Forex research

[Alpari]

Dear trader,

We have designed this thread to provide client focused research that will keep our clients up to date with developments in the FX market.

Our research material is provided in order to help our clients make more informed and hopefully more profitable trading decisions.

As a company we do not provide advice so this section should be used as a supplementary trading tool that educates and informs users of what is moving the markets rather than a trade advisor.

Some of the topics that we will cover in our regular posts are:

• The main themes and talking points in the FX market
• Which currency pairs are getting the most attention from traders and why
• Political and economic events that influence currency movements
• Economic releases round up, review and what effects they may have
• Looking back at events in the FX market to fully understand their significance
• Looking ahead to future events to get readers ready and prepared to make the best trading decisions possible


Alex

________
Alexander Chadwick
Alpari (UK) Representative

 

[Alpari]

UK Opening Call from Alpari UK on 5 August 2013

Services PMIs to highlight ongoing recovery in Europe

Today’s UK opening call will provide an update on:

• Focus on FOMC members this week as investors attempt to guess when tapering will begin;
• Chinese stocks boosted by services PMIs;
• Eurozone services PMIs expected to show further improvement in July;
• US services sector in focus this afternoon.

European indices are expected to open slightly higher on Friday, as investors try to make sense of last weeks Fed statement and jobs report and what it means for tapering later this year.

A mostly unchanged Fed statement last week, from the one in June, combined with a disappointing jobs report on Friday, has slightly increased the number of people expecting tapering to begin in December, compared to September. This is why the stock market continued to rally on Friday, with S&P 500 and the Dow once again hitting record highs.

Comments from Fed voting member, James Bullard, shortly after supported this view, when he claimed that the Fed tapering should not begin on expectations of an improvement in the economy, but when we actually see evidence, which we clearly haven’t yet. We’ll hear from a number of other members of the Fed this week, all of which are expected to be followed closely ahead of the next meeting in September, when many still believe the Fed will begin to taper.

Chinese stocks received a small boost over nigh by the release of the services PMIs over the weekend. The official PMI, release on Saturday, showed the sector growing at an impressive rate, with a figure of 54.1. As always, there was a big difference between the official figure and the HSBC one, which remained at 51.3, but even this is comfortably in growth territory, which is encouraging given the efforts in China to become less reliant on investment and exports.

The economic calendar isn’t necessarily looking as full as last week, but there’s still plenty for the markets to get their teeth stuck into, starting this morning with the release of the services PMIs in the eurozone for July. While many of these are revised figures, we do regularly see some significant revisions which can have a real impact on the markets.

Recent surveys out of the eurozone have been very encouraging, with the majority either making the move into growth territory or coming very close. This is expected to remain the case today, with any upward revisions to the figures only adding to suggestions that we’re finally witnessing a turnaround in the euro area. Just to be clear though, a turnaround doesn’t mean the crisis is coming to an end, there’s still a long road ahead.

The UK services PMI is expected to improve again in July, hitting 57.4, up from 56.9 in June. As with the data out of the eurozone, the UK data has been extremely encouraging over the last four or five months. As I’ve pointed out previously though, with the global recovery still very fragile, we shouldn’t get carried away with this, although the signs are positive.

Also today, we have June’s retail sales figure for the eurozone, which is expected to fall 0.5% from a month earlier, and the sentix investor confidence figure, which is expected to rise to -9.5 in July, the highest level since February.

Over in the US, we also have the services PMI for July being released. As with the UK, this is expected to remain comfortably in growth territory, at 53, up from 52.2 last month. Services contribute more than two thirds to US GDP so this figure is also followed very closely by the markets, with any weakness signalling difficult times ahead.

Ahead of the open we expect to see the FTSE up 4 points, the CAC up 4 point and the DAX up 5 points.

Read the full report at Alpari News Room​

 

[Alpari]

US Opening Call from Alpari UK on 5 August 2013

Europe higher on better services PMIs

Today’s US opening call provides an update on:

• Tapering in September unlikely following dovish statement and disappointing jobs report;
• Comments from FOMC members key this week;
• Eurozone services PMIs within touching distance of growth territory;
• UK services PMI hits six year high.

