Tag : UK

British Pound May Remain Under Pressure As Yield Outlook Diminishes

Posted by Mulder Venture at 5:18 pm

British Pound May Remain Under Pressure As Yield Outlook Diminishes
Fundamental Forecast for British Pound: Neutral
-    BoE left their benchmark rate unchanged at 0.50%, while pausing the asset purchase program at £200 billion.
-    Manufacturing PMI unexpectedly rose in January to 56.7 from 54.6
-    U.K. construction industry improves, as service sector weakens

The British pound tumbled to end the past week against the dollar and yen led by broad based risk aversion sparked by the budget issues in Europe. Stocks in Spain and Portugal nose dived as investors dumped assets from the countries as concerns grew that their budget deficits were unmanageable. Soaring yields sparked broader selling and traders looking for safety in the dollar and yen. The GBP/USD and GBP/JPY saw breaks below major support levels. Sterling/dollar dropped below Fibonacci support at 1.5742 before ultimately trading below 1.5600 for the first time since May 21, 2009. The global trend over shadowed the BoE rate decision where policy makers chose to leave the benchmark interest rate at 0.50% and paused the asset purchase program at £200 billion. This was in-line with expectations but a decline in December mortgage approvals had raised some speculation that additional QE was forthcoming. Therefore, following the release we saw a brief spike in cable support before giving way to the bearish trend.

Policy makers chose to leave the door open for quantitative easing as the U.K. economy barely ended its recession in the fourth quarter with 0.1% growth. The MPC expects efforts to date will “impart stimulus for sometime” and sees a lower sterling and recovering export markets as other drivers of growth. A gradual recovery is expected which has eased concerns over inflation currently threatening the bank’s threshold of 3.0% which would require Governor King to write a letter of explanation. The central bank expects consumer prices to fall below their 2% target for a period, but potential remains for further appreciation in the short-term. The threat of inflation had some market participants looking for the BoE to bring an official end to their asset purchase program which would have been the first step toward tightening.

Friday saw sterling losses outpace other bearish trending currencies which may be attributed to a sharp decline in U.K. interest rate expectations. Credit Suisse overnight swaps went from pricing in 60.7 bps to 44.87 bps of rate hikes over the next twelve months on Friday alone. The sharp decline is an indication that despite rising inflation the central bank is expected to remain on hold which could limit potential for future growth. The upcoming BoE quarterly inflation report will go a long way toward determining yield outlook and is the major event risk for the week. The Visible trade balance and industrial production also dot the calendar and will give insight into whether the demand for exports is continuing to drive growth as expected

Forex Trading: GBP/JPY

Posted by Byung Koo at 3:25 am

For the speculative trader!

Big movement expected after BOE meeting, expectations no change but look out for policy statement.
The British pound may have fallen against most of the majors, but the currency did manage to make slight gains against the ultra-weak Japanese yen.
UK data was in line with expectations, as the purchasing managers’ index (PMI) for the services sector rose to 56.8 in December from 56.6. This indicates expansion in the sector for the eighth straight month, and adds to evidence that the economy is slowing recovering from recession.

Today the Bank of England (BOE) is anticipated to announce at 13:00 CET that they’ve left rates unchanged at 0.50 percent, but this won’t even be the market-moving part of the announcement. Instead, traders will be looking toward the BOE’s policy statement. This has consistently been the prime “news event” of recent rate decisions. Last month, the BOE indicated that they would likely wait until their February meeting before considering any changes to the Asset Purchase Facility (APF), which is currently aiming to purchase £200 billion worth of high quality assets. With no program changes expected this time around, there is potential for the British pound to gain on neutral news as traders will price in an end to the BOE’s quantitative easing program.

Trade idea:
Take a short position at 149.50 with a stoploss on 150.50 or take a long position at 145.75 with a stoploss on 144.60. Mulder Currency Fund puts this two orders in book before announcement of BOE and we will wait for the possible big movement.

GBP/USD small range

Posted by Byung Koo at 1:44 am

Trade Idea, SELL at 1,6010 with stoploss at 1,6040 or BUY 1,5930 with stoploss at 1,5900. In this short week no expectations of a big movement in this currency pair. So trade with more lot size and earn money!

GBP/USD near critical levels, what to do?

