$5 Trillion a day ... what a market we are in!
Week Commencing 12th March 2012
Overriding Market Themes:
Currency trading has finally breached the USD 5 trillion mark per day. This is a staggering figure which equates to roughly double the gross domestic product of the UK being traded every day on the international currency markets. What does this mean for our clients, well expect increased volatility and faster moving currency pairs in short. Although we operate in the corporate currency market (which accounts for roughly 10 percent of the total traded currencies intraday), we have to take into account what speculators think and do with their shorts and longs. As globalisation continues to storm ahead, expect more and more currencies to be flowing and volatilities to increase.
Trade deficit in the United States has widened to largest since October 2008 on the back of increased imports. The gap increased just over 4 percent to 52.6 billion US Dollars from a revised figure of 50 billion in December. We expect the rate of imports to continue to rise as increased in the domestic labour markets bolster confidence stateside, and whilst businesses rebuild tattered balance sheets and replace outdated assets. It does also prove a growing trend of manufacturing growth in the tiger economies, which have boomed during the economic crises owing to their incredibly low cost of production.
The Pound declined the most since late 2011 against both the USD and EUR as US Jobs Data and the resolution of the Greek issue became reality. Across the pond, US employers added more jobs that forecasted last month, dampening speculation that the Federal Reserve would go for a further round of quantitative easing. In the Gilt market, the 2 year rose for a second week as Greece said it had invoked newly found powers to force bondholders to accept losses on their holdings of the nation’s bonds as part of the second bailout deal. It also didn’t help that the British Chamber of Commerce cut its 2012 growth forecast for the UK economy. All in all, the UK still looks in bad shape, and with the US storming ahead and Europe on the mend, what is left to keep GBP/USD and GBP/EUR up at these high levels?
GBP This Week:
This is a nice and quiet week for good old England, with the Jobless claims being the only release of note, due to be released on Wednesday. We expect a slight decline in the number of people seeking unemployment benefit in February as the economy begins to recover from the depths of last year’s recession. Despite the expectation of good news on Wednesday, we are reasonably bearish on the pound this week as investors flock to purchase cheap undervalued assets in the Eurozone. With this in mind, we expect Sterling to lose some ground against most majors this week.
USD This Week:
Tuesday marks the release of US retail sales and the Interest Rate decision for the Fed. Although we don’t expect any moves to increase the headline rate of interest, we do expect to see some acceleration in the retail sales figure, possibly to around 1 percent in February. Friday sees the release of US CPI, which is expected to flat line against the previous figures. Finally, the University of Michigan Confidence figure should show a slight increase in confidence in the American consumer, strengthening the notion that the US is back in business.
EUR This Week:
Zee Germans have their famed ZEW survey release on Tuesday, which they expect to close higher than expected at 10, signalling German expectation of growth and inflation in the medium term. Eurozone CPI mid-week will close a similar figure to their British counterparts and finally with regards to Industrial Production, expect some considerable moves towards 0% as the bloc consolidate and moves forward.
On a side note, watch for the ECB Monthly Report on Thursday as any tentative signals of stabilisation within the group should be viewed as extremely bullish in the current environment.
In Other News:
A big ‘well done boys’ from NU Currencies as England sneaked through their French opponents to win the game in Paris. The 24-22 score line give you an indication of the struggle it was, but within Manu and Ben’s tries in the first 20 minutes it couldn’t have happened. In more sombre news, yesterday marked the first anniversary of the devastating earthquake and tsunami that stuck the north eastern coast of Japan, causing a near cataclysmic disaster at the Fukushima Daiichi nuclear plant. With many towns and villages still deserted one year one, the Japanese government is pledging some 180 billion pounds of reconstruction. Sometimes we should all sit back and think how lucky we are in the UK not to have such terrifying natural disasters hit our shores.
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