Mike Paterson’s daily Forex brief

So much for the Government’s view that the UK is a safe-haven……..

Yesterday I said blink and you miss it in these markets, and the last 24 hours has proved that beyond doubt with some quite ridiculous moves exacerbated by thin summer liquidity.

After a roller coaster day which saw the Dow Jones fall over 400 points then staging one of the biggest comebacks in history to finish above 11200, we saw the FTSE below 4800 and move back to cap just below 5300 but lagging behind the curve.

The impact on the currency markets was understandably chaotic after the morning session had seen decent volatility in relatively confined ranges, but as the stock markets started to stabilise so traders looked for the next target and, hey presto, they found one in riot-torn Blighty………

I had said yesterday that it surely couldn't be long before the anarchic scenes unfolding around us had an impact on the Pound and so it proved. The initial spark was created by large selling of GBPUSD by a US investment house driving it down over 100 points, and this in turn drove EURGBP higher exacerbated by the market's desire to get some Euros back on board generally (apart from the Swissy but more of that in a moment). EURGBP moved up to 0.8800 before retracing a little but overnight has moved higher again to key resistance around 0.8825 (GBPEUR support around 1.1340).. Should this level break then we can expect further acceleration.

Meanwhile the Fed was leaving US interest rates on hold for 2 years but with no real talk of further QE the Dow initially got slapped again before traders took comfort after all and we saw another rally which then sent FX traders rushing to reverse recently sold positions in those high-yielders such as Aussie and Rand and we saw a dramatic drop in GBPAUD from 1.6370 to 1.5960 in the blink of an eye and this has further dropped to 1.5676 just as fast in Asian trading. The story is a similar one across the board with the Pound proving once again that as a safe-haven it's got a lot to aspire to yet and has fallen back dramatically after its recent gains by default.

Ok, it's moved up a little overnight against the Swiss Franc but only after having dropped over 700 points yesterday to 1.1576 as EURCHF moved lower again in the wake of the Fed's decision, finding support only just above 1.0050 as fears of SNB intervention at the 1.00 level…The SNB are torn between a mountain and a very hard cheese right now having lost billions already on intervention and value of reserves and seemingly powerless to stop this continual inward flow. Measures announced last week to weaken the Franc have only served to give traders a better level to buy it. And they've just announced expansion of those measures. Let's see what impact that has. I have a lot of respect for the SNB having felt their wrath during my City trading days and I can't help thinking they're not done yet……

The spotlight will stay on the Pound too though this morning as we have the latest BOE Inflation Report accompanied by Governor King expounding on the state of the economy… Anyone thinking he will say anything bullish please move to the back of the class now……….

These crazy, hazy days of summer are here to stay for sure.

Talking of which the 3rd Test match starts today at Edgbaston … after last night's Birmingham unrest…. and another Essex player coming back into the fray (on the pitch rather than the streets)…. Yippee, something to take our frazzled brains away from reality for a while!

Cricket played against a back-drop of anarchy on the streets. It's a funny ol' world……….

Today's Data:

Weekly Economic Calendar-HERE

Interbank Rates as of 08.09 GMT

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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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