Global stock markets look set to end the week well in the red. Across the globe indices are about 4% down on the week wiping a whopping USD $1.7trillion off global stock values in the past 4 days.

An unexpected rise in US jobless claims yesterday ironically caused the dollar to make further gains as the world’s most liquid currency benefitted off the back of risk aversion. Disappointingly US new claims for jobless benefits rose to a six month high as the labour market in the States continues to struggle.

The labour department figures showed the initial jobless claims rose by 2,000 to 484,000 when a significant reduction was expected. Freddie Mac also reported further disappointing figures as home loans in the States hit new lows off the back of a soft US economy.

European Industrial Production figures out yesterday did little to boost confidence in the market. Output in the Euro area dropped 0.6% from May versus expectations of a 0.3% gain suggesting the Euro Zone economy is still far away from making a recovery. Coupled with extremely poor growth figures from Greece, EUR came under pressure reversing early gains.

The Greek economy shrank by 1.5% in the second quarter, this figure was significantly lower then economists had expected. The Greek economy is expected to contract by 4% this year according to the EU and IMF.

However, this morning’s data shows more positive signs for the Eurozone with Germany and France reporting better then expected GDP.

Starting with Germany their GDP grew 2.2% (compared to the 1.3% expected) in the second quarter driven mainly from strong investment and exports. Impressively this figure was the biggest gain in 23 years and economist are expecting at least a 3% growth this year.

France’s GDP figures, although not nearly as superior as Germany’s, were still marginally better (by 0.1%) than the market had predicted coming out at 0.6%. French consumer prices fell less than expected in July at -0.3% month on month (up 1.9% on an annual basis).

The forex spread trading markets have also been busy. In Asia, all eyes have been upon the Yen which reached a 15 year high on Wednesday of 84.73.

Yen has since sold off slightly to current levels of 85.90. It is being very closely watched by, no doubt, anxious officials with the Finance Minister, Yoshihiko Noda pledging that “appropriate action” would be taken against the strength of the yen in an unscheduled press conference yesterday.

Exactly what the action will be however is unknown but one would expect this to signal possible intervention.

With very little data out elsewhere this Friday, focus today will be on the Eurozone GDP out at 10am followed by US data later this afternoon.

Article written by currenciesdirect.

None of the above information constitutes, nor should be construed as financial advice.

The Governor of the Bank of England Mervyn King presented a very down beat assessment of the UK’s growth prospects and for the first time he mentioned there was an outside chance of a double dip recession during his inflationary report yesterday.

This sent the FTSE down 2.4% to 5245.21 and the pound fell for a third straight day against the Dollar down to a low of 1.5626 giving back all of last week’s gains.

In his Quarterly Inflation Report, King highlighted that they are nowhere near considering an exit strategy, nowhere close to increasing interest rates and have now left the option open for renewed quantitative easing should the need arise.

This negative sentiment over-shadowed the positive UK unemployment data which fell as the economy added workers at the fastest pace since 1989.

Unemployment as measured by the International Labour Organization fell 49,000 to 2.46 million in the three months up to and inclusive of June. Employment jumped 184,000 to 29 million.

In the overnight CFDs markets sterling has shown relative strength versus the euro, moving over 1.5% against the single European currency and hit a high of 1.2182.

As mentioned earlier equity markets have taken a battering over the last 24 hours falling as risk appetite has been diluted as traders look for safer heavens.

FX CFD trading investors seem to have interpreted the US Fed’s decision to keep the balance sheet elevated as a sign that more Fed stimulus could come should conditions deteriorate.

Consequently, the euro has fallen significantly against the Dollar moving to levels not seen since the end of June. At the monthly meeting, Fed monetary policymakers left the benchmark interest rate at 0.25% as widely expected and also agreed to begin reinvesting more than $150bn in annual proceeds from maturing mortgage-backed securities into Treasury debt, halting plans to contract the central bank’s balance sheet.

Fed officials also significantly downgraded their economic outlook, stating that the “pace of recovery in output and employment has slowed in recent months” and was likely to be “more modest” than anticipated in the near term. The Fed also left room to be more belligerent going forward, saying it would “continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability”.

