UK votes to Leave eu in BREXIT

After the UK’s vote to leave the EU following a very close sentiment, Sterling has weakened significantly- but is bouncing back from it’s lows.

UK votes to Leave eu in BREXIT

There is a factor of uncertainty within the markets which has caused a lot of major sell-offs. Further to this, GBPUSD has opened this morning at a 30 year low, representing a fall of around 10% from last night’s peak, after breaking through key resistance levels.

This volatility is emphasised by the fact that there has already been a 2% bounce back. Naturally, a heavily declining rate is being seen across other Sterling focused currency pairings.

For the rest of the day, Sterling looks to remain under a lot of pressure, as will EURUSD. The next main focus will likely be the contemplation of the aftershock and how to deal with the uncertainty that is sure to follow the referendum’s result.

Sharp reactions on the money markets

It was widely expected that a remain vote would be seen after all of the polls released and therefore, it comes as no surprise that the markets reacted sharply when the contradicting news came in this morning and last night.

Looking out to the rest of the day, it’s likely to be chaotic and busy in the world of trading. It’s not just currencies that are being affected either – we’re seeing huge risk off moves elsewhere, including within the futures and commodities markets, just to name a couple.

Further to the general impact, it would come as no surprise to see central banks tightening their financial conditions and cutting interest rates. We’re also likely to hear from the ECB soon. Politics will determine the long term cost and with David Cameron resigning this morning, there is yet another factor of uncertainty on this side of the Brexit.

Hawkish FED triggers repricing of interest rates

FED minutes released yesterday sparked a considerable move in the currency market, as the hawkish Fed triggered a sudden, and sharp, repricing of interest rates.

FED minutes released yesterday sparked a considerable move in the currency market, as the hawkish Fed triggered a sudden, and sharp, repricing of interest rates

The minutes demonstrated a committee determined to continue in their tight monetary policy, with most Fed officials signalling a June hike likely, if the economy warrants it.

The Fed’s Federal Open Market Committee (FOMC) judged that “…if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen and inflation making progress towards the FOMC’s two per cent objective then it likely would be appropriate”.

It will be interesting to monitor if the Fed will be able to follow through with their plan, especially as the next rate meeting is scheduled ahead of the UK’s EU referendum, an outcome of which is still in balance.

Remain vote tops opinion poll

There was major focus on Sterling, as it rose sharply both against the euro and the US dollar, after an opinion poll released by Ipsos MORI for the Evening Standard revealed a large lead for the remain camp.

Ipsos MORI reported that 55% of the public are planning to vote to stay in Europe in June’s referendum, with just 37% backing Brexit. In Europe, the main focus yesterday was Eurozone inflation figures, which remained unchanged in April and with the YoY rate of consumer price index growth falling -0.2%.

Data to come

Looking at today’s calendar, this morning the market will receive Q1 employment figures from France, but the real focus for the euro will be the last European Central Bank minutes meeting.

Over to the UK, and April retail sales data is scheduled for release, with the market expecting sales to rebound. In the afternoon, as the North American market opens, the Philly Fed’s manufacturing survey will be closely watched, especially considering the weakness in the NY Fed survey earlier this week.

Initial jobless claims numbers are also scheduled for release, and the market will also have the opportunity to find out more about the Fed plans, with Vice-President Fischer and Dudley both scheduled for comments today.

FTSE 100 was almost unchanged today- despite strong results from Lloyds and IAG.

The FTSE 100 ended the day down just 3.1 points at 6,946.66.

FTSE 100 was almost unchanged today- despite strong results from Lloyds and IAG.Shares in BA owner IAG rose 3.7% after the company reported a big jump in full year profits and raised its 2015 forecast by 20%.

Lloyds Banking Group climbed 0.6% after it posted rising profits and confirmed it would resume paying a dividend.

The rest of the banking sector was mixed. Standard Chartered shares gained 1.5% as investors continued to react to Thursday’s news that its chief executive, Peter Sands, is to be replaced by ex-JP Morgan banker Bill Winters.

However, shares in Royal Bank of Scotland shed 5% a day after it announced another full year loss.

In other market news, publisher Pearson rose 1.7% after reporting underlying adjusted annual operating profits of 5%, in line with analysts’ expectations. Investors were cheered by Pearson’s pledge that earnings growth would resume this year after a two year restructuring programme.

Bookmaker William Hill fared less well, falling 3.3% after releasing first quarter results that showed revenues had fallen below expectations.

Shares in property website Rightmove jumped more than 13.4% after it reported a 26% rise in full year profit to £122 million.

On the currency markets, the Pound rose 0.2% against the dollar to $1.5437 and by 0.2% against the euro to €1.3790.

UK’s retail sales figures continue to disappoint

More doom and gloom last week for the U.K. with Retail Sales figures coming in largely under consensus showing a second straight contraction in the figure.UK's retail sales figures continue to disappointIn contrast, as markets continued to soar, we also saw strength returning to the US Dollar after a disappointing start to the week. the

GBP/USD fell below 1.55 for the first time this year. GBP/EUR continued to fall in the opposite direction again struggling to stay about 1.16 and an uneventful week for EUR/USD battling to stay above 1.33.

