Chinese data boosts Aussie Dollar

Today's Highlights

Upbeat US data boosts USD ahead of election

BOE, RBA and ECB interest rate decisions to come

Chinese data boosts Aussie Dollar

FX Market Overview

I heard a warning on the news this morning that anyone attending a fireworks display should wear eye protection after two people were blinded last year. You could argue that such a measure is perfectly sensible; after all no one want to be blinded. However, the story concluded with the detail that the two people who were blinded were setting off agricultural explosives (presumably bird scarers) as bangers. Surely the message should be to the few idiots who are misusing those products not to the millions who will stand and watch professional fireworks from a safe distance. Perhaps the message was sponsored by a protective eyewear manufacturer.

A suggestion by the head of the largest bond trading house in the world, PIMCO, that the EU would inevitably have to lose some of the money it is lending to Greece, came at the same time as the former IMF deputy managing director John Lipsky warned that the efforts to sort Greece?s economy out have failed. They are right to be nervous concerned; the Greek Prime Minister has already warned that the current round of austerity measures will be the last and we are yet to see whether the EU demands more from them. Nevertheless, those views gave Euro traders the jitters. The surprise is that traders hadn?t already considered that eventuality but the Euro sold off anyway and safe haven buying ensued. That move was aided and abetted by a drop in German business optimism, further concern over Spain?s ability to see the year out without requesting bailout funds from the EU and growing fears of a 2nd credit crunch as SMEs across Europe are starved of funds by banks fearful of risk and fearful of reducing their reserve holdings. Central banks and governments still haven?t got the message; pumping money into banks only serves to keep the banks afloat. Getting it flowing around the economy would actually create growth and jobs.

As a consequence of the safe haven moves, the US Dollar had rather a good day after the October US employment report showed 171,000 new jobs were added in non-agricultural jobs in October. Even the September figures were revised upward by 34,000 so the whole report was very upbeat. Of course the conspiracy theorists believe this is a trumped up report designed to get Obama re-elected. I?ve got to say that if the President is clever enough to get through all the protocols to arrange a set of data that meets his personal criteria without anyone tipping off the press, I would vote for him. Anyone that good deserves the job. Perhaps the USD would have been move volatile if the US Presidential election wasn?t upon us. The polls are very evenly split but no one seems to have a handle on what the consequences would be for the Dollar in the event of a Romney or Obama win. This?ll be a busy week for the USD but it remains trapped between 1.60 and 1.62 against the Pound and between 1.2750 and 1.3150 against the Euro....for now.

And speaking of Sterling, the Pound had rather a good week last week after a series of improvements in economic data culminating in a very upbeat construction sector report, plus a flow of funds out of Europe in search of safe haven destinations. Despite all the hoo-hah in the last 5 years, London is still one of the largest financial centres in the world and it is considered a safe place to stow funds in times of strife.

It is going to be a busy week with heaps of data from all four corners of the globe, a US Presidential election and with interest rate decisions from the Reserve Bank of Australia, the Bank of England and the European Central Bank. No change is expected from the Northern hemisphere banks but the RBA could drop its base rate if recent rhetoric from its Governor is anything to go by. Perversely, the Australian Dollar is actually strengthening as I write but that is a reflection of the rising confidence in the US economy and improving data from China.

As it?s going to be such a busy one, I will leave you to get on with your week. I hope you have better luck than Lewis Hamilton, better weather than I had at the weekend and better judgement than Brazilian model, Nana Gouvea who chose the backdrop of a devastated New York for her latest photoshoot. It?s probably a bit tasteless to pose on top of smashed cars and fallen trees when people have died Nana but I do accept that Modellin? is very important. I really do.

Currency - GBP/Australian Dollar

A slight improvement in the Chinese data throughout this month has allowed the Australian Dollar to strengthen in the last couple of days. After October?s interest rate cut from the Reserve Bank of Australia, we had been expecting the RBA to keep their base rate on hold for the foreseeable future. However, the RBA is making noises which suggest the next interest rate cut is certainly not completely ruled out and in many parts of the market traders are assuming a 25 basis point cut will be made when the RBA meets on the 6th of this month. So for the time being, the Sterling - Australian Dollar exchange rate is trapped in the middle of its range. We should expect a little bit of weakness in the Australian Dollar in the early part of next week ahead of the RBA decision and Sterling has gathered some support from the very positive employment and economic growth data we saw on Wednesday but that spike is likely to be short lived so the window of opportunity is open to Australian Dollar buyers for a short period.

