Pound:
Sterling has started the day down by nearly 0.25% against the Euro whilst trading up by a similar percentage vs the USD. A recent article in the telegraph has warned that UK house prices could slump again because of a second mortgage credit crunch. This squeeze according to the article will begin to be felt in Jan next year when lenders are due to start repaying £319bn borrowed from the government during the crisis in 2007 and 2008 forcing lenders to “tighten up credit criteria”. In other news surrounding bank lending and the poor availability of credit in the UK one in five UK businesses are reportedly financing their operations using credit cards. Another snapshot on the UK economy will be released today at 9.30am with CPI inflation forecast way above the 2% target at 3.6%. Consumer prices account for the majority of overall inflation making this data important as rising prices often lead to the BoE raising interest rates in order to try and maintain the target of 2%. How- ever, the BoE are expecting a sharp rise in inflation in the short term before falling back in line again. Expect some volatility with sterling after this data is released at 9.30am. Tomorrow’s claimant count change and MPC meeting minutes are both due at 9.30am.
US Dollar:
The U.S. currency fell against 15 of its 16 most-traded peers after investors looked towards higher yielding currencies on the back of good news from Australia and improved sentiment regarding the Euro. The dollar fell to $1.3658 against the euro as of 7:30 a.m. in London from $1.3598 yesterday after speculation grew suggesting the sharp losses by the Euro had been too quick in relation to the problems surrounding the Euro-Zone. Overall, the Euro has fallen 5.2 percent against the Dollar over the past month over sovereign debt problems and a lack of concrete details on the bailout plan for Greece. We may see further weakness in the dollar should a rally in the Euro continue. If a rally persists then investors will look to commodities as a more attractive investment versus a weakening dollar.
Euro:
The euro’s 14-day relative strength index, or RSI, stayed below 30 for a third day, a sign the currency may be poised to rebound after dropping too fast. The euro advanced against 12 of its 16 major counterparts. “The euro has been sold quite a lot, so short-term players may want to unwind some huge short positions,” said Tomohiro Nishida, a foreign-currency dealer at Chuo Mitsui Trust & Banking Co. This rally by the Euro has ended a 4 day losing streak against the dollar. However, as has been seen in the past, very negative market positioning does often create a short term boost as speculators re-evaluate their positions and traders look to close some of their short positions. Unfortunately, the core problems plaguing the Euro are likely to suggest this rally will be short lived. Under normal market conditions some analysts would suggest the Euro to climb to $1.40, however the negative sentiment surrounding the Euro is well-founded, thus a level of $1.40 is unlikely. The German
ZEW Economic Sentiment data is out today at 10:00GMT which will be an important announcement as the German economy is considered one of the strongest in the Euro Zone. It is worth noting that should a Greek bailout materialise then it will be led by Germany. It stands to reason that their view on Euro Zone health is one to look out for.
Quote of the Day
It’s not how many times you get up when you’re knocked down that makes you a champion. It’s how hard you come out