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Collinson FX Market Commentary- July 6, 2012 - China, Europe cut rates

by Collinson FX on 6 Jul 2012
Image of the day Abu Dhabi Ocean Racing make repairs to their damaged keel fairing in the Volvo Ocean Race village, in Galway, Ireland Ian Roman/Volvo Ocean Race©

Collinson FX market Commentary: July 6, 2012

China set the Central Bank ball rolling with a cut of 25 basis points. This theme was continued in Europe with the ECB cutting rates to a record low 0.75%. The Bank of England joined the party with GBP50 Billion further security purchases.

ECB Head, Draghi , cited 'continued weak growth' and 'downside risks materialised'. The phraseology reflects the dire state the EU finds itself in and was in line with market expectations. Further monetary stimulus globally will help short term but erodes wealth as Central Bank balance sheets bloat like a dead cow in the hot European summer sun.

Spanish and Italian Bond yields continued to rise towards record highs and test the viability of these toxic states. In the US, markets digested the expected round of Monetary stimulus but this was already built into expectations. The negative comments did not inspire with the EUR falling to 1.2380.

The ADP Jobs report showed an increase of 176,000 jobs in the private sector beating the expected 105,000. Weekly Jobless also fell 14,000 and Challenger Job Cuts fell 9.4%.

This bodes well for the all-important Non-Farm Payrolls with low expectations around 100,000. The ISM Services reported further falls following recent trends in economic data.

Commodity currencies held onto gains with the AUD trading just below 1.0300 and the KIWI 0.8040.

All eyes are now on the Non-Farm Payrolls and the politically sensitive Unemployment number.

Collinson FX market Commentary: July 5, 2012

July the 4th, Independence Day, sees markets are at a virtual standstill. US Markets are all closed and European trade is so thin they may as well be. This week will see lower than normal volumes as many take advantage of a mid-week holiday to extend the vacation.

European markets edged lower as did the EUR trading 1.2535 and the GBP 1.5600. Italian Debt to GDP hit 8% from 3.8% confirming serious budgetary issues coming to the fore. Expectations are high for monetary stimulus from the ECB in the form of a rate cut and perhaps further securities purchases. In the US markets are keenly awaiting the Jobs reports over the next couple of days.

The Challenger and ADP reports come out tonight and the all important Non-Farm payrolls Friday. The markets will react strongly to these and the political implications will be heard wide and far on the Presidential Election campaign. Commodity currencies remain strong with the AUD testing 1.0300 buoyed by the expected monetary stimulus in the EC and US. This will boost currency and commodities and was further enhanced by the latest strong economic news.

Retail Sales increased by 0.5% trumping all expectations and far exceeding market predictions by more than double! The series of surprisingly strong data is adding to the currencies attraction as a 'safe-haven' play after being a risk off trade for many a year. The KIWI holds 0.8040 after tagging along on the Aussie coat-tails.

Collinson FX market Commentary: July 4, 2012

The eve of Independence Day in the US has seen extremely light trading with only a half day trade in New York and many participants taking the opportunity to have an extended break. Rallies in equities and commodities were based on the hope of further central bank intervention after weak economic data and a bubbling European crises.

The ECB is expected to act this week and perhaps the Bank of England will throw the market a bone. Commodities rallied with the weakening of the Dollar. Further monetary stimulus will push equities and commodities north with the latest addicts fix sated. This boosted the associated currencies with the AUD approaching 1.0300.

In addition to market move further surprising economic data has provided a boost. The Australian Building Applications surged 27.3% surprising all and the latest shock to the upside in economic data. The recent news has satisfied the RBA who left rates unchanged as expected.

The KIWI approaches 0.8050 aided by growing risk appetite recently. US markets jumped on a rise in Factory Orders contradicting the fall in Manufacturing. Markets will remain quiet until Thursdays open in the US and close attention will be paid to the ECB and BoE decisions and the all important jobs reports from the US.

Collinson FX market Commentary: July 2, 2012

Markets surged at the close of the week with some positive news from the EU summit. Member nations acted decisively to solve the Banking crises enveloping Spain and other EU Banks.

The decision was to use the bailout funds (EFSF and ESM) to directly fund the banks instead of filtering it through the Sovereign nation. This avoided any conditions in terms of austerity to Spain in particular. This directly contravenes all EC rules but I guess they are there to be broken. Members also decided to launch a stimulus package directly funding growth packages.

Equity markets surged across Europe and the US with the perceived solution to the crises. It seems that more debt and borrowing is the solution to the debt/deficit crises!? US markets rallied strongly with the surge of confidence despite some weak economic data.

Consumer Sentiment fell as did the Chicago PMI. Commodities took advantage of the rise in confidence and associated currencies rallied strongly.

The AUD surged to 1.0240 and the KIWI tested just under .8000. This week we will focus back on economic data with the EU Summit behind us. A particular focus will be the various employment reports out during the week in the US.

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