Posted by Byung Koo at 11:23 pm

The British Pound fell considerably for the second consecutive day of trade, closing below important support at its 200-day moving average and leaving overall momentum firmly to the downside. A disappointing revision to Q3 Gross Domestic Product growth did the bulk of the damage, while a later US Dollar rally only exacerbated the GBP/USD decline. The UK Office of National Statistics reported that the economy shrank a more modest 0.2 percent through the period—better than the initially-reported -0.3 percent change but worse than the consensus -0.1 percent move. Given that the UK is one of the few major world economies that failed to recover through the third quarter, the GDP disappointment only served to worsen investor outlook on the British economy and currency. Traders should subsequently be on the lookout for today’s key Bank of England Minutes release. The last several BoE Minutes have shown substantial currency volatility given surprise votes on key measures, and today may be no exception.

The potential for the economy to emerge from its recession in the final quarter of 2009 has raised expectations that the BoE will bring an end to their asset purchase program and look toward tightening. The shortening time frame for a rate hike has increased U.K. interest rate expectations in determining GBP/USD price direction, which is currently explaining 32% of volatility compared with 19% a week ago. However, risk appetite has also seen a rise in its influence from 28% to 43% in the past month, but that relationship has shown signs of warning over the past few days which increases the importance of today’s BoE minutes release.

Today’s release of the MPC minutes from their last rate decision will give insight into the timeframe for the beginning of tightening. The central bank didn’t add to their asset purchase program in December and following the month’s prior split vote on additional measures, it will be interesting to see where the votes fell this time around. If members are still calling for more quantitative easing then the outlook for interest rates could sink and drag the pound lower. A unanimous vote and optimistic rhetoric from policy makers should raise the potential for future rate hikes and provide sterling support. Service sector and housing data will also be released and could influence sentiment.

Key support level is 1.5800-1,5850 but will be hold or break? Will be hold, GBP/USD still in range 1,5800-1,5850 and 1,6756(first blue line). I don’t want to talk about will it break 1,58 than GBP/USD could drop very fast to next support level 1,5160(orange line)!

Mulder Currency Fund have no open positions right now in GBP/USD but one small order to buy GBP/USD on 1,5825 with stoploss order on 1,5750. In a thin market like this week, we could see big movement after BoE minutes today. If the order will be filled, target short term(1-2 weeks) is 1,62 to take profit. So we could lose around 600 euro’s or win more than 2000 euro’s. Order is lot size 100.000 USD and with a leverage of 100. A small order Mulder Currency Fund have an amazing half year behind, with a performance of more than 300% within 6 months so these days you don’t trade big. Next year a lot of opportunities and we expect high volatility in currency pairs.

G20 Comments on Currency Prices

Posted by Mulder Venture at 4:13 am

In the aftermath of the G20 meeting it seems that policy makers are still clearly disturbed about the state of exchange rates. In the last few days we have heard choirs of high profile complaints against currency strength. With the EURCHF trading around the 1.5100 level, markets should be focused on the recent SNB comments, which forcefully defend action (not a “beggar-thy-neighbor” strategy) while staying committed to their current interventionist policy.In Canada, BoC Governor Carney reiterated that long term persistent strength of the CAD would be negative for the Canadian economy and prolong soft inflation figures.

While yesterday ECB’s Trichet and Nowotny both said a strong USD is “important” for the global economy. Perhaps the most interesting, while confusing, would be the comments from Japan. Overnight new Minister of Finance Hirohisa Fujii seems to be backtracking from recent comments and now has expressed some displeasure at JPY moves but also declined to commit to intervention, stating the market had twisted his earlier statements. In the last 24hr Fujii has said “We are watching FX moves closely” and “FX intervention is possible under extreme circumstances.”

On the other side, Prime Minister Hatoyama stated that the JPY rise is already hurting small companies, hinting that the new government will probably not permit the Yen to appreciate forever. Sounds like the historical goverment policy of a weak JPY is returning.

These comments have created considerable distortion in the FX markets and traders would be advised to watch out for continued verbal intervention. Wall Street was able to close on a high note and for the most part Asian regional indexes follow (lone exception Shanghai -0.21%). The rally in risk appetite feels light with only a slight rebound in risk correlated trades. Yesterday’s economic calendar was light, while today we have couple of releases, which could move the markets. The UK Q2 GDP turned out to a nonevent, printing at -5.5% y/y vs. -5.4% exp, -0.6% q/q vs -0.6% exp.

And from the Eurzone September’s increase in economic sentiment to its highest level in a year is another good sign that the domestic economy continues to recover. Economic sentiment, jumped to 82.8 from 80.8 , a touch higher than expected . From the US we’re awaiting S&P/Case-Shiller Composite-20 Y/Y Jul house price index and the consumer confidence for September.