As the U.K. continues to struggle with high inflation and low to non-existent growth we have Wednesday’s claimant count that is expected to show more positive news on joblessness with the figure contracting again.

Also, the MPC minutes will be released on Wednesday to see the voting from the last interest rate meeting with last week’s inflation report it will be interesting to see if the committee is leaning towards more QE.

Over the weekend, the G-20 Summit in Moscow ended on Saturday with apparent thumbs up for “un-intentional” and no direct weakening of currency rates as part of wider monetary policies.

On the other sode of the pond we have a potentially quiet week this week for the US Dollar with Wednesday’s FOMC meeting minutes being released to see how sentiment is towards the continued monetary policy currently in place and whether or not the Federal Reserve will continue on its current course until the end of 2013.

On Thursday, inflation was expected to have increased with US Existing Home Sales expected to have fallen back again as the property market struggles to get back on its feet.

End of a another unloved week for the Pound

The Pound has endured another unloved week. End of a another unloved week for the PoundComments made by the Bank of England governor Mervyn King were the catalyst of the move lower against the Dollar, where we hit a six month low, and the euro.

But I would suggest it was merely confirmation of what we all really knew, the UK economy is slowly getting better, but it will be a long and frustrating journey.

The reason we are now at new lows is because higher inflation is being tolerated explicitly by the bank in pursuit of growth, and because “rebalancing via external demand” was twice quoted in the inflation report and the money markets have interpreted that as the BoE pursuing a lower exchange rate to achieve this.

The euro and Dollar remain locked in an arm wrestle.

Disappointing GDP numbers yesterday from the Euro zone has pulled the Euro slightly lower, but the combination of large inflows back into the Euro up against a US economy slowly recovering is keeping both currencies well bid.

The outlook for Sterling next week should be slightly more stable, but the Bank of England and Federal Reserve both publishing their respective minutes on Wednesday from earlier this month there is scope for movement.

However, with no change in policy or outlook expected from either a brief pause for Sterling is more likely at this stage. Other key data next week is both German and US CPI & PPI in the middle of the week.

Currency Wars start ahead of the G20 meeting

Currency wars have started in the build up to the G20 meeting in Russia this week with analyst’s expecting leaders to discuss a weakening of their currency to boost exports; this is being done currently by Japan where they are fighting deflation.Currency Wars start ahead of the G20 meetingHowever an initial statement has dampened such expectations as the G7 stated that ‘policies have been and will remain oriented towards meeting our respective domestic objectives’, which could be shown to underline the fact that central bank market intervention is regarded as an internal affair for now.

The ECB is refraining from applying unconventional policy measures, should the ECB continue a notably tighter monetary policy than the Fed and BoE, then the obvious implication is that EUR will continue to appreciate against the USD and GBP.

Sterling’s sharp drop in world markets will be the main discussion point in what should be a fairly important quarterly inflation report today from the Bank Of England.

Looking to the bond markets for inflation expectations you see a large jump upwards in the 10 year breakeven rate as the Pound deprecated against the euro and Dollar at the beginning of January.

We are now over 6% lower against the single currency and around 4% lower versus the US Dollar .

The Bank will probably address this with hawkish comments with the aim of trying to keep expectations in check, even if the overall stance will remain very dovish.

The coming year is further into the unknown for the Bank of England.

Central banks are managing the overall deflationary environment quite well by creating new money to counteract the deleveraging that is still proceeding across most developed nations, but we are now moving towards a point where this stimulus will need to be withdrawn, and how well this process is managed has large ramifications for inflation.

The Bank will need to begin addressing these issues in upcoming inflation reports and we may even see some mention of it this Wednesday.

Go with the flow

There is an old adage which makes following the wise money markets easier- just go with the flow.Go with the flow The Euro and Yen are continuing, albeit in opposite directions, their significant moves right across the board and that means the EUR-JPY is now on fresh highs first thing this morning.

There is no significant news or data flow behind the move, the mantra of “the trend is you friend” is the best way to describe current market action.

1.37 is the next key level in Euro/ Dollar and whether we see heavy resistance or manage to break through will dictate trading next week.

Sterling has staged a minor recovery (very minor!) and has regained some ground against the Dollar.

The 200 day moving average of 1.5894 remained intact overnight but we will likely mirror any move higher in EUR-USD today.

The flip side of that move will be a leg lower in the GBP-EUR with the 1.16 level next in sight.

US non-farm payrolls are due this afternoon and will play a big short term role in whether we go through 1.37, with expectations of 168K jobs added.

It seems as though a disappointing GDP number has been largely shrugged off by the market as an aberration because of defence spending cuts, with the underlying economy still having sound fundamentals.

US GDP contraction shocks wise money markets

The US economy shrank 0.1% in the fourth quarter of 2012 for the first time since the end of the recession in 2009.US GDP contraction shocks wise money marketsIf you contrast the contraction of 0.1% against the 3.1% growth in the third quarter then you can get some grasp of the sharpness of the fall and the surprise in the data.

