Pound/Euro declines due to US QE - Full Market Report

Good morning everybody. Last week was a very volatile one that saw a big drop in the GBP/EUR rate, but in contrast the GBP/USD rate rose to a 5 month high. Today I'll take a detailed looks as to why this happened, and what it means going forwards.

In this week’s Report:

• Pound/Euro rates in dramatic decline
• US QE announcement main cause of volatility
• Pound/Dollar soars to 5 month high as dollar weakens
• Round up of the week’s other data that may affect rates

Sterling vs. Euro;

Last week the Pound continued its downward trend against the Euro, sliding away from the 4 year high of 1.2865 we saw at the end of July back down to the mid 1.23s. The main reason for the drop in the rates was actually due to news from the US after the Fed said it would pump billion into the economy each month until it saw signs of improvement in its struggling jobs market (which will be discussed in further detail in the dollar report) and growing confidence in the euro zone rather than any data from the UK.













The confidence in the single currency mainly came from the news that the German Constitutional Court gave the go ahead for the regions new rescue fund and the European Central Bank laying down bold plans to lower the borrowing costs for struggling countries. This gives investors greater confidence that the euro zone will be able to withstand continued financial storms as they pulled money out of the dollar and back into the riskier single currency.

This week, the most important mover of the GBP/EUR cross is likely to come of the back of continued discussions with the ECB around Spanish, Italian bailouts as well as minutes from the Bank of England MPC meeting released mid-week. The minutes will give a full account of policy discussions including any conflicts of opinions. They will also show which way the individual committee members voted. This will give a good indication of whether the BoE has a dovish or hawkish stance on the outlook of the UK economy. Any indication of a positive outlook or talks of an increase in interest rates would be very beneficial to the pound and would push the sterling/Euro rates up.


What does this mean if I need to buy Euros?

With such a dramatic fall in Sterling/Euro exchange rates in recent times, anyone looking to buy Euros in the near future would be wise to consider locking in today’s rates with the use of a forward contract to protect themselves against any further falls in the market. On the other hand, anyone looking to sell Euros can take advantage of any spikes with stops and limits contracts allowing you to target rates not yet available in the market. To discuss these type of contracts, send me a free enquiry now.

With a property purchase of €200,000 costing you just over £6000 more than it would have done a couple of months ago, it outlines the importance of getting the right information to make an informed choice of what to do.

Sterling vs. US Dollar;

In this section I will have a look at what events have dominated the GBP/USD cross and how they have affected the markets. Last week the single focus of cable was the run up to the Federal Reserve interest rate and Quantitative Easing meeting on Thursday.













Even as early as Monday the market was pricing in some sort of stimulus intervention as Cable reached a 4 month high. The trend of sterling strength against the dollar was maintained on Tuesday as markets continued to price in movement coupled with a threat by ‘Moody’s Investors Service’ that the US was in danger of losing its triple A debt rating, if next year’s budget talks do not result in lower debt to GBP ratio.

When the results finally came in late Thursday UK time the conclusion certainly didn’t disappoint those expecting some action. Ben Benanke backed the purchase of Billion of mortgage backed securities every single month until US growth as well as the US job market improves. In addition Fed Chairman Benanke added to his commitment to get the US economy moving through spending by confirming that interest rates in the US would remain low and wouldn’t be raised until 2015 at the earliest.

This is probably the most decisive action that the market has seen from the US to deal with the financial crisis since its inception. At the very least it sends a clear signal to the rest of the world that the US are prepared to do everything necessary, including trying new strategies to navigate their way out of recession and into competitive growth.

Dollar weakens significantly after announcement

Naturally following this announcement cable continued its upward trajectory as equities and perceived riskier currencies (including Sterling) made gains against the Greenback. With the Fed Chairman indicating that he would be prepared to pump Billion into the economy every month until it has an effect, the market has the potential to continue the current trend of Dollar weakness. Essentially Mr Bernanke has embarked on an endless amount of quantitative easing and so it will be interesting to see how far the markets move off the back of this uncertainty.

Whilst this is undoubtedly a great time for dollar purchasers to be taking advantage of the recent gains, it would be wise to approach the market with some trepidation as the FX markets are notoriously volatile. Despite a clear shift in fundamentals there is no absolute guarantee that the technical levels will follow suit, and indeed there have been countless occasions throughout history where a sharp market movement has been followed by an equally sharp market retraction.