With corporate earnings season beginning to wind down and economic data highlighting just how fragile the US recovery is, there’s going to be a lot of attention on the Federal Reserve this week, in particular the many speeches from the FOMC members.

Tapering in September now looks very unlikely, following the slightly dovish statement on Wednesday and the disappointing jobs report on Friday. It would be very difficult for the Fed to claim that the recovery in the US is sustainable, when growth has been well below expectations from earlier this year and the reason for a drop in unemployment is a combination of falling participation rates and higher than normal part-time and temporary employment.

James Bullard was the first to come across quite dovish shortly after the jobs report on Friday, claiming that tapering could not begin on expectations that the economy would pick up. Instead, the Fed will have to wait for the data to back it up. Many more FOMC members are due to speak this week, and you can guarantee what they say will be followed very closely by investors.

Fundamentals are certainly playing a much bigger part in the markets at the moment. However, with fewer companies reporting second quarter earnings and increasing uncertainty over the Fed’s bond buying program, any comments from FOMC members that hint at December tapering will only support the rally.

It’s been a positive start to the week in Europe, with services PMIs being revised higher in all cases except for Germany. The Spanish, French, Italian and eurozone PMIs are all now within touching distance of 50, the level that separates growth from contraction, which is really encouraging given where they were only a few month ago. A return to growth before the end of the year doesn’t look like too bad a call now.

The UK, which only a few months ago was facing a triple dip recession, is looking better by the day. July’s services PMI was revised up to 60.2 this morning, the highest in six years and well above that of any of the other major economies. While these PMIs can fall rapidly if things take a turn for the worse, we’ve seen a consistent improvement in these figures all year, while growth has exceeding all expectations.

The rest of the day could be a little quieter, with the economic calendar looking a little light and earnings season winding down. The only notable economic release is the ISM services PMI, which is likely to remain comfortably in growth territory at 53.

Ahead of the open we expect to see the S&P down 2 point, the Dow down 17 points and the NASDAQ flat.

Read the full report at Alpari News Room​

 

[Alpari]

Daily Market Update - 5 August 2013 - Alpari UK

Chief Market Analyst James Hughes discusses this morning's UK services PMI reading and looks ahead to tonight's Australian rate decision.

[video=youtube;c3_hYjTYKwE][/video]

 

[Alpari]

UK Opening Call from Alpari UK on 6 August 2013

European markets expected lower while RBA interest rate is cut

Today’s UK opening call will provide an update on:

• Global markets fall as rally comes to a halt
• RBA cut interest rates as expected
• UK manufacturing production
• FOMC board member Evans due to talk later in the day

Global indices are expected to open lower today, coming off the back of a weak Asian session where the Hang Seng and Nikkei 225 both suffered continued losses. The markets have seen significant upside momentum throughout July, driven in part by a relatively strong corporate earnings season in the US, coupled with diminished likeliness of monetary tightening from the major Central banks in Europe and America.

The shift away from the Fed, ECB and BoE as the core driver of market price action has been noticeable, with a strong non-farm payroll (NFP) reading in July having little impact on stock strength despite the associated notion that tapering could be earlier than some would like. On the other hand, the disappointing NFP figure released on Friday was expected to provide a boost to this rally, with markets now understanding that tapering will likely occur at December at the earliest.

Tomorrow is expected to bring some form of forward guidance from the BoE alongside the quarterly inflation report. Typically seen as an opportunity to express the existence of long term low interest rates and monetary accommodation, this speech has the potential to provide a boost to the equity markets. However, given the possible overheating of those markets, it is possible that the downside potential of Carney failing to provide enough could overshadow upside which is likely to be more muted given the topping off of the FTSE100 at the moment.

