Simon Smith

The fed plays with words

In 564 words, the US Federal Reserve yesterday told us that policy may rise next year, but it may not. The pre-meeting speculation centred around their stated intention to keep rates near zero “for a considerable period”. Now, they can be “patient” in normalising policy, but state that this consistent with their previous language. So, they changed the words, but not their meaning… supposedly. That said, Fed Chair Yellen appeared a little more hawkish in the press conference, implying that this ...

Simon Smith

The ride continues

The last full trading week of the month is proving to be nothing if not action packed. Yesterday, it was all about the rouble. Russia’s currency was essentially out of control in the wake of the rate hike, with liquidity also being sucked out of the international markets for the currency. The choice facing the Russian authorities is to either intervene with their substantial foreign exchange reserves, or introduce capital controls. We’ll probably get an idea by the end of this week which way ...

Simon Smith

The rout in Russia

Last night, the Russian central bank removed any doubt that Russia is currently facing a currency crisis. Having hiked rates by 100bp last week, the central bank put rates up by a further 650bp to 17% overnight. This was aimed at “limited substantially increased rouble depreciation risks and inflation risks” according to the accompanying statement, where swap lines were also increased with the aim of improving dollar liquidity in the banking sector. The move is probably the last conventional ...

Simon Smith

The next stage in Japan

The Japanese election results were always about the extent of Abe’s victory, rather than whether he would win. The headline results were positive, with two-thirds of seats won in the lower house, but voter turnout was at a record low, which says a lot about voter apathy towards the further reforms Abe was supposedly trying to get a fresh mandate on. The yen was barely moved on the news, retaining the firmer stance gained over the past week. The key quarterly Tankan survey was also out ...

Angus Campbell

Target missed as pressure on ECB mounts

The result of the TLTROs was rather disappointing as the uptake came in at the lower end of targets. The main issue with this is that the ECB’s balance sheet is more likely to contract when the earlier loans are repaid next year, so without going into the realm of purchasing sovereign debt, returning the ECB’s balance sheet to its 2012 levels is going to be very hard work. The euro reaction was quiet initially and traders didn’t know quite what to make of the €130b figure but it has only served ...

Angus Campbell

Euro to face challenge of TLTRO

Yesterday saw further profit talking in the dollar with USDJPY dipping back to the mid 118 area, now sitting figure bid at the time of writing and EURUSD is recovering not far off the 1.2500 level. The long dollar trade has become quite a crowed one now and is susceptible to further profit taking, in particular if rate hike expectations by the Fed are pushed back further and further. US treasury yields have dipped significantly since spiking following last Friday’s spectacular non-farm payrolls ...

Angus Campbell

Chinese deflationary pressure

Overnight we’ve seen the Chinese rate of inflation fall to a five year low and once again this is further evidence that deflationary pressures from the substantial declines in the price of oil are filtering through. CPI month on month has dipped into negative territory and in respect of wholesale prices they were also lower than expected marking nearly 3 years of deflation. This is more evidence of a Chinese economy that is coming off the boil and yesterday the Yuan suffered quite a move to the ...

Angus Campbell

Dollar suffers profit taking

A bit of profit talking in the dollar has allowed the Euro has stage one of its characteristic bounces overnight and this morning with EURUSD recovering to back above 1.2300. Cable has also rebounded a little and is pushing towards 1.5700 meanwhile USDJPY is back below 120.00 at the time of writing. One of the only currencies not to benefit from this little dollar pull back is the Aussie which has come under pressure overnight following poor business confidence data. The euro remains very much ...

Simon Smith

Holding dollar positive

The dollar has retained the firmer tone gained in the wake of the jobs report of Friday, which showed further strong headline growth, together with better earnings data and a steady participation rate. This has renewed speculation that the Fed may look to adjust its forward guidance language as early as their meeting this month. The difficulty is that inflation expectations remain low, which is not surprising given the current level of the oil price. The yen was once again one of the main ...

Simon Smith

The dollar and jobs

As usual, the euro was buffeted around by the verbal gymnastics of the ECB President on Thursday. Reading between the lines, the ECB does not yet have the internal agreement on just when and what form quantitative easing should take. At the same time, inflation projections were revised lower in the coming year, with the eternal belief retain that things will return to normal on the 1-2 year horizon, the projection revised down from 1.4% to 1.3% for 2016. There were also post-meeting stories on ...

Simon Smith

FxPro Daily Outlook – Eyes on the euro once again

There have been some positive moves in stock markets this week, with US indices once again touching highs for the year and stocks in Asia also in positive territory. The dollar has also been at new highs for the year on the dollar index, which resulted in a 28-month low on EURUSD yesterday. This provides a neat backdrop for the ECB meeting today, because if there is one thing the Eurozone needs, it’s a weaker currency. That said, it has more been a dollar move, so the euro is still higher vs ...

Simon Smith

Sterling focus on finances

The focus falls on sterling today with the UK Chancellor delivering his ‘autumn’ statement. This is essentially a mini-budget, even more so with an election only six months away. But there will be no pre-election give-aways, at least not the sort that involve making a large number of tax-payers better off. Whilst the economy has performed well in the past couple of years, the public finances have not improved at the same pace. Borrowing this year has been running higher than last year, meaning ...

Simon Smith

Feeling more stable

Yesterday, Europe decided it wanted to undermine the firmer dollar tone that emerged during the Asia session, with sterling the most prominent beneficiary of the dollar reversal. During December, more than usual, the FX market is about flows and positioning, rather than reacting to shifting fundamentals. We did see some modestly better manufacturing PMI numbers for the UK yesterday, which helped the better underlying tone to the pound. Overnight, we’ve seen steady rates from both the RBA in ...

Simon Smith

The one way street in oil

The week and new month starts with two primary points of interest. The first is the oil price, which slumped last week, with further weakness being seen in the early part of this week. Energy price falls are normally seen as a generally positive development, but at this stage, with inflation still low (and sometimes negative) in many developed economies, the timing is far from perfect. Even in the US, forward inflation expectations (5Y5Y breakeven rates) are at the lowest level for the year to ...

Angus Campbell

Black Friday isn’t so black for oil

Despite US investors being on holiday yesterday for Thanksgiving, the dollar has regained a little ground with the rebound coming largely at the expense of crude oil which continued its decline as traders sold Brent and Nymex causing them to plummet to new four year lows. Consumers will be rejoicing, especially since today marks Black Friday for shoppers in the US, a phenomenon that is slowly creeping ever eastwards with UK retailers jumping on the bandwagon. Risk appetite is actually suffering ...

Angus Campbell

OPEC fails to stop crude price decline

The squeeze continues for the shorts in EURUSD as it recaptured the 1.2500 level on the back of yet further weaker than expected US data. It was as if buyers of the dollar had packed up early for Thanksgiving which will take the edge of today’s trading session and will suffer from very low volumes. At the same time we approach the end of the month and many investors might be looking to avoid what could potentially see a rise in volatility as the US goes on holiday. As we mentioned yesterday, ...