 1982 Datsun. However, when they reached Lottery headquarters, they discovered the heavy safe had broken through the floor of the car and had been lost en route. As the ticket is unsigned, whoever finds the safe and opens it wins the prize. I think there will be a bit of metal detecting going on in the next few weeks don’t you.
Luck affects everything; let your hook always be cast; in the stream where you least expect it, there will be a fish.

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