This morning, the RBA has reduced the headline interest rate for the Australian economy by 25 basis points, from 2.75% to 2.50%. This was largely factored in and subsequently we have since seen approximately a 25 pip rise in the AUD/USD pair despite the association that such a shift would typically devalue the Australian dollar. This news came off the back on continued rhetoric out of the the RBA governor Glenn Stevens that the economy continued to suffer from a weakening export markets and deteriorated export prices. He also clearly expressed a view that the Australian dollar continues to be overvalued and thus a further interest rate cut seemed to be warranted to help further devalue their currency and given their weakened terms of trade.

This decision also came off the back of a rather unorthodox decision from Australian PM Kevin Rudd to declare he hopes to see interest rates as low as possible for the economy. A decision which raised some eyebrows given the valued independence provided by central bank policy decision-making. This announcement, coupled with weak trade balance figures, which saw both imports (-2%) and exports (-1%) decline, made a reduction in the headline rate almost inevitable.

Whether this represents the final interest rate cut from the RBA in 2013 is doubtful, with concerns regarding a Chinese slowdown, a deteriorating jobs market and a diminished growth outlook. The accompanying statement also noted that they see inflation remaining within target for the next two years despite a weakening AUD, thus allowing for further rate cuts going forward.

One of the major events of the day comes in the form of the UK manufacturing production figure, due at 9.30am BST. The strength of the UK economy has been highlighted over the past week, with significant beats in all three key PMI figures boosting investor sentiment. The manufacturing PMI perhaps provided the least impressive rise of the three, despite rising significantly from 52.9 to 54.6, capping off three consecutive months of expansion in the manufacturing sector.

Subsequently, it is important to have consistency across indicators to provide a more well rounded picture for the economy and in this case we are seeking further evidence of a strengthening manufacturing sector through a rise in manufacturing production. Expectations of a 0.9% rise could be a little wide of the mark given the previous two failures to meet market forecasts. However, a return to positive growth in production would be a sign of expansion nonetheless.

Tomorrow is expected to bring about the announcement of forward guidance and the use of thresholds from the BoE. Subsequently while we do not expect releases such as manufacturing production to factor into such thresholds, it does factor into the general health outlook of the UK economy.

Later in the day, the focus will shift towards the speech from FOMC member Charles Evans where markets will be looking out for any further indications of his estimated tapering outlook. Evans is a voting member, thus increasing the importance of his views. Given Evans’ recently dovish stance, any views expressed would likely be leaning towards either delayed tapering. Previously the Fed tones have originated from those lower members and subsequently been reflected by the views of the chair and thus markets will be looking for any indications of where the current stance is of the Fed.

UK and European markets are expected to open lower, with the FTSE100 -24 points, CAC -7 points and DAX -16 points.

Read the full report at Alpari News Room​

 

[Alpari]

Daily Market Update - 6 August 2013 - Alpari UK

0:15 RBA cuts interest rates over night
1:25 UK recovery gathers pace
2:13 Italy on the verge of growth after two years of recession
3:19 Fed's Evans speaks later

[video=youtube;VZ__qydvlaw][/video]

 

[Alpari]

US Opening Call from Alpari UK on 6 August 2013

Investors turn to Fed voter Evans for tapering hints

Today’s US opening call provides an update on:

• Aussie rallies as RBA cuts rates and issues more neutral statement;
• UK recovery gathers pace in June and July;
• Italy close to climbing out of recession after longest period of contraction on record;
• Fed’s Evans due to speak later.

We saw a classic example of buying the rumour and selling the news over night, when the Reserve Bank of Australia cut interest rates by 25 basis points to record lows of 2.5%. The view among economists and traders in the run up to the decision was that a rate cut was almost guaranteed, so it entirely priced in. Unless we saw a surprise 50 basis point cut, we were always going to see some profit taking.

On top of that, we had the statement from the RBA which was far less dovish than we’ve seen previously, leading many to believe that another rate cut in the next couple of months is unlikely. I still think that we rates could be cut to 2.25% before the year’s out, or during the first quarter of next year at the latest, but that is later than traders were previously predicting.

Over in the UK, the recovery is continuing to gather pace, with industrial and manufacturing production figures for June showing the biggest year on year improvement since February 2011 and July 2011, respectively.

