Which Forex System?: February 2012

Wednesday, 29 February 2012

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Simon Denham's Daily Market Comment

Well this day only comes round every four years and so it’s worth trying to make the most of it. That’s what the ECB will be attempting to do as they dish out another round of cheap loans this morning. The markets leading into today’s LTRO have traded sideways as investors remain apprehensive to exactly what the “big figure” will be and just what it’ll mean for the markets if it is higher or lower than December’s number of €489b. This morning the FTSE is trading roughly flat at 5925 in anticipation as the last few sessions seem to have been building up to something, maybe today?

The first round of loans was mostly taken up by Italian and Spanish banks so it will be interesting to see when the details are revealed just how much more these institutions helped themselves too this time round. France was also in for almost a fifth of the loans and here again investors will want to see how much their banks, which were in the eye of the storm of the debt crisis until LTRO I last December, have borrowed. UK government owned banks will also be joining the queue which should come as no surprise considering their poor results recently. They’ll want to take advantage of the cheap funds to further their work in repairing their balance sheets.

Yet the main thing that has happened as a result of all this liquidity is that there hasn’t been any great trickle down to normal businesses and consumers. It’s all very well the banks repairing themselves, but it’s the businesses on the front line that are crying out for the cash. The problem is that we are in a vicious circle whereby banks are happier to horde the cash as opposed to lending it out and the same would probably be said for businesses if they did get the loans. They may perceive the risks to be too great in trying to invest and expand at a time when the economy is flat lining at best.

On the economic data front we’ve already had UK consumer confidence out and that did not come in at the expected improvement, so no improvement on last month and a highlight of the figures was an improvement in the personal finance number. Here consumers are more confident about their finances than they were a year ago and a little more optimistic about the economy. Whilst the headline figure hasn’t changed, these glimmers of hope for the consumer might signal a turning point. At the beginning of last year we saw consumers starting to get more confident, but that was swiftly reversed as the European debt crisis unravelled. This time round with the Greek situation to one side there’s hope that overall confidence can continue to improve.

There’s plenty more in the way of data today. Also from the UK this morning we get money supply data. At lunch time there’s US GDP figures followed by the Chicago PMI number. After that oil inventories and then this evening the Fed’s Beige Book.

Sterling has benefited somewhat following the slightly positive consumer confidence numbers. GBP is up a tad at 1.1830, a way off the highs and strong resistance around the 1.2000 mark and it would seem with the euro’s recent strength any sterling gains against the single currency could remain short lived. For the euro the bulls are in the ascendency ahead of the LTRO with EUR/USD at 1.3455 just below its recent highs of 1.3485. Today’s session might be volatile especially around the time of the LTRO release this morning so all eyes are on the near term support and resistance seen at 1.3400 and 1.3500 respectively.

Silver was the stand out asset yesterday when it saw a rally of nearly 5% after breaking beyond resistance at the $35.70 level that has proved so difficult to overcome in the past. The prospect of the cash injection from the ECB today supported precious metal prices and after silver made the initial move in spiking higher, eventually gold followed suit. This morning silver is trading on its highs at 37.20 and gold is at 1788, nearing a 4 month high.

Brent has taken a breather for now and is at 122.30, just finding a little short term support on the 200 one hour moving average. With oil inventories later and the LTRO today, volatility in commodities cannot be ruled out either.

http://www.capitalspreads.com/simon-denhams-daily-market-comment

Monday, 27 February 2012

Simon Denham's Daily Market Comment

Over the near term the FTSE has formed a double top around the 5970 level which is the major hurdle for the bulls at the moment. The markets seem to have trended sideways for the last few days and weeks with the upside momentum looking to have dried up. It’s not a big surprise considering the good start to 2012 that we’ve had so far, markets don’t continually go up in a straight line.

This morning the FTSE is just hovering above the 5900 level, down some 30 points as the G20 meeting over the week end disappointed. The non European members of the G20 said to the European members in no uncertain terms, put up or shut up. We still have the political stalemate in Europe whereby Germany’s current leader will not get its bazooka out for fear of giving up further political ground to her opponents when she is already reliant on a coalition to pass votes on European bailouts. By giving in and saying that Germany will stump up will could easily cost Merkel the next German election in the autumn of next year. But other nations around the world will simply not inject any more funds into the IMF in order to prop up the eurozone when large parts of the region remain woefully uncompetitive and profligate. This week sees a European summit that is aimed at putting these G20 members’ minds at rest as Europe aims to finalise new fiscal rules, but as we’ve seen in previous summits gone by, there’s no guarantee that an accord will be reached.