Currency - GBP/Canadian Dollar

Unlike the strong growth in the US labour market, Canadian employers added just 1,800 fresh jobs in October and the private sector actually shed 20,300 places. That, plus some lacklustre data earlier in the week, has kept the Canadian Dollar on the back foot for the most part. The upward momentum in the Sterling ? Canadian Dollar exchange rate ran out of steam before we reached C$1.62 and the pullback form that rally found GBP buyers at C$ 1.5925. So the current position is that we are in an unstable equilibrium half way between the current highs and lows; 1.62 and 1.56 respectively. With the Bank of Canada making noises as though interest rates could rise but the data is not supporting that confidence, we can expect the Sterling ? Canadian Dollar exchange rate to meander between these outer limits for the week ahead but that is still a 4% gain if you time your transaction well. And because the Canadian Market is open long after Britain is closed for business, I would recommend using automated orders to capture those gains.

Currency - GBP/Euro

Greek debt problems, record unemployment in Spain and Greece and now across the whole Eurozone are apparently not enough of a disincentive to Euro buyers. The shared currency is still gaining against the Pound and holding its own against the US Dollar. However, we have seen an upward spike in the last two weeks which has brought this exchange rate to the brink of a long awaited breakout. If the Pound can push through a 60 day moving average, trendline resistance and the markets general reticence, we could see the change of fortunes we have been waiting for in the value of the Pound. So the key level is ?1.25 in round figures. That equates to 80 pence on the Euro to Sterling side of the exchange rate which is an equally neat round figure. That?s the optimistic view from the Sterling side of the market. The pessimistic one is that the Pound is contained by the current technical levels and we continue in the downward trend we have occupied since mid-July. That will bring us back to test ?1.22 and perhaps ?1.20 before the end of the year

Currency - GBP/New Zealand Dollar

The new Zealand Dollar is susceptible to changes in the economies or China and Australia and the changes in sentiment that emanate from the largest economy of all, America. However the new governor of the Reserve Bank of New Zealand is having just as great an impact. Graeme Wheeler has announced his arrival in the post by stating that the current base interest rate of 2.5% is appropriate for now but made it mightily certain that he will be happy to press for further cuts if they are deemed necessary. If he does his job well, Governor Wheeler will be able to engineer weakness in the NZ Dollar without having to play with the base rate too much. However, a weaker currency would result from a cut in NZ?s base rate so he may consider a little bit of tinkering in the months ahead. In the meantime, the NZ Dollar is slap bang in the middle of its trading range against the Pound but it is strengthening. In fact it may be breaking out of the bottom of a trading range which has contained this pair for the last 6 month (give or take a blip in August). If we do see this pair fall, a target of NZ$ 1.90 is an obvious one and we may even see a return to the February low of 1.87. This downward direction would seem to be the obvious one when Sterling, which has strengthened elsewhere, is falling against the particular currency.?

Currency - GBP/US Dollar

The conspiracy theorists have had a really busy week suggesting this month?s US employment report would be a really positive one ahead of next week?s presidential election. Somehow president Obama was personally going to manipulate the figures to his advantage. In the end the figure was very positive with 171,000 new jobs added in October and a revision to the September figures from 114,000 to 148,000. That has lit a fire under the sceptics who are now bleating on about how massive the revision will be next month. The US Dollar has ignored the debate and has strengthened throughout the day. Whether it will continue to do so through the furore of a US presidential election next week is an entirely different conversation but for now, the USD is stronger and the Euro is weaker. That has allowed the Pound to gain a little strength against the Euro and so the merry-go-round continues. Sterling is still likely to find a lot of buyers at $1.60 so that support level is likely to halt the downward momentum in the GBP-USD exchange rate but, if it doesn?t and this US Dollar advance gathers momentum, $1.5914 is the next target; that?s the October low.

Source: http://www.fxstreet.com/fundamental/market-view/daily-currency-insight/2012-11-05.html

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