FX Spread Bets
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The Daily FX Update from Boris Schlossberg, Director of Currency Research, GFT.
FX Spread Betting 2 Feb 09
UK Manufacturing Problems Continue
UK Manufacturing PMI improved to 35.8 against 34.9 the month prior but remained essentially moribund as the country’s economy continues to experience the worst contraction in demand in more than fifty years. The lower value of GBP/USD proved to be of little help to the nation’s manufacturers as export demand was muted and the PMI reading remained well below the 50 boom/bust level.
The news suggests that BoE will almost certainly lower rates by another 50bp this week taking the overnight rate to a record low of 1%. Cable continued to slide in post news price action dropping below the $1.4200 level in early London trade.
After a counter trend rally last week sterling appears to have hit key resistance at $1.4500 barrier and given the strong down ward bias in the pair, that level appears to be a cement ceiling for GBP/USD for now, as fundamentals continues to show no rebound in sight.
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FX Spread Betting 30 Jan 09
Rapid Decreases in Japanese Spending
Another set of very dour economic data for the land of rising sun as household spending contracted very sharply to -4.5% versus -3.6% anticipated and unemployment rose to 4.4% from 4.1% eyed. To put the household spending numbers in perspective it must be noted that the contraction in the month prior was only -0.5% thus this month’s results are nearly ten times worse than November’s data.
The news suggests that the massive contraction in global demand for export driven Japanese economy is having a much greater negative impact on the psychology of the consumer than any positive effects of stronger yen. In short, Japanese workers are far more concerned about the prospect of unemployment rather than any benefit of increase in their purchasing power.
The unemployment data confirms those fears as the rate jumped 30bp last month to 4.4% from 4.1% eyed. Although Japanese unemployment remains low in comparison to other G-7 nations the upwards pressure on the numbers bodes badly for future economic growth. Japanese economy remains trapped in a horrible dynamic as the ever appreciating yen raises input costs for country’s manufacturers, while the decline in global demand decimates exporters profit margins threatening further job losses to come.
With domestic demand essentially non-existent and global growth slowing markedly, Japanese officials have virtually no options left save for fiscal stimulus triage which has proven to be ineffective so far. The irony of an ever appreciating yen in a environment of sharply contracting global demand is wreaking havoc with the Japanese economy at the present time.
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The above comments do not constitute investment advice and neither GFT nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
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FX Spread Betting 29 Jan 09
German Unemployment Numbers Suggest EUR/USD Test
German unemployment rose to a much greater than forecast 56K job loss versus projections of 32K loss and the month prior results of only 18K loss. This was the second consecutive month of increase in unemployment rolls suggesting that the economic contraction in Eurozone’s largest economy is beginning to have a direct impact on the labour market. The rapid pace of deterioration in labour demand bodes badly for future economic growth in the region as consumer demand is sure to suffer further.
Indeed German Retail PMI numbers which printed right after the labour data confirmed that demand has deteriorated coming in a 41.7 against 42.3 reading the month prior. The news leads us to conclude that ECB will have to lower rates below the 2% mark at its meeting in March as policymakers desperately try to ease credit conditions to stimulate growth.
The EUR/USD actually rose in the immediate aftermath of the news in the classic buy the rumor sell the fact dynamic, as traders anticipated the poor results driving the pair lower all night long. Nevertheless, the impact of today’s sharp rise in German unemployment is likely to press on the pair for the rest of the day and a push to test the $1.3000 level could happen later in the day especially if risk appetite begins to wane as we go forward.
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The above comments do not constitute investment advice and neither GFT nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
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FX Spread Betting 28 Jan 09
Swiss Franc Loses Ground to US Dollar
The KOF index of Leading indicators printed at -0.87 versus expectations of -0.53 and far lower than -0.39 the month prior as the Swiss economy continued to deteriorate feeling the squeeze from both the slumping manufacturing exports and the reeling finance sector that saw many of the country’s leading banks suffer record losses in the past year.
The news suggests that the SNB will continue to ease monetary policy most likely joining US and Japan near the zero interest rate level by the end of Q1 of 2009. The franc which for the longest time was viewed as a bastion of strength and financial stability has seen its reputation suffer greatly over the past six months as investors become increasingly concerned about the exposure of the Swiss economy to the massive losses in the country's banking sector.
The Swiss Franc lost ground to both the euro and the dollar as the result of the disappointing news with USD / CHF gaining more than 100 points in the past two hours. If risk appetite remains healthy for the rest of the day, the franc could see further weakness especially against the euro as traders make adjustments for the anticipated move to near ZIRP like conditions.
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The above comments do not constitute investment advice and neither GFT nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
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"FX Spread Bets" last update by B. Schlossberg, 02-Feb-2009
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