Ensure that you take advantage of a free consultation and explore the possibilities of both Stop Loss orders and Limit orders so that you are able to take advantage of any market gain, whilst at the same time protecting yourself should the market move against you.

Weekly Economic Data that may affect exchange rates

Monday – The main data today is Trade Balance data from the Eurozone, showing imports and exports. Elsewhere we have UK House Prices. There are no significant releases from the USA today.

Tuesday – Some important UK data today including Inflation data, House Prices and Retail Sales, all of which are a barometer of overall economic health. In the Eurozone we have Economic sentiment surveys from Germany and the EU. In the USA we have a speech from the Federal Reserve, and some Housing data.

Wednesday – The Bank of England release their minutes today, which often causes volatility for Sterling. In the Eurozone we see the latest construction data output. In the USA there are Homes Sales data and another speech from the FED. Over in New Zealand we see the latest GDP figures at 11:45pm.

Thursday – UK Retail Sales are released today, showing full monthly and annual comparisons. On the Eurozone we have inflation data from Germany, Manufacturing data from Italy, German and France. We also see measures of EU Consumer confidence. Over in the USA we see the latest Jobless Claims, Manufacturing data, and yet another speech from the FED.

Friday – We end the week on a quiet note, with the only UK data of note Public Sector borrowing. There is nothing of note from the EU today. Over in the United States we have, you guessed it, another speech from the FED.
Getting the best exchange rates

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Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/09/poundeuro-declines-due-to-us-qe-full.html

Pound/Euro rates fall on BoE Inflation report. Forecast.

Wednesday 14th November 2012 

Good afternoon everybody. It’s been quite a mixed week so far in the currency markets, with big swings in the Pound/Euro rate along with other currencies. As the week started, Sterling was at a 6 week high against the Euro, and things were looking very good for Euro buyers. As is often the case with sharp upward spikes however, it was not to last. By Wednesday, a dire report from the Bank of England took the wind out of the Pounds sails, and we saw GBP/EUR rates drop by over a point.

In today’s report I’m going to take a look at what caused the Pound to fall, and what the events in the EU may mean for rates going forward.

Sterling/Euro highs were not to last 

Sterling hit its best rates against the Euro in 6 weeks recently after the Bank of England left interest rates and the size of its bond-buying programme unchanged, as outlined in my last post. The decision had been broadly expected by most analysts after a great run of UK data.

However the gains were not to last, firstly due to a dire report from the Bank of England this morning, and fears over what effect the deepening EU crisis will have on the Pound. Let’s take a look at what the Bank of England governor said and what effect it had on Sterling.

Pound falls after BoE Inflation report 

This morning, Sir Mervyn King gave the latest Bank of England inflation report, and during this he has downgraded the growth forecast and warned the economy will be below pre-financial crisis levels for the next three years as it continues its recent "zig-zag'' pattern. The comments did not bode well for Sterling.

Often when Mervyn gives a speech he talks the Pound down, and today was no exception. He said that the Pound/Dollar rate had gained by 8% and the Pound/Euro rate by 12% in recent times, and that these gains were unsustainable. I think he is worried what effect the strong Pound will have on exports, and so purposefully caused some weakness to try and drive the economy.

In the report he said that the Bank of England expects GDP growth of just 1% in 2013, and also said that inflation would to fall back towards the Government's target of 2% in the latter part of next year.

“There seems a greater risk that the UK economy may be in a period of persistent low growth,” Sir Mervyn said. He added that the outlook for inflation was the main reason why the policymakers decided to stop the purchases of gilts - or quantitative easing - in November. There is a real chance more QE could be on the cards however in December or early next year, so those that need to buy Euros should seriously consider their position now.

EU fears could also affect Pound/Euro rates

Little sign of a recovery in the euro zone any time soon is likely to weigh on the single currency against sterling. Weakness across the board would normally cause GBP/EUR rates to rise, however there are real concerns about whether the UK's economic recovery can be sustained, given a deepening recession in the euro zone which is one of our key trading partner.

If the EU economy continues to struggle, then it’s going to affect the Pound and this could keep rates in check.

The Greek economy is doing very poorly. It shrank 7.2% in the third quarter compared with the same period a year earlier, and has now been in recession since late 2008. They’ve had 2 bailouts from the EU and IMF, and there will probably be more to come.

