GBP Posts on Forex Blog
Early Morning FX Data Recap
Aug 12, 2008
GBP
Today' trade balance and CPI data came in worse than expected.
CPI jumped to 4.4% vs expectations for a more modest rise to 4.1%. Even worse, core CPI (which excludes food, energy, and tobacco) rose unexpectedly 1.9% vs expectations of 1.7%.
This inflation data handcuffs the Bank of England, as they are unlikely to cut rates from 5.0% while inflation continues to rise.
OTOH, the UK economy is going to be in bad shape when they finally do cut rates. More evidence for this came in today's trade balance. The June trade balance came in at -£4.414 billion vs expectations for a total deficit of -£4.200 billion.
The GBPUSD tested 1.8970 twice overnight, recovering each time.
EUR
All signs point down for the Euro.
In perhaps the most important news, ECB member Bini Smaghi and Axel Weber indicated that Q2 GDP will be bad for the Euro-zone and Germany.
Mr. Weber indicated that the German economy is expected to experience a "dry spell" in the coming months, while avoiding a recession. His comments also downgraded German GDP expectations to 2% for 2008 and 1% for 2009. Previous projection placed 2008 GDP at 2.3% and 2009 GDP at 1.4%.
Mr. Smaghi warned the Euro-zone will "may have a phase of protracted weakness" in the next few quarters. However, he was quick to tow the party line, stressing it is "important to understand that in this phase inflation is the enemy of growth"
Their you have it, GDP should deteriorate in the Euro-zone and Germany, but the ECG remains focused on inflation and is thus unlikely to cut or raise rates.
The EURUSD is off morning lows but remains below 1.4900.
USD
The US trade balance unexpected narrowed in June to $56.8 billion. This significantly beat market expectations for a rise in the trade gap to $61.5 billion.
Additionally, May was revised lower from $59.7 billion to $59.2 billion.
CPI, trade balance, EUR, comments, GBP, USD
UK: RICS, Retail Sales Down
Aug 11, 2008
The latest RICS and retail sales surveys show continued deterioration in the UK economy.
In the latest RICS survey, 93.9% of 303 contributors reported declining home values. This was somewhat above market expectations for a a reading of -88%. Nevertheless, July home sales set another record low, reading at a pace of 14.4, down 40.4% for the year. And, the ratio of unsold property vs completed sales fell to 17.2%, the lowest ;eve; in 13 years.
The news was not much better on the retail front. BRC data indicates same store sales declined -0.9% in July vs a previous rate of -0.4% in June. Total sales decline to +1.7% vs 2.1% in June.
The UK Consumer Price Index and Trade Balance will be reported early tomorrow morning.
GBP, retail sales, economic report, RICS, Pound
Assessing FX Trades After a Crazy Day in America
Jul 11, 2008
Unless you have had your head buried in the sand, the multiple crises of the day have not escaped you attention.
On the one hand, we have a continuing credit crises in America, (Fannie, Freddie, and Lehman Bros). On the other hand, we have major global political instability (Iran, Nigeria, likely Sudan indictment, failed Zimbabwe sanctions, Russia trying to buy Libyan oil).
So what is a forex trader to do?
Going long the Euro seems like a safe heaven. But did it move on Euro strength, or perceived Dollar / Pound / Yen weakness? I think the answer is the latter.
So what trades do we take on?
At the end of the day, FX prices are largely determined by 2 factors - interest rates and economic outlook. So let's take a look at these 2 factors compared to some of the majors.
USD - Interest rates remain low. And after this week, it is hard to believe the Fed will raise rates in the next few meetings.
OTOH, jobs, trade balance, and the preliminary Michigan consumer sentiment all beat expectations. It is far too soon to have a rosy outlook on the economy, perhaps a slew of earnings next week will help establish some clarity on that factor. Merril, Citigroup, JP Morgan, Intel, and Google will report earnings.
EUR - Trichet has 'no bias'. Several prominent Euro finance ministers and the vice president of the ECB have stressed the need for a balancing of growth and inflation. One can not say with any definitive certainty that interest rates will rise.
On the economic front, the situation continues to deteriorate (though nowhere near as fast as in the US). Trade balances disappointed this week. Production and confidence is falling.
The currency will almost certainly pass 1.61 in the next week, but beyond that the future is uncertain.
GBP - Interest rates remain at 5%. However, many traders and economists actually speculated they would cut rates at their meeting on Thursday, despite their inflation problems.