It’s not as if risk aversion is truly off the cards at the moment since the euro remains strong compared to others. This is most likely because of the impending second round of cheap loans that are due to flood the European banking system on Wednesday as LTRO II gets underway. This is one of the major events of the week and investors will be watching closely to see just how much will be lent by the ECB. Not only is the amount an important factor but which banks belonging to which countries will be taking up the cash. Italy, Spain and France made up the majority of those hungry for the funds, so it will be interesting to see just how much they participate on Wednesday.

Other factors preventing markets from scaling to new highs are the ongoing geopolitical tensions in the Middle East. The price of oil has been gradually rising throughout February and hit new record highs in sterling and euro terms. Prices at the pump have never been higher and this is crippling many motorists and businesses. There are lots of calls for the Chancellor to do something by reducing duty on fuel, but even if he did, he can’t actually bring the price of oil down himself. A few pence off the price of a litre could easily be wiped out in an instant by further crude price rises.

Traders long of the euro watched their bets rally as optimism was still the theme on the back of a successful Italian bond auction last week. There was also positive consumer sentiment data and better than expected US home sales, which encouraged traders to move out of safer currencies such as the dollar. The euro is now close to the 1.35 level and trading at levels not seen since last December. This morning there has been a bit of profit taking from long EUR/USD positions and is trading around 1.3429.

During recent weeks, investors have seen many factors driving on gold’s price. A weaker US dollar has increased demand for the precious metal along with tensions in Iran and not to mention lingering concerns over the European debt crisis situation which was allowed up for some fresh air last week. After four consecutive days of gains and a three month high reached last week, it appeared traders wanted to bank their profits ahead of the weekend meaning the precious metal closed down at 1772.0, nevertheless still up 13 per cent since the turn of the year. At time of writing, the pull back is still going, with the yellow metal trading down at 1770.6.

For black gold, the main driver at the moment is the ongoing tensions in Iran, with fears of supply disruptions sending crude prices soaring to a nine month high on Friday. Overnight though trade in Brent could not hold those levels and traders who thought maybe the rise was a tad overdone decided to rid some of their positions, meaning that the price of a barrel is now at 124.52.

http://www.capitalspreads.com/simon-denhams-daily-market-comment

Friday, 24 February 2012

Simon Denham's Daily Market Comment

British banks remain in focus today as the second partially government owned bank Lloyds has reported results which have matched RBS with a disappointing miss of estimates showing worse losses than expected. Like their Scottish counterpart they too suffered from a big hit on the miss selling of insurance policies and due to their exposure to the UK economy and housing market it’s not a huge surprise to see their numbers below the consensus, especially after RBS's results yesterday. As a result the CEO of the bank has forgone his bonus for 2011, overall bonuses at the bank are lower than the year before and past executives have had bonuses clawed back.

Only a few years ago Lloyds bank was a very different beast, a conservative, retail focused institution with a much smaller “casino” arm than its competitors. During the height of the banking crisis the takeover of HBOS that was imposed on them led to their near downfall. This was another move aimed at preventing total meltdown of not only the UK banking system, but globally, and whilst it prevented that and protected people’s savings, it meant a government bailout was required. Today that investment is still way offside and it will be some time before a return is seen. Lloyds’s story is slightly different in that it doesn’t have huge exposures to the eurozone, but its threats lie in the UK economy and housing market. For them it's growth is very important, which in turn should lower unemployment and keep the housing market buoyant.

So why is the share price higher this morning? Banks have enjoyed a very strong start to the year and Lloyds’s shares are up 40% in 2012 alone as the European banking sector is benefiting from the huge boost of liquidity from the ECB. Their balance sheets are being restored and the threat of a new credit crunch was recently averted. All the rallies in their share price of course is good for the UK tax payer.