On top of that, according to Halifax, house prices rose 0.9% in July, the sixth consecutive increase, as home buyers continue to benefit from low interest rates, the funding for lending scheme and the governments help to buy scheme. Finally, retail sales increased by 2.2% in July, the biggest improvement since March. Given how much consumer spending contributes to UK GDP, this is a major boost for the economy. Hopefully this should be reflected later in the NIESR GDP estimate for the three months to July, with an improvement on last month’s figure of 0.6%.

Also on a positive note, Italy contracted less than expected in the second quarter and could finally be close to moving out of recession after two years of pain. While the contraction figure of -0.2% leaves Italy in its longest recession since records began in 1970, we really should focus on the fact that the country finally appears to be turning a corner. There’s still a long way to go yet, and plenty that could go wrong, such as a break-up of the unstable grand coalition, but the early signs are encouraging.

Looking ahead to the rest of the day and the focus is likely to be on the speech from voting Fed member Charles Evans. With the markets still undecided on whether the Fed will begin tapering in September, December or later, Evans’ comments are going to be listened to very closely. As a dove, any suggestion that tapering could begin at the next meeting will probably spark some selling of US equities and buying in the dollar.

Ahead of the open we expect to see the S&P down 2 point, the Dow down 19 points and the NASDAQ down 2 points.

Read the full report at Alpari News Room​

 

[Alpari]

UK Opening Call from Alpari UK on 7 August 2013

Markets pause ahead of key UK inflation report

Today’s UK opening call will provide an update on:
• Markets expected to trade lower
• UK NIESR GDP estimate beats expectations
• Fed's Evans hints at possible September tapering
• UK inflation report expected to dominate


Global indices are expected to trade lower again today, in a continuation of slowdown seen over the past three days. Coming off the back of a significant stock market rally, the ability of the markets to take a breather is not particularly notable in itself. However, it is the inability of the likes of the FTSE100, CAC and DAX to break into new highs which brings into question the longevity of current levels. Should this mark the beginning of a longer downtrend, a highly bearish double top formation may come into existence; the precursor to potentially significant losses.

The losses expected in the markets today fly in the face of the UK NIESR GDP estimate released yesterday, which indicated that the economy grew at a rate of 0.7% in the three months ending in July. This comes against median market estimates of 0.6% which in turn where largely based upon the official preliminary Q2 GDP figure from the ONS. Or in other words, the UK economy was seen to have grown 0.1% faster in July than in April 2013.

However, some of the losses in both Asian and US markets can be attributed to increasingly hawkish comments of the typically dovish Fed member Charles Evans yesterday. Evans discussed his current outlook for tapering, taking into account recent notable shifts in jobs data last week and notably views a possible tapering within September as possible. Of course, should we see a pullback in the volume of asset purchases made by the Fed, it is likely that it would be minimal. However, given the disappointing non-farm payroll figure last week, it has been widely speculated that December is much more likely for an initiation of the tapering process.

Today is expected to be dominated by the quarterly inflation report from the Bank of England, due out around 10.30pm BST. Since Mark Carney’s inception as BoE governor on 1 July, the markets have sought to find out how he will implement a framework which can push the UK economy forward under the the current inflation targetting framework. The indication from the chancellor of the exchequer in March that the BoE will require ‘unconventional policy’ going forward was borne out of a view that given the trade-off between asset purchases and inflation, then alternate measures will be required to spur growth as long as the inflation rate remains the number one target.

Mark Carney’s ability to swing MPC votes to a full consensus against additional asset purchases is likely to have been driven by a clear outline of where he sees the BoE going forward. Subsequently, today’s inflation report was cited as the primary target for discussions and declaration of both an outline to a long term low interest rate scenario, coupled with thresholds to measure when the economy is sufficiently ready to raise rates.

We know that Carney looks favourably upon the notion of committing to long term low interest rates, as he performed such forward guidance at the BoC in April 2009. He noted that “it worked because it reached beyond central bank watchers to make a clear, simple statement directly to Canadians”. Put simply, the ability to promise long term low interest rates provides a positive outlook and framework for the population who know that they can plan with confidence for the upcoming period.

