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August 2015

Weekly Currency Insight

Published: Friday 28 August 2015

A huge upward revision to the US economic growth estimate caused a rise in US shares and another bout of US dollar strength yesterday. The markets were expecting the 2nd estimate of US economic growth to be revised upward to somewhere around 3.2% but the figure came in at 3.7% and that boosted confidence. The big question is whether that puts the Federal Reserve's September rate hike back on track but I suspect it doesn't. Turmoil in Asian markets and a number of less positive pieces of data are likely to ensure the Fed maintains a watching brief for now. This afternoon's US personal income and expenditure data will be interesting in that context.

We had a GfK consumer confidence index for the UK published overnight and that matched June's index reading of +7 which doesn't sound like much but it is the best in 15 years. Sterling will take heart from that and may get a 2nd boost if the 2nd release of UK GDP data for Q2 gives us an upward revision even remotely as positive as the US data. The markets are expecting 2.6% annualised growth but recent data and upward revisions in other forecasts would suggest this may be conservative. Another day of volatility is highly likely, especially as this is the last working day of the month for UK traders before the bank holiday Monday.

Before all that we get a raft of German inflation data, retail sales from Spain and Sweden as well as a number of other indices from Europe. Within the morning, we will get industrial and consumer confidence indices for the whole of the Eurozone. Barring Germany, the news across Europe is not good, so it will be interesting to see if the data is as bad as the previous -2.9 (industrial) and -7.1 (consumer). The euro has gained a little ground this week but it is under the cosh again.

And then we have the weekend; a long weekend for the UK but the rest of the world will be trading the last working day of the month without the 40% of volume that the UK adds to the forex market. With so much mixed news whipping around the newswires and so much uncertainty, there is a very strong chance we will see significant volatility on Monday. This is a great opportunity for anyone to place an automated order at a 'tongue-in-cheek' level to see if they can buy or sell their needs at very attractive levels outside of the daily trading range. Have a chat with your Halo Financial Consultant to see how this volatility could benefit you.

And well done Usain Bolt for once again beating the cheater. Mind you, if you are the fastest man in the world, you would probably be good at noticing people behind you because that is where they are most likely to be. So how did Usain not see the news cameraman who wiped him out with his Segway?

Have a great weekend everyone. See you in September.

Currency - GBP / Australian Dollar

We can't talk about the Australian Dollar without mentioning China. The slowdown in China has severely hampered Australia's export prospects and reduced the income from the raw material exports that are still happening.  That leaves big questions over whether the Reserve Bank of Australia, in spite of their unwillingness to consider it, may have to reduce their base rate and perhaps take other measures to boost the domestic economy. The commodity boom appears to be over for now, so this is a good time for the Australian authorities to re-assess their economic strategy. Meanwhile, having spiked to the A$2.22 high on Monday, the GBP-AUD exchange rate has fallen back to around A$2.15. The trend is still a positive one and the retracement is more to do with stock market activity than anything else but there is every reason to suspect we may move back to A$2.22 in the weeks ahead.  If the move is as fleeting as Monday's, you will need to have an automated order in place to achieve it though. No human can trade that fast

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Currency - GBP / Canadian Dollar



The fall in commodity prices and the uncertain nature of US economic demand are combining to weaken the Canadian Dollar. The CAD had the same sort of spike on Monday as other commodity related currencies after the Chinese rate cut etc. and the subsequent correction is also in line with other  aligned currencies like the Aussie and Kiwi Dollars and the South African Rand. Much of the Canadian Dollar's fortunes will continue to be influenced by demand from china and the way that this affects global commodity markets because Canada is a major exporter of raw material and energy products. The current trading range is a broad one; C$1.95 to C$2.10 would be a good estimate. Use these outer limits to manage your needs

 

Currency - GBP / Euro



Just when it looked like the Greek crisis had turned a corner, the Greek Prime Minister called an election and everything is in turmoil again. Add in the volatility created by China's woes and the scene is set for a very bouncy euro. I apologise for the technical terminology but bouncy is the most accurate description I could bring to mind. Confidence in the Eurozone is still terribly weak but that has been side-lined by events in the far east. We even saw the euro strengthen for a few days but that upbeat mood has now evaporated again. The Sterling – Euro exchange rate is back in the trading channel it has occupied for the whole of 2015. Sterling buyers seem happy to fill their boots at €1.35 (74p) and Euro buyers would probably be very happy if we see €1.39 or above. Having fallen from €1.44 to €1.35, that €1.3950 level is the 50% retracement level and that would be my medium term target.

 

Currency - GBP / New Zealand Dollar

The huge spike in the Sterling – NZ Dollar exchange rate on Monday was as unexpected as it was short lived. The People's Bank of China looked like it was panicking and that kind of nervousness is highly infectious. Things have settled back to a more calm kind of level and the Pound is trading at around NZ$2.35 as I write. Whilst the NZ$2.42 resistance level did give way briefly, it is still a tough nut to crack because it marks the midpoint between the 2006 high; an Epistaxis inducing NZ$3.07 and the scarily low NZ$1.77 seen in 2013. That was always going to make it a tough level to break but, with time, Sterling looks like it has the mettle to do so. It may be a little while before it pushes upwards again though.

Currency - GBP / US Dollar

A trend line that has supported the Sterling - US Dollar exchange rate since May was finally breached this week. Strength in the US dollar met a lack of enthusiasm for the Pound and down she went. Chinese turmoil, European jiggery-pokery and commodity market slumps are all culprits but the Pound found favour around the $1.54 level and that stopped the fall. The crucial levels as we head into September are $1.5250 below the market and $1.5550; the previous support line, above the market. If either of these levels is breached, the pace of travel will increase and we could either be pushing down to $1.50 or pressing higher towards $1.60 again. It is extremely hard to determine which level will break first but US and UK interest rates will play a part in this, as will the events in China and Europe and pretty much everywhere else at the moment.

Casting

Steven Spielberg decides he wants to do a blockbuster, all action movie about composers. He calls in a number of top actors to scope out the project and narrows down his choices to Arnold Schwarzenegger, Tom Cruise and Bruce Willis. They have a casting meeting.

Tom says, "I have always been an admirer of Chopin, so I'd like that part if everyone agrees". They all think it is a perfect part for him.

Bruce says, "Mozart was a genius in my eyes and I think I have an angle on his character. I beleive he  wore vests, so I'd like to play him". There were nods around the room and they all turned to Arnie.

He thought for a long time before staring at them with a stern expression and saying, "I'll be Bach".

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