Despite the grim numbers from our government owned banks the FTSE continues to defy gravity. A see-saw session yesterday ended with the index posting a mild gain and in the US markets were strong, which is filtering through to London stocks this morning. At the time of writing the FTSE is at 5960 up some 20 odd points and key levels to keep an eye on are seen at 5890, 5855 to the downside and 5970, 6000 to the upside. Even though clients remain cautious on the index by still holding onto short positions overall they seem to be going against the trend that insists on grinding higher. Day by day the 6000 level seems to be closer.

Today sees the second release of fourth quarter UK GDP data which as we know was in the red. It is expected to remain at -0.2% and the jury is still out as to whether the first quarter of this year will see another decline in growth meaning a technical recession. We might be able to avoid this though as not only have the markets got off to a better start than expected for 2012, but the economic numbers have been surprising to the upside too with better retails sales and PMI numbers.

Later from the US today both Michigan confidence and new home sales are expected to rise and often these can be market movers, so it’s worth keeping an eye out for them.

The euro poked its head above the resistance area of 1.3300 against the dollar and then the floodgate of buyers opened pushing it to a new two and a half month high. This move is a coup for the bulls who maintain the momentum and this morning EUR/USD is at 1.3380 following yesterday’s impressive German business confidence data. Support is now seen at the previous resistance of 1.3320/00, then 1.3280/45 and resistance is seen at 1.3425/50.

The weakness in the dollar against the euro hasn’t equated to weakness across the board for the greenback. Against the Japanese Yen it continues to make ground above the 80.00 level at 80.55 at the time of writing. So a fresh seven month high and it looks like the fortunes of the dollar against the Yen may have changed.

Gold is just taking a breather following its break above 1760. At the time of writing the yellow brick is at 1778 and the bulls will be eying up 1790 and 1800 meanwhile support is seen at 1770 and 1760.

http://www.capitalspreads.com/simon-denhams-daily-market-comment

Wednesday, 22 February 2012

Simon Denham's Daily Market Comment

The rally seems to have stalled for now as investors try to work out whether the Greek bailout is good or bad for all of us. There are still doubts remaining as to the viability of the plans and last night when US markets returned from their extended week end, they seemed none the wiser as to how to play things either.

We had been calling the Dow to open above the 13000 level and it briefly flirted with this figure before giving up on the idea. The uptrend for US and European indices for that matter remains in tact but just this morning there seems to be a little bit of respite for the bulls as they consider their next move. The slow grind higher so far this year has been impressive and certainly caught quite a few people off guard. Clients continue to sell into the strength presumably expecting some sort of more prolonged move to the downside at some point and whilst there’s a degree of relief that the Greek issue seems to be finally coming to a resolution, the bulls look like they might just be running out of puff for now.

The FTSE was in sight of the 6000 level earlier this week however it’s been scared off trading at 5920 at the time of writing and whilst many investors still see equities as being cheap, they are showing reluctance to buy at these levels following the recent rally.

The Chancellor at least has something to smile about following the PSNB figures yesterday that came in lower showing a bigger surplus. The increase in tax receipts is a good sign for the Treasury’s coffers and the coalition’s deficit reduction plans. There might even be a little bit of wriggle room for the Chancellor come budget day in a few weeks time, but judging by his resolve to not waiver from his course to now, it certainly won’t be an early Christmas for British tax payers!

Economic data comes in the form of some French inflation data which we’ve already had. This has come in at slightly lower than expected but is still showing a rise of inflation of over 2% driven by rising oil that has pushed up petrol prices on the continent. France is also suffering from what our inflation numbers did back in 2011 when VAT was hiked here and now the same is happening for them.

We’ve also had some PMI data from Germany which has come in worse than expected. These numbers are mixed and show that whilst the German economy is in relatively good shape it isn’t immune to a shock. At least the data does show that they are still in a very strong position. With the global economy stabilising this will continue to benefit the Germans who are heavily reliant on consumption hungry emerging markets buying their top of the range products, cars in particular.

Also this morning we have the BOE minutes from their latest decision to increase its asset purchase program or quantitative easing. It will be interesting to see just how people voted on more QE as this will give an indication as to whether we can expect more or less QE in the future. One thing is for certain and that’s that the BOE have little concern for the rate of inflation and are having to bow to pressure from politicians in order to try and boost growth with more QE.