Eurozone finance ministers will meet next week to discuss releasing the latest 31.5bn euros as they seek agreement on how to make Greece's debt sustainable going into the next decade. In the shadow of all of this, workers across the European Union are staging a series of protests and strikes against rising unemployment and austerity measures. General strikes in Spain and Portugal have halted transport, businesses and schools, and led to clashes between police and protesters in Madrid. Smaller strikes were reported in Greece, Italy and Belgium, and rallies were planned in other countries.

Summary 

Many clients are convinced that the problems in EU will drive rates back towards the 4 years highs of €1.28 we saw in the summer. I don’t agree with this. These were the highest rates for years, and despite much better expected UK data we have failed to get back to them.

Rates have fallen further this week due to fears over the UK economy, so if I needed to buy Euros I would give serious consideration over what to do now. We are still trading comfortably above the 1.20 level, and this time last year rates were as low as 1.13. Holding out for more gains could easily mean you lose out.

A wise strategy in this climate would be to place a Stop Loss order. This is where you can instruct me to purchase your currency should it drop below a pre agreed level. For example, 1.22. You can then take a bit of a gamble on rates recovering, but have a safety net in place should rates fall. This is a good way to approach the current market, as it means you don’t lose out on all the recent gains and can still trade at a reasonable level.

If you're looking for the best exchange rates, or just want to have a chat about the options open to you, then send me a free enquiry by clicking below. There is no cost or obligation involved, and you could be very surprised on how much you can save through the commercial rates I can source for my clients.  
 
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Source | Foreign Exchange Rate Forecasts | http://foremostcurrencygroup.blogspot.com/2012/11/poundeuro-rates-fall-on-boe-inflation.html

Oil Falls After Industry Report Shows Gain in Crude Inventories

Oil for September delivery in New York fell for the first time in six days after a report showed crude supplies rose in the U.S., the largest energy user.
U.S. stockpiles rose last week for the first time since April, the industry-funded American Petroleum Institute reported late yesterday. A Bloomberg News survey of analysts is expecting a government report today to show crude inventories dropped 2.1 million barrels. Oil imports by China, the world’s second- largest consumer, fell 2.8 percent in June from May, customs data showed.
“Inventories should be going down because this is the demand season for the U.S.,” said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. “Instead, the inventories are up. This implies that the demand isn’t as strong as expected.”
Crude oil for September delivery dropped as much as 86 cents, or 1.3 percent, to .75 a barrel on the New York Mercantile Exchange, and was at .22 at 1:05 p.m. Singapore time. Yesterday, it rose 32 cents to end the session at .61. The August contract expired at .72 a barrel yesterday.
Crude prices climbed 8.7 percent from July 14 to July 21 as investors bought futures on expectations of higher fuel demand. Optimism that the worst of the global recession is over followed gains in U.S. leading economic indicators and as financial service companies said earnings climbed.
China’s crude imports in June fell to 16.6 million tons, or about 4.1 million barrels a day, from 17.1 million tons in May, the customs data showed.
‘Weak Fundamentals’
U.S. crude supplies climbed 3.1 million barrels to 349.9 million barrels in the week ending July 17, the API said. The group also reported that refinery utilization fell to 84 percent of capacity from 86 percent.
Oil-supply figures from the institute and the energy department moved in the same direction for the past six weeks and 76 percent of the time in the past four years, according to data compiled by Bloomberg.
“It is going to be difficult for oil to forge higher if we continue to get indications of weak fundamentals,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. If the API report is “any indication of how the DOE numbers are going to come in tonight, it’s a pretty bearish picture,” he said.
Inventories of gasoline rose 1.3 million barrels to 213.6 million, the API report said. The Energy Department is expected to say supplies increased by 650,000 barrels in the week ended July 17, according to the analyst survey.
Gasoline Prices
“Rising product inventories don’t bode well for demand for crude,” Hassall said. “Sixty dollars to is a probable range for the short term.”
The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the energy Department for its weekly survey.
Gasoline for August delivery dropped as much as 2.19 cents, or 1.2 percent, to .7901 a gallon. Yesterday, it climbed 2.26 cents, or 1.3 percent, to .812, the highest settlement since July 1.
U.S. stockpiles of distillate fuel, a category that includes diesel and heating oil, probably rose 1.5 million barrels, according to the analyst survey.
The department is scheduled to release its Weekly Petroleum Status Report today at 10:30 a.m. in Washington.
Brent crude for September settlement fell as much as 61 cents, or 0.9 percent, to .26 a barrel, on London’s ICE Futures Europe Exchange. It was at .60 a barrel at 12:46 p.m. Singapore time.

