As a Proud Englishman I can deal with disappointment and I have spent years mastering the traditional stiff upper lip. Sadly my bottom lip hasn't learned this lesson yet and is wobbling like a jelly as I come to terms with the events of Saturday evening. I am sure we'll all be fine....it's just so unfair.........
Composure regained, let's move on. US employment data on Friday was much less encouraging than the markets had expected. Forecasters, who had targeted 200,000 new jobs in September, saw their estimates torn up when the number was just 142,000 and the previous month's figures were amended downward by 59,000 as well. That has caused a flurry of comments from Federal Reserve members over the pace and timing of US interest rate hikes. In spite of the hawks in the Fed, most analysts are still expecting no change this year and I suspect it may be Q2 2016 before the Fed feels bold enough to start the rate hiking cycle. The US Dollar lost a cent and a half on the news but US shares improved, as they do when interest rates are set to remain low. If this afternoon's service sector PMI is also downbeat, we ought to see further USD weakness.
We heard overnight that Australian inflation picked up last month. The 1.9% growth was higher than the August 1.7% figure and driven so a large degree by the weaker Australian Dollar driving up import process. This comes a day ahead of the Reserve Bank of Australia's meeting to determine interest rates. There is likely to be no change from the RBA but there is still pressure on them to lower the base rate to try to stabilise an economy which has suffered from China's falling demand. The Aussie Dollar remains' weak unlike their rugby team.....sorry.. sorry, I promised myself I wouldn't mention it.
The big data for the week ahead comes in the form of various purchasing managers' indices, factory data from Europe, Britain and the US and the interest rate decisions from the RBA - as seen above - and the UK. We are not envisaging any change from either of them but the market will be a tad tense ahead of the announcements anyway.
We will also get the Canadian trade and employment data as well as PMI. The Canadian Dollar remains subdued by the fall in commodity income.
In other news, the insurance claim form will be easy for one Japanese video blogger. 'Ushiro', as he is known, was live streaming a stream-chat (whatever that is) when he tried to light a match for his cigarette but the match appears to catch fire to a bag behind him. The fire escalates quickly after he tries to extinguish it with another bag -filled with paper - and he finally scarpers, leaving the video running. Amidst all this melee he was receiving text messages from viewers telling him the room was on fire but he realised too late. "I don't know how it happened officer, honest."
Currency - GBP / Australian Dollar
The impact of the slowdown in China, the fall in commodity income and the nervousness over the timing of US interest rate hikes can all be seen in the weakness of the Australian Dollar. As mentioned above, traders are likely to be a little quiet until the Reserve Bank of Australia makes its interest rate announcement tomorrow but they are unlikely to change anything in spite of today's rising inflation data. Meanwhile, the Sterling – Australian Dollar rate is capped at A$2.21 and supported at A$2.15. We could conceivably see a dip to A$2.08 and yet remain in the upward trend but any break below there would threaten a fall back to the psychologically significant but technically irrelevant A$2.00.
Currency - GBP / Canadian Dollar
The same fears that dog the Australian and New Zealand Dollars are affecting the Canadian Dollar. Weakness in the value of their exports and a fall in demand have put pressure on the loonie, as the Canadian Dollar is commonly known. (That has nothing to do with Canadians and everything to do with the birds on their C$1 coins by the way). Most analysts are forecasting further weakness in the Canadian Dollar and that concern was exacerbated by a suggestion that the Chinese authorities are sitting on billions of Canadian Dollars and any decision by them to adjust their reserve holdings would significantly impact the loonie. Technically, the Sterling – Canadian Dollar rate failed to reach C$2.10 a few weeks ago and has fallen into a holding pattern between C$2.00 and C$2.05. If the pound falls back to C$1.95, it looks like it will find plenty of support but the more interesting move would be a break of C$2.10 which would appear to be the most likely as far as the markets are concerned.
Currency - GBP / Euro
Barring the first few days of the year, 2015 has seen the Sterling – Euro rate consolidate in a 10 cent range between €1.34 and €1.44. UK data has shown growth in most aspects of the economy but at a slowing pace and has shown smattering of Eurozone recovery; albeit fragile. Greece didn't exit but neither has it forged a lasting solution to its debt problems and little has been done about Finland's problems or those of Italy and Portugal for that matter. The slowdown in China has impacted German exports and the fall in energy prices has, as with most countries, caused inflation to stagnate. With all of these factors playing out, a period of consolidation is probably the most likely outcome but the levels to watch for threats of a breakout are €1.44 at the top and €1.32 at the very bottom of the current range. Unless either end of this pattern is properly tested, we can go on buying Euro at the top and selling it at the bottom with relative impunity.
Currency - GBP / New Zealand Dollar
An 11 cent range contains the Sterling – NZ Dollar rate at the moment. NZ$2.46 is the highest we have seen other than a spike on one day in August. NZ$2.34 provides a target for GBP buyers and that is likely to be seen again. The technical tool at the bottom of the chart above is called a moving average convergence and divergence and it signals that the Pound is likely to weaken against the NZD in the weeks ahead. The level of NZ$2.23 would make a 50% retracement of the rise from the low in May to the high in August. I suspect we are heading there.
Currency - GBP / US Dollar
Weakness in commodity prices and the expectation of US interest rate hikes are combining to strengthen the US Dollar overall in spite of the dip following the poor employment report on Friday. It does also benefit from 'safe haven' flows as investors seek the certainty of investment in Uncle Sam through the US Treasury markets. At the same time though, the UK economy is looking like one of the few strong ones in global terms. Hence we can see the GBP-USD rate sitting smack bang in the middle of its 2015 range around the $1.51 level. Not only is it pretty central but there is almost no momentum in either direction. What will change that? Well the federal Reserve could surprise everyone with a rate hike but I doubt that. The Bank of England could do likewise but UK data doesn't support a hike at this stage. Ultimately, we may well be in this narrow trading pattern for the time being
Oldie but goodie
George W Bush, Dick Cheney and Bill Clinton are each granted on wish by the Wizard of Oz.
G W Bush says he really wants a brain and in a flash, or the first time in his life, he has a brain and is full of wisdom.
Dick Cheney asks for a heart and in an instant, he has a heart and is full of compassion.
The Wizard turns to Bill Clinton and asks what he would wish for.
Bill ponders for a moment before asking, "Is Dorothy at home?"