The fall in GDP is being attributed to steep cuts in defence spending and weather related hits to consumer activity.

The FOMC in their monthly interest rate meeting were fairly upbeat about the US economy and suggested that the stall in growth was temporary as they left their $85 billion bond buying stimulus plan in place.

The US Dollar has continued to lose ground in the forex markets and the euro has now hit a 14 month high against the USD.

Interestingly the weak data which would normally lead to USD strength as a safe haven instead led to Euro gains.

Elsewhere we have actually had some good news for a change from the UK economy with GfK January consumer confidence coming in at an improved -26 against an expected -28, not quite a surge in optimism but at least ahead of expectations.

The euro has held good levels after mixed economic data with weak German retail sales and lower French Producer Prices countered by a fall in German unemployment.

In other news, the credit ratings agency S&P have noted that China amongst others may be spending too much after they ranked economies on their vulnerability to an investment led collapse.

China is accompanied by Brazil, Australia and South Africa who have invested heavily in recent years to supply China with natural resources.

Eurozone boosted by Super Mario

The head of the European Central Bank (ECB) Mario Draghi yesterday revealed details of a new bond buying programme intended to tackle the eurozone’s debt crisis. Eurozone boosted by Super MarioHe claimed the system would provide a “fully effective backstop” and that the euro was “irreversible”.

The ECB’s target was to cut the borrowing costs of debt burdened eurozone members by purchasing their bonds and the effects were seen immediately as Spain’s borrowing costs fell sharply after the announcement.

Draghi stated the ECB would commence ‘Outright Monetary Transactions’, or OMTs to treat “severe distortions” in sovereign bond markets.

He maintained that the ECB was “strictly within our mandate” of preserving financial stability, but repeated the requirement for leaders to continue with their deficit reduction plans and labour market reforms.

Furthermore he claimed the ECB’s actions came in response to eurozone economic contraction in 2012, with sustained weakness expected to continue into 2013.

The eurozone economy is expected to shrink by 0.4% in 2012 and grow by 0.5% in 2013, with inflation rising to 2.6%.

The new programme will start alongside the European Financial Stability Facility or European Stability Mechanism programme.

In other words, countries will still have to request a bailout before the OMTs are triggered.

Market reaction so far has been pretty positive to the news especially in Asia overnight with the Nikkei and Hang Seng up 2.2% and 2.4% respectively.

In other news the Bank of England maintained interest rates and quantitative easing (QE) on hold yesterday.

This came alongside the news that the OECD slashed growth forecasts for the UK who expect the economy to contract by 0.7% from 0.5% predicted in May.

Sterling remained resilient following the announcement and has since rallied overnight currently trading at 1.5981 and flirting with the key psychological level of 1.60 against the Dollar.

We saw some currency exchange volatility against the euro yesterday during the ECB press conference but it now sits where we started yesterday in the low 1.26s.

Foreign exchange forex trading- Spirit Inside

Foreign exchange trading can be full of jargon.

For instance the word Forex comes from an abbreviation for foreign exchange, which itself is further abbreviated to just FX on occasions.

Originally, paper currency served as a mechanism of exchange which was convertible into “hard money”, usually Gold or Silver.

During the Second World War, industrialized nations of the world signed the Bretton Woods agreement laying the foundation for international exchange going forward.

Under Bretton Woods, nations maintained exchange rates to the US dollar and the US dollar was fixed to Gold.

In 1971, under President Nixon, the US suspended the convertibility of the dollar into Gold and this action led to a system of free floating, fiat currencies.

The value of a nation’s currency, in relation to other currencies, was whatever the free market determined it was. Banks, international business and speculators instantly recognized both the risk and opportunity this new system presented. In essence, this was the birth of the Forex market as we know it today.

With the advent of the internet and online trading, the market became accessible to the masses. Hence, leverage was introduced and became an integral part of online Forex trading.

By taking a position 100 to 500 times your deposited capital, the market could offer significant return on investment, but also significant risk. It is the use of leverage and daily volatility which have led to the Forex market exceeding a volume of 4 trillion USD per day.

Unlike most goods and services, currencies cannot be valued in themselves. We can say that 1 barrel of oil is worth X US Dollars but it is not possible to say that 1 US dollar is worth 1 US dollar.

We can however, compare currencies- for example to say that 1 USD is worth X Euros or Y Japanese Yen.

For this reason, Forex trading must be done via “currency pairs” – the ratio of 1 currency to another allows the market to function. The most actively traded currency pairs are the EUR/USD, USD/JPY, GBP/USD, USD/CHF and AUD/USD based upon these abbreviations:
USD – US Dollar     GBP – Great British Pound
EUR – EU Euro     CHF – Swiss Franc
JPY – Japanese Yen     AUD – Australian Dollar

Every time a trade is executed, it is the simultaneous buying of one currency and the selling of another. This is not as complicated as it seems.

When traveling, if you exchange Euros for dollars, you are in essence “selling” your Euros and purchasing dollars. The counterparty to the transaction, is buying your Euros for his/her dollars at the price he/she set.