Like the US, their economy is struggling amidst a credit crunch. Housing continues to fall. Relative to the US, housing may prove to be a bigger problem for the Brits, as they have a higher percentage of toxic debt, and more personal indebtedness.
AUD - Interest rates remain at an astounding 7.25%. And speculators constantly suggest the bank may still raise rates again.
This week, jobs come in positively at almost +30k, wiping out last month's losses. Overall, the economy seems to be humming along. And why shouldn't they? China and India have been great export customers in a commodity driven environment.
NZD - While interest rates remain high, pressure is building for cuts. They certainly won' raise rates anytime soon.
On the economic front, things are worsening as they too suffer from a decline in housing, reduced consumer confidence, and a declining trade balance.
CAD - Interest rates remain stable at 3%, and are unlikely to change next week. That they did not cut as expected by many last month suggests their bias may be to raise rates. Look for any BoC comments next week for guidance.
On the economic front, they continue to do well. Being a large oil exporter with these record prices certainly doesn't hurt. Building permits and trade surprised to the upside this week.
JPY, CHF - No comment.
By my assessment, long term trades should focus on:
go long the AUD and CAD.
short the GBP and NZD.
avoid EUR and USD for anything but short term scalps as their is distinct lack of clarity.
My recommended trade would be long the AUDNZD
CAD, trade balance, AUD, fundamental, EUR, GBP, USD
FX Markets to Trade on Gloomy News
Jul 7, 2008
Central banks are navigating choppy waters. And so too, are Forex traders.
With so much uncertainty over slowing economies and rising inflation, it is little wonder.
In this double negative environment, the majors are likely to remain confined to recent ranges.
Today was a perfect example. First, the Pound took a dip as UK industrial production dropped -0.8%, a stumble considering expectations for a drop to -0.1%.
90 minutes later, the Euro followed suit, as German industrial production fell at even faster rate. The Germans reported a drop to -2.4%, a major tumble considering market forecasts for a +0.3% reading.
Next it was the Dollar's turn. First, Lehamn Brothers warned that Fannie Mae and Freddie Mac may face their own credit problems, as they may need to raise a combined $75 billion to offset write downs on largely prime loans. And SF Fed President Janet Yellen suggested home prices will continue to deteriorate into 2009. Those 2 reports stoked minor rallies for the Euro and Pound.
With inflation ramping up, markets cooling down, and central banks hoping that slowing economies will bring prices down - their is little reason to believe the forex markets will behave any differently in the near future.
For the duration of the summer the EURUSD will likely to remain between 1.53 - 1.59, while the GBPUSD will likely trade 1.94 - 2.00.
EUR, range bound, GBP, USD
Majors Roundup For June 16
Jun 16, 2008
The trading week got under way with events all over the world driving currency pricing.
The Pound rose on CPI speculation, and anticipation of a plan from Governor Meyer. The Euro rose on CPI data and ECB comments. The greenback fell early on Empire Manufacturing, an early spike in oil, and Lehman Brothers first quarterly loss. But the damage was slightly muted by a pull back in oil, Fed President Lacker, and foreign inflows of capital.
The GBP was driven up as traders geared up for an anticipated Year over Year CPI number of 3.2%. This will trigger significant commentary from the Bank of England's Governor Mervyn King. By law, the bank will have to present a letter explaining why inflation is above 2%, what will be done to bring inflation back in line, and when inflation is expected to come back in line. Despite signs of a slowing UK economy, the BOE is likely to suggest that rate hikes will be necessary to combat inflation.
In the Euro-zone, year over year CPI came in at 3.7% (above expectations for 3.6%). Additionally, ECB Governing Council member Nout Wellink seemed to confirm currency traders anticipation of an ECB rate hike. He stated that markets "should not react to every change in the environment ... They should look through the information to see the underlying trends"
Reading between the lines, trends have been to focus on fighting inflation, which means more rate hikes.
In the US, the Empire Manufacturing survey fell much further than expected, declining to -8.7 (vs -4.7 expected). Oil futures shot out of the gates to an all time trading high of $139.89 before falling $5 in the afternoon. Additionally, Robert Novak published an article stating anticipations for a rate hike were off base. On the credit crunch front, Lehman Bros reported their first ever quarterly loss of $2.87 billion.