Source | Forex News | http://forexnews-4all.blogspot.com/2009/07/oil-falls-after-industry-report-shows.html

EUR/USD: Trading the U.S. Consumer Price Report

Trading the News: U.S. Consumer Price Index

What’s Expected:

Time of release: 12/16/2011 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 3.5%

Previous: 3.5%

DailyFX Forecast: 3.5% to 3.6%

Why Is This Event Important:

The headline reading for U.S. inflation is expected to hold steady at an annualized rate of 3.5% in November, and the stickiness in price growth is likely to spark a bullish reaction in the greenback as the development dampens the likelihood of seeing another large-scale asset purchase program. As the FOMC softens its dovish tone for monetary policy, we should see the central bank maintain its current policy stance throughout the first-half of the following year, and Chairman Ben Bernanke may talk down expectations for another round of quantitative easing as the economic recovery gradually gathers pace. However, as the central bank head continues to highlight the ongoing weakness in the real economy, Mr. Bernanke may keep the door open to expand monetary policy further, and we may see a growing rift within the committee as some Fed officials see the recovery gradually gathering pace in 2012.

Recent Economic Developments

The Upside

Release	Expected	Actual
U. of Michigan Confidence (DEC P)	65.8	67.7
Consumer Credit (OCT)	.000B	.645B
Consumer Confidence (NOV)	44.0	56.0

The Downside

Release	Expected	Actual
Producer Price Index (YoY) (NOV)	5.8%	5.7%
Import Price Index (YoY) (NOV)	10.2%	9.9%
Average Hourly Earnings (YoY) (NOV)	2.0%	1.8%

The rebound in household sentiment paired with the ongoing expansion in consumer credit may encourage businesses to pass on higher costs onto consumers, and an unexpected rise in inflation may lead the EUR/USD to give back the rebound from January (1.2872) as market participants scale back speculation for QE3. However, easing commodity prices may lead firms to keep a lid on consumer prices, and a soft inflation print could spur bets for additional monetary support as the Fed maintains a cautious outlook for the region. In turn, the rebound from the monthly low (1.2945) may gather pace over the next 24-hours of trading, and the exchange rate may work its way back above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100 as investors increase bets for additional monetary stimulus.

Potential Price Targets For The Release

How To Trade This Event Risk

As the stickiness in price growth dampens the Fed’s scope to expand monetary policy further, the consumer price report could pave the way for a long U.S. dollar trade as market participants scale back expectations for QE3. Therefore, if the headline reading for inflation expands 3.5% or greater in November, we will need a red, five-minute candle subsequent to the release to generate a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to preserve our profits.

On the other hand, easing input costs paired with the slowdown in private sector consumption may encourage businesses to keep a lid on consumer prices, and a soft inflation report could spark a selloff in the USD as market participants ramp up expectations for more monetary easing. As a result, if the CPI weakens from the previous month, we will implement the same strategy for a long euro-dollar as the short position mentioned above, just in reverse.

Impact that the U.S. Consumer Price report has had on USD during the last month

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
OCT 2011	11/16/2011 13:30 GMT	3.7%	3.5%	-9	-35

October 2011 U.S. Consumer Price Index

Consumer prices in the world’s largest economy expanded at an annual rate of 3.5% in October after rising 3.9% the month prior, while the core rate of inflation advanced 2.1% during the same period to mark the fastest pace of growth since October 2008. The breakdown of the report showed a 2.0% drop in energy prices, with transportation costs falling 1.1% from the previous month, while prices for apparel increased 0.4% after contracting 1.1% in September. Although easing commodity prices have helped to dampen the risk for inflation, the rise in the core CPI may limit the FOMC’s scope to expand monetary policy further, and we should see the central bank carry its current policy into the following year as Fed officials expect the economic recovery to gradually gather pace over the coming months. Indeed, the initial reaction to the report was short-lived, with the EUR/USD climbing back above 1.3500, but the greenback gained ground during the North American trade as the pair settled at 1.3461 at the end of the day.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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Source | Gold and Forex News | http://gold-forex-news.blogspot.com/2011/12/eurusd-trading-us-consumer-price-report.html