As we expected, the euro surged against the dollar on the back of the news that Greece were approved of their bailout. There may have been a case though for profit taking as the single currency failed to maintain the gains and ended the day down 10 points. The dollar found strength against the yen and shot to a six-month high, as the speculation is that the US economy is growing and the need for quantitative easing may ease up. This morning USD/JPY is trading at 80.180 and is in a strong uptrend, which could potentially continue.

The Greek bailout ignited the feel good factor in the markets and sent gold soaring 24.6 dollars to close at 1758.6, not far off the highest level, 1763.2, seen since last November. Already though investors are having doubts over the new deal and these doubts will test the strong performance seen over the last few days. Currently, the precious metal is trading down at 1756.9.

Like gold, energy markets were buoyant and crude prices were sent higher. Considering though that most of the boost came towards the settlement could mean that the main driver for black gold is still the situation between Iran and the West. At time of writing, Brent is trading flat on the day at 121.64.

http://www.capitalspreads.com/simon-denhams-daily-market-comment

Monday, 20 February 2012

Simon Denham's Daily Market Comment

Asian markets were boosted at the start of their session overnight following the news that China had eased their bank capital policy a touch. This led to a big jump early on last night with our FTSE quote hitting as high as 5970 but gradually throughout the Asian session the gains were handed back and we haven’t opened nearly as high as was previously expected.

China continues to be a big driver behind sentiment and appetite towards risk as the world’s second biggest economy remains critical to the future of global growth and expectations. The authorities there are as desperate as everyone else to try and avoid a major meltdown or “hard landing” of their economy, so actions like this will help in avoiding a crash.

The move is lifting the usual suspects this morning with mining and energy stocks getting a boost. The FTSE is trading at 5934 at the time of writing with the bulls in the ascendancy pushing the index to new highs for the year and a fresh six month high at the same time. European indices are also being boosted by the prospect of the Greece bailout finally being rubber stamped today, which was one of the biggest threats to the current rally. With this hurdle out of the way the bulls are thinking it could mark the next major step higher for the indices as they continue their grind higher.

However, there are still considerable headwinds going into the next few months and weeks. Not only are the economic concerns a continual worry, but the geopolitical ones too. Iran is stepping up its rhetoric against Europe by imposing oil export bans on the UK and France. The latter country has up and coming elections in April, as does Greece, Russia and of course the big one in the US later in the year. A change to the political landscape might throw other spanners in the works or as a minimum add to the uncertainty. So with all these other considerations it comes as little surprise to see that already this morning the markets have retraced from what was expected to be a much stronger open than what we actually got.

The risk taking which is the order of the day in the equity markets is filtering through to the FX markets too this morning, as we saw eurozone finance ministers potentially giving the 130bn euro bailout package the go ahead. The result of this and the cut the banks’ cash reserves requirements by the People’s Bank of China over the week end adds to the hopes of a stimulus to economic growth. The result is a weakening dollar and yen as safe havens are off the cards for now. The newly-injected optimism in the market could see the euro push higher on the back of it and this morning EUR/USD is seeing a bit of upside, taking it to 1.3195 at the time of writing, but like equity markets it has just softened a little since the start of today’s session.

Gold was given a boost in early trading on Friday as US inflation rose 0.2 percent in January compared to last month. However, this hike was short lived as investors were faced with a long weekend due to the Presidents Day holiday in the US, meaning that stakes weren’t that high and profit taking was the name of the game causing the yellow brick to end the session down 4.6 dollars at 1723.1. At time of writing though, it’s started the week on a positive note and is trading up at 1730.6.

This morning energy markets are being propped up by the Iranian stand off with the West. News that they have halted oil exports to the UK and France has caused Brent to spike back above the $120 a barrel mark, having been as high as 121.00 earlier this morning. Currently, Brent stands at 121.50 with the near term up-trend still looking firmly in tact.

http://www.capitalspreads.com/simon-denhams-daily-market-comment

Friday, 17 February 2012

Simon Denham's Daily Market Comment

US markets continue to ignore what’s going on in Europe as they rally higher putting the Dow within touching distance of the 13000 level. Across the pond things are very different to what is happening in Europe with the economy growing and unemployment falling. Yesterday initial jobless claims and manufacturing data came in better than expected which led to a strong rally for the likes of the Dow, S & P and Nasdaq. These indices are now very close to making new highs for the year with the tech stocks about to mark new record highs. It goes to show that there is a disconnect between US and European markets at the moment where European investors remain engulfed with the concerns over Greece however other parts of the globe are either bored of talking about the sovereign debt crisis or oblivious to the consequences of a major fallout.