However, not everything was doom and gloom for the USD. US Capital inflow increased to $60 billion (from -$48 billion). Lehman Brothers was able to reduce mortgage holdings by 20% and slash their balance sheet by $147 billion. Additionally, they were able to raise $6 billion in new capital during the quarter. And Richmond Fed President Lacker reiterated "The principal risk is that high overall inflation will become embedded in expectations"
The pessimistic outlook for an economic slowdown spread to Japan, as the government cut expectations. For the second time in a row, the government used the key word 'pause', saying the "recovery appears to be pausing". Backing this assessment, condominium sales fell 17.5% in May.
The big news will happen early tomorrow morning as, the UK CPI and Goldman Sachs reports will be released before US markets open.
At 1am est, the EURUSD is at 1.5522, the GBPUSD 1.96580, and the USDJPY is at 107.79.
ECB, European Central Bank, CPI, GBP, Pound, USD
Return of the Credit Crunch?
Jun 2, 2008
Just as invesstors thought it was safe to come out and play - the credit crunch returns.
Reverberations from last year's financial market crises awoke the sleeping giant US today. The S&P cut ratings of 3 major investment banks (Lehamn, Merrill Lynch, and Morgan Stanley), warned of a cut to another (Wachovia) and changed the outlook to negative on 2 others (JPMorgan Chase and Bank of America). The lone silver lining from the S&P was kind of a slap and a kiss as they stated that Citigroup was no longer on the verge of a downgrade, but one may still happen over the next 2 years.
In other crunch related moves, Wachovia fired CEO Ken Thompson Sunday - 1 month after stripping him of his position as chairman. Acting chairman Lanty Smith will take over as CEO at a time when losses are expected to grow for Wachovia.
Washington Mutual also joined the fire the headfigure train. WaMu announced that Kerry Killinger will end his reign as chairman starting next month.
But those issues are all lingering effects from the US credit crunch last year.
The real problem may now stem from a crises in the UK.
UK mortgage approvals fell to 58k in April, 7k lower than expected. That is the lowest reading since they started tracking approval numbers in 1999.
With echoes of Bear Sterns still in the minds of many, Bradford ' Bingley closed down a whopping 24%. Shares had fallen as far as 32%. Shares stumbled after a series of bad news - profit will likely fall, the CEO will retire, and rights will be sold at a steep discount. They are the UK's largest buy-to-let lender and 8th largest bank. Profits will likely come in at £150m a whopping £100m short of forecasts. Chairman Steven Crawshaw will retire due to a cardiovascular condition known as angina. (Note angina itself is not a disease, rather a symptom of other diseases such as coronary artery disease). Chairman Rod Kent will take over for Mr. Crawshaw.
But the most stunning news coming from Bradford 'Bingley was a drastic slash in the pricing for rights. TPG (aka Texas Pacific) will buy a 23% stake for $353 million, at a rate of £. That is far below the initial price of £82. The whopping last minute discount helped Citigroup and UBS - 2 banks already suffering terribly during the credit crunch - as both would have been stuck with extra shares from the offering. In April, TPG also injected cash into Washington Mutual.
Since March 2006, Bradford and Bingley has fallen from a market cap of £ 3.3 billion to £405 million. Yikes!
Despite the heavy bout of negativity, signs of a US recovery from the crunch were still to be found. ISM manufacturing rose to 49.6 - 1.1 above expectations. While this is till technically a contraction (above 50 is growth), their is reason to be optimistic as exports hit a 4 year high. In addition, construction fell 0.4%, beating expectations for -0.6 reading. And March was revised up from -1.1% to -0.6%.
The GBPUSD fell 200 points, briefly touching 1.96 before recovering to 1.9640 late in the day. The Yen was the strongest performer of the day - as forex traders fled the carry trade in the wake of credit crunch fears.
Credit Crunch, housing, GBP, USD
EUR, GBP See Minor Breakouts, Retreat on Pessimism
May 27, 2008
Backing up comments from several prominent Germans last week, Q1 GDP for Germany came in at 1.5%. Annualized rates are at 2.6%, the strongest growth in 12 years for the Eurozone's largest economy. Digging deeper, construction and business investment were strong drivers for the German growth. The Euro reached as high as $1.5818.
However, the Euro run was short lived as the Gfk consumer sentiment index fell more than expected. The Gfk data came in at 4.9, far below expectations of a 5.8 reading. All 3 components - economic outlook, spending, and personal income were down. In late trading, the EURUSD is at $1.5709. The pair closed at $1.5775 on Friday.