That being said, the inability of the ECB and Fed to prescribe forward guidance with any clarity should act as a warning to the new governor where typically leaders have tied themselves in loops attempting to interpret whether the current economic conditions are sufficient or conducive to a more tight monetary policy outlook.

Overall we are expecting to see a commitment to low interest rates, coupled with thresholds which must be reached as a precursor to addressing the issue of whether rates should be raised. Given the inflation targets set by the chancellor, it is likely that there will be in inflation element, however I believe the growth or jobs data will also accompany this. That being said, there are problems associated with both these methods, where unemployment rates can be skewed by shifts in the participation rate (as seen in the US on Friday) and GDP rates are often unreliable and subject to significant retroactive revisions.

Also later today we are looking for key German industrial production data out of the eurozone, along with important Canadian Ivey PMI and building permits data.

European markets are expected to open lower today, with the FTSE100 -13 points, CAC -7 points and DAX -30 points.

Read the full report at Alpari News Room​

 

[Alpari]

US Opening Call from Alpari UK on 7 August 2013

Markets fall as Carney provides forward guidance

Today’s US opening call provides an update on:

• Markets trading lower after BoE inflation report
• Mark Carney provides forward guidance, linking interest rates to unemployment
• German industrial production reaches 14 month high

Global indices are trading lower ahead of the US open after the key quarterly inflation report out of the UK failed to provide the boost expected by the forward guidance provided by Mark Carney in his first speech as the governor of the Bank of England. The inability of markets to rally upon what is supposed to be equity positive news points to either an innate weakness within the upside seen throughout the past six weeks or else a market which had already factored in a more significant statement from the BoE.

The highly anticipated announcement from the Bank of England today provided clarity of which indicator the markets will be closely watching from now on, as Carney decided that interest rates will be kept at 0.5% until the unemployment rate reaches 7% or below. Much like recent clarification from the Fed regarding their guidance, this is a prerequisite for the bank to open discussions as to whether rates should be raised, as opposed to a threshold which will automatically raise rates. Bearing this in mind, the UK economy is not expected to reach 7% unemployment until Q3 2016, providing markets with an estimated three years of low inflation and stable asset purchases.

The primary remit of the Bank of England is of course price stability and any forward guidance was always likely to include an element to ensure this remains in focus. Subsequently, it came as no surprise that Carney provided the caveat that the forward guidance framework could be invalidated should the 18-24 month expectation for CPI reach 2.5%. This allows for some room to breathe and provided a boost to the forex markets, where sterling rose unexpectedly despite a commitment to the current 0.5% interest rate and £375 billion asset purchase policy.

Overall, Mark Carney sought to provide direction to both the markets and also the wider population. The ability to promise low interest rates for the foreseeable future allows for better forward planning for the likes of homeowners and business owners alike. This was the outlook for Carney when implementing forward guidance under his role as the Canadian BoC governor in April 2009 and the success of that no doubt drives him in today’s announcement. The ability to implement and manage forward guidance successfully has come under question recently after ECB and Fed attempts have created convoluted and confusing messages for the market.

In other news, the German Industrial Production figure rose to a 14 month high, significantly beating market expectations. This comes off the back of a particularly strong period for the eurozone, and provides another boost given the size and importance of the German industrial sector. The 2.4% rise represents a significant out-performance over the 0.3% forecast and shifts the emphasis towards growth for the sector considering last month saw the first negative reading for this figure in seven months. That being said, given the proximity of this release to the BoE forward guidance statement, any meaningful effect was largely overshadowed in the markets.

Looking ahead, key Canadian data in the form of the Ivey PMI and building permits figures, coupled with US crude inventories provide a focus for the US session.

US markets are expected to open lower, with the S&P500 -5 points and DJIA -41 points.

Read the full report at Alpari News Room​

 

[Alpari]

Daily Market Update - 7 August 2013 - Alpari UK

Chief Market Analyst James Hughes discusses the big story of the day, Mark Carney's first inflation report as head of the BoE.

[video=youtube;R-74LfowdOE][/video]