Last night’s rally in the Dow is allowing the FTSE to wipe out any recent losses making any falls a thing of the past. The fact that any dip is being met with buying shows that the bulls are reluctant to give this rally up without a fight pushing UK stocks to near six month highs. At the time of writing the FTSE is at 5915 and bulls seem to have their tail up as they target the 6000 level. A break above near term resistance at 5920 could see a test of 5955 and beyond. To the downside support is seen at 5855 and 5830.

Today a little bit of economic data is due in the form of UK retail sales which is expected to decline. With the heavy discounting over Christmas and in January consumers gave retailers a boost as they took advantage of bargains, but since then they have failed to put their hands in their pockets. New Year sales have been longer than I can remember as shops attempt to entice people through their doors.

At lunchtime there’s the US CPI figures which are expected to show that prices rose by 0.3%, still a long way off the sort of inflation experienced in the UK, but an indication of the growing economy in North America.

As equity markets recovered from their lows, so did the euro after briefly dipping below 1.3000. The move below the big figure didn’t last all that long before the bulls were back in town adding over one hundred ticks to EUR/USD. The rumour was that the ECB was exchanging Greek bonds for new securities and thus increasing the chances that the bailout will go ahead. This morning EUR/USD is trading at 1.3125 and near term support and resistance are seen at 1.3040, 1.2970 and 1.3190, 1.3215 respectively.

The bounce in risk assets was very much to the detriment of the Japanese Yen which gave a boost to USD/JPY allowing the pair to continue its move above the 200 day moving average. This hasn’t been seen since April last year and so is believed to be quite a significant move. Usually during a move into riskier assets you’d expect the greenback to suffer, but yesterday’s bullish economic data sent the dollar higher against the Yen. At the time of writing USD/JPY is at 79.10 and near term support and resistance is seen at 78.50, 78.15 and 79.30, 79.50 respectively.

Gold found some short term support at 1710 once again bouncing back to over 1720 and this morning is at 1731 as it enjoys the same strength that indices are seeing. The precious metal has yet to break to new highs and doubts still remain about the recent rally but this morning’s strength indicates that the bulls haven’t given up the fight yet. Targets to the upside are seen at 1737, 1742 and 1752 meanwhile support is seen at 1705 and 1692.

http://www.capitalspreads.com/simon-denhams-daily-market-comment

Wednesday, 15 February 2012

Simon Denham's Daily Market Comment

The eurozone received a massive boost yesterday as China pledged to invest in the European bailout fund and also keep hold of it’s euro assets. It comes just as Greek leaders are putting budget cuts in place, in return for their second bailout. They are hoping to get the 130bn euros plus the 100bn euros of debt relief in time to make a 14.5bn euros bond payment on March 20. However, the meeting today of eurozone finance ministers has been cancelled, and will instead take place via telephone conference, as there is speculation that Greece won’t be able to stick to the austerity measures they originally claimed they were to put in place.

Germany may swerve a recession as Europe’s biggest economy shrank less than economists forecast for the fourth quarter. Their GDP fell 0.2 percent from last quarter compared to an expected 0.3 percent, which has provided for some moderate optimism.

The UK 100 finished slightly off par yesterday at 5899.8, after climbing 0.9 per cent on Monday as investors pulled out of banks and miners and put their hard earned cash into more defensive sectors on the back of disappointing data from the US Retail Sales, spurring on concerns over the strength of the economic recovery.

On the macroeconomic front, the main focus this side of the Atlantic will be the British Unemployment numbers being released at 0930 GMT, closely followed by the Bank of England’s inflation report at 1030 GMT. Across the pond, data comes in the form of February’s Empire State Index at 1330 GMT, National Association of Homebuilders Index at 1500 GMT but most importantly the minutes from the last Federal Reserve FOMC meeting are being released after the UK close at 1900 GMT.