The Pound reached $1.9825 before retreating. BBA mortgage approvals saw an 8.8% rise in mortgage approvals to slightly over 38,700. However, that is still almost 40% lower than last year. In late trading, the Pound is at $1.9751, slightly below Friday' close of $1.9794.
In other European news, the UBS consumption indicator - which measures domestic demand - fell to 2.18 in April from an upwardly revised reading of 2.25 in March. This is still above the long term average of 1.50, but may be a prime indicator of the global toll of the oil. The CHFUSD was $1.0315 at press time.
Euro, GDP, EUR, GBP, Pound
A Fundamental and Technical Look at the GBPUSD
May 17, 2008
Starting in early March (right around the time Bear Stearns was bought by JP Morgan), the USD staged a comeback against the Sterling. And then negative US data last Thursday and Friday - contraction in manufacturing, weakest consumer confidence number in 28 years - combined to slam the dollar.
From one fundamental perspective, things look bad for the dollar. While the cheap dollar is definitely helping to boost exports, the trade imbalance hurdle is very high. In 2007, the deficit ran at a whopping $738.6 billion! And that is down -9% from 2006 ($811.5 billion). In addition, other major central banks remain reluctant to cut rates, as was reinforced by the May 8th BOE and ECB decisions to hold interest rates steady. Indeed, Trichet was very clear that inflation - not economic slowdowns - remained the number 1 concern.
Yet glimmers of hope remain for the greenback. Foreign inflow has risen from $56.7 billion in January to $80.4 billion in March. And futures markets show an expectation that the US Fed is done cutting rates, with a 50-50 chance of a hike by October.
It is at confusing times like these that Chuck turns to his good friend - technical analysis. Recently Chuck has became an ardent fan of MarketClub's Trading Triangle. They offer a lot of the standard stuff - a trade score based on common indicators, quotes, and tutorials. But the real meat and potatoes of their analysis suite is their trés cool charting tool. Not only does Cash find this to be a highly intuitive and easy interface (see below), but the indicators are working great. On April 1st, they put out this great video analyzing the GBPUSD pair. Using fibonacci retracements and weekly indicators, they called for a downturn to the 38% retracement level of 1.951 (from the high of 2.10) And low and behold, where did the GBPUSD hit? Just under 1.95. If you are unsatisfied with your current indicators, or just looking to try out a new set, definitely check out Market Club
Greenback, technical analysis, fundamental, GBP, USD
Greenback Up Against Swiss Franc, Yen, GBP
May 6, 2008
US Treasuries continued to gain ground against other currencies. Against the Yen, the Dollar was trading at 104.81 (+0.12). The dollar aslgo gained ground on the pound sterling (+0.15) and the Swiss franc (0.009).
Read more at CNBC
Greenback, JPY, Franc, Yen, GBP, Pound, USD
Pound Slips on Data, Expectations
Apr 8, 2008
The British Pound dropped against several major currencies on Tuesday. The Sterling moved down -1.3% against the USD to a 6 week low of 1.9670. Selling was triggered by a drastic increase in the Halifax house prices. The bad economic data raised the chances the Bank of England will cut rates to 5% when they meet on April 10. The ECB is still expected to hold their currency at 4% on April 10.
Read More at Bloomberg
Bank of England, GBP, Pound
British Pound Bull Run - Buh Bye?
Apr 4, 2008
The British Pound (GBP), has been the winning horse in the USD trade for several years now. In 2001, the Sterling was 1.40, 36% below the high of November 2007.
The US housing sector looks bleak (like the Cubs, *sigh*), commodities are shooting through the roof, the Dems + media are talking down the economy daily, and the USD just had the worst quarter in 4 years. So the Pound will soldier on, right?
Not so fast! In this video, Adam Hewison examines the future prospects of the GBPUSD trade Using MarketClub's triangle trading system and Fibonacci retracements, he shows technical analysis suggesting the GBP is about to give up some of its' strength. Specifically, the GBPUSD market has already crossed the 32% fibonacci retracement from the high of 2.1161. After a short rebound from the 32% line, the market appears headed to the 50% retracement of 1.9109.
If that all sounds confusing, dont worry! Adam keeps it simple. and the charts do a great job of telling the story. Watch GBP/USD Technical Analysis
fibonacci, GBP, Pound, USD
