Mike Paterson’s daily Forex brief

FX markets sprung to life again yesterday (relatively speaking for the time of year) when the ECB’s 3 Year LTRO, providing liquidity to Eurozone banks, had a far bigger take up than expected at €489 billion.

The result initially gave some comfort to the market and EURUSD had a quick run-up to 1.3197. But with large sellers in wait for the rally and the perception that this added help, effectively further QE, this would have a devaluing impact on the Euro so we saw a sharp move back lower. The thought was that it showed just how much the banks were needing to borrow to shore up defences without necessarily re-investing in sovereign debt and putting the money back into the system. A decent enough argument against QE and one that can aimed at the UK too. Yesterday’s ECB auction was further undermined by some jiggery-pokery from Italian banks resulting in them taking 23% of the final amount.

Either way, these fragile markets didn’t like it and we saw EURUSD touch lows of 1.3033 sending EURGBP down through the first strong support at 0.8330 (GBPEUR resistance 1.2004) and then an assault on the key 0.8300 (1.2048) level, and yearly ,that I also mentioned yesterday. Failure to get through has seen it rebound to 0.8347 (1.1979) and I stand by my view that this key area will be a tough one to crack.

EURUSD now has decent buy orders around 1.3020 protecting a 1.3000 option interest due to expire today but despite some good buying names this morning we expect to see sell orders around 1.3130-40. Should we break up through there then we shouldn’t rule out another attempt on 1.3200 but expect to see plenty of sellers again. The market perception remains that any rallies this side of year-end should be sold as we’re heading lower in January.

FX Update

FX Update

EUR/CHF rallied yesterday on comments from the Swiss finance minister suggesting that the government is still exploring measures to weaken the franc (or more likely keep it from strengthening much if the Eurozone crisis intensifies). Two measures in the Swiss parliament to allow a legal framework for negative interest rates were defeated, so capital controls seem like the only other option. For a country that relies on the provision of financial services for a large percentage of its GDP, capital controls would be a death wish for the sector. EURCHF rallied to 1.2244 from 1.2170 but has since fallen back to 1.2198. Expect 1.2130-50 area to be vigorously defended though should we go lower.

GBPUSD found a base again around 1.5655 but I hear talk this morning of sell interest between 1.5750-70 again. Overall the Pound is little changed as focus remains elsewhere.

UK final GDP data just out was 0.6%, marginally up from the 0.5% estimate, but any movement in the currency was stifled by worse than expected Q3 current account figures which came in at a record £ 15.23 billion. Should expect some interesting government spin on that little lot during the day.

US GDP is out at 13.30 GMT along with the weekly jobless data and we can expect some further volatility before the week-end and Santa finally popping down the chimney.

Today's Data:

09.30-UK- Business Investment / Current Account / GDP

13.30-US- Weekly Jobless Claims / GDP

14.55-US- Michigan Consumer Sentiment Index

Interbank Rates as of 08:44 BST

Current Price

Overnight

High

Low

EUR/USD

1.3092

1.3119

1.3033

GBP/USD

1.5689

1.5730

1.5655

EUR/GBP

0.8345

0.8347

0.8317

GBP/EUR

1.1979

1.2024

1.1977

GBP/CHF

1.4618

1.4681

1.4617

GBP/AUD

1.5484

1.5570

1.5481

EUR/CHF

1.2200

1.2223

1.2198

GBP/HKD

12.1637

12.1954

12.1373

EUR/HKD

10.1541

10.1823

10.0942

GBP/ZAR

12.8617

12.9841

12.8309

USD/JPY

78.09

78.14

77.99

GBP/CZK

3.0673

3.0803

3.0605

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

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