Ahead of news that today’s eurozone finance ministers’ meeting was to be cancelled, speculation amongst traders was that Greece’s proposed bailout package is in danger. The knock on effect was a third consecutive fall for the euro against the dollar. It seems that China have come to the rescue at the right time and given the euro a much needed boost and we are seeing the single currency trade higher this morning at 1.3160. With European equities up this morning there may be room for the euro to move higher.

Doubts that Greece will be able to uphold its side of the belt-tightening deal with other Euro zone members proved to give a good resistance for gold yesterday as investors in search of a safety haven found tranquillity yet again in the US dollar. On one side of the see-saw is fear that the situation with Greece could still be contagious, and thus create liquidity problems in the market place, but on the other side, if the European Nation gets another break, investors could see the yellow brick resume its upwards trend. Overall, gold lost 1.8 bucks to close at 1720.5, but at time of writing the bulls seem to be heavier with the precious metal up at 1727.5.

Europe’s biggest economy, Germany, posted a better than expected economic sentiment figure yesterday giving traders a boost of confidence and allowing them to ignore Moody’s Investor Services downgrade on a number of euro zone member’s credit ratings. This in turn provided good support for crude, which was also given a leg up as Israel accused Iran of attacks on its diplomats abroad.

http://www.capitalspreads.com/simon-denhams-daily-market-comment

Monday, 13 February 2012

Simon Denham's Daily Market Comment

Greeks have voted to take their medicine and so markets are rallying in relief that a rejection of the vote has not lead to the country’s exit from the eurozone. Their politicians were able to persuade the majority that the alternative will be far more painful if they were not to pass the austerity measures and now Europe and the IMF will want to see their words put into actions. There are still negotiations that need to be completed such as actual sign off by the troika and then agreement on the private sector’s bond write down.

If Greece does actually stick to an approved plan then the resultant recession will be long and hard, but as reminded by the politicians the electorate needs to appreciate that such drastic action is required in order to get the country back on the road to being more competitive and ultimate recovery if they want to remain in the eurozone. If the vote hadn’t been passed then exit from the euro club would have been imminent. The return to the Drachma would have damaged the country’s dignity even more than it already has been, but the resultant recession would have been far deeper and longer than what’s being put on the table today.

The rest of Europe will be unlikely to call for further austerity, but will be watching very closely to ensure that in the run up to the elections in April and beyond the promises are implemented. At the moment few know what a new parliament in Greece after April will look like and there’s always the chance, as we’ve seen before from Greece at the end of last year, for a politician to pander to the populist vote in order to get in power and not actually implement the measures just passed by their parliament. One thing is for sure that all this vote does is buy time and doesn’t guarantee the country is immune to default or exit in the future.

But for now the news comes as a relief for investors who are pushing risk assets higher. The FTSE has recovered back to 5900 at the time of writing having gapped higher on the open. Having seen a minor break to the downside on Friday once again the buyers have seen the weakness as a buying opportunity and we are firmly back in the narrow trading range of last week.

Any traders who went long of the euro on Friday are likely to be thanking the Greek parliament for passing approval of the austerity measures. The news that Greece are likely to a second bailout encouraged traders to move out of any safe haven yen and dollar positions, causing a spike in the single currency as of last night. This has continued into this morning and EUR/USD is trading around 1.3275. The taste for equities and risk taking today, could see the euro move higher in line with this sentiment, but the bulls need to shake out the bears around the 1.3300 level which remains the major near term hurdle.

Gold was fighting a losing battle against the greenback during Friday’s trading as investors cashed in on profits ahead of the weekend. Another reason for the slump was the requirement to cover margin calls in the falling equity markets, meaning that traders were closing out of the precious metal to free up money. No one will forget the lingering issue with Greece and this means that risk adverse participants have been pushed out to the sidelines while the volatility remains, despite gold being used as a hedge in previous times of trouble. So by the end of the day, the yellow brick had shed 8.1 bucks to close at 1721.3, which at time of writing has been reversed and now the level sits at 1731.1.

Much like gold, a higher US dollar combined with a lower equity market meant that crude struggled to make ground in Friday’s session. Adding to the fire was a lower revision in the global demand for oil in 2012 by the International Energy Agency, also mentioning that a loss on Iranian crude supplies can easily be replaced. Currently Brent sits at 117.67.

http://www.capitalspreads.com/simon-denhams-daily-market-comment