In terms of the rest of the week, today will be quiet for significant data but tomorrow all eyes will be on European GDP for starters, followed by US retail and CPI data for mains- a real mouth watering prospect.

Article written by currenciesdirect.

None of the above information constitutes, nor should be construed as financial advice.

The dollar strengthened overnight after the Fed took steps to try and bolster the fragile US economy, saying they will maintain their holdings of securities to stop money from draining out of the financial system.

In a bid to avoid a double dip recession, the US central bank said it would reinvest between $200-300m of proceeds from maturing mortgage bonds from the first $1.2 trillion QE cycle.

It left its policy rate unchanged and renewed its pledge to keep rates low for an extended period.

Following the fed announcement, treasuries surged and stocks pared losses as markets anticipated a renewed round of asset purchases should the economy slow further.

Figures since the last FOMC meeting in June indicates that the pace in recovery in output, manufacturing, retail, employment and housing has slowed significantly.

In the online CFDs markets, the pound fell against the dollar to its lowest level in more than a week after data signalled Britain’s economic recovery may be slowing.

A UK housing market gauge showed the first decline in prices in a year in July, while a separate survey reported stores showing slower sales growth in July.

UK consumer confidence dropped in July, a third month in a row to its lowest level in 15 months. The biggest budget cuts since World War II, faster inflation and resilient unemployment have undermined consumer confidence.

This morning’s BoE inflation report accompanied by the usual speech from Governor Mervyn King will be closely watched along with UK jobless claims. Other data released today is this evenings US trade balance along with a monthly budget statement.

Article written by currenciesdirect.

None of the above information constitutes, nor should be construed as financial advice.

Speculation over the announcement of QE2 at tonight’s Federal Reserve meeting is reverberating around the market at present.

The consensus seems to be that that additional liquidity will be added to the system through reinvestment of maturing assets already on the Fed balance sheet, rather than return to fully blown quantitative easing.

The recent surge in commodity prices after Russia placed a halt on exports of grain is a worrying development for the Fed, it will need to consider that further down the road after it may find certain parts of the economy experiencing inflation at the same time as others are suffering from rampant deflation.

This is why this Fed meeting is seen as so important– we wait to here which way the inflation/deflation needle is pushed (unless we end up waiting until next month!).

In the online CFDs markets, Sterling continued its climb against the Dollar yesterday as momentum from Fridays disappointing US jobs figures continued in early trading. But the Dollar has regained some ground this morning after the announcement from the Royal Institute of Chartered Surveyors that UK house prices have declined for the first time in a year.

The Bank of England has announced it is to overhaul its macroeconomic model (excitingly named the Bank of England Quarterly Model) after a glut of large revisions to GDP figures and because inflation has been above target for 42 of the 51 months, triggering seven letters from BOE Governor Mervyn King to the Chancellor over the same period.

A chat over three pints of warm lager and a packet of crisps are no longer deemed an acceptable method of assessing the health of the UK economy and the Bank plans to spend £3.5 million (or 350,000 magic eight balls) on overhauling and improving their forecasting model.

The announcement has led some commentators to suggest the markets may start to lose credibility in the Banks ability to forecast inflation – this could feed into Sterling weakness, but since the story broke Sterling has hardly budged and along with us, the market probably sees the announcement as good rather than bad news. UK trade balance figures were better than expected

The release of better than expected German June trade data helped the euro remain on a firmer footing for most of yesterday against the US Dollar. The strong 3.8% m/m increase in exports aided the idea of a Germany export led recovery.

It is also worth noting that the rise in imports was better than expected; a factor which may support growth elsewhere in the Euro zone.

On the data front later today we have the Nationwide & ABC consumer confidence surveys from the UK and US respectively.

Article written by currenciesdirect.

None of the above information constitutes, nor should be construed as financial advice.

In the final session of trading on Friday, US Employment fell for a second straight month in July as more temporary census jobs ended, as private hiring rose less than expected, pointing to an stunted economic recovery and a potential requirement for further Quantitative Easing.

• The main points were as follows: Non-farm payrolls fell 131,000 the Labor Department said on Friday, as temporary jobs to conduct the decennial census dropped by 143,000.
• Private employment, considered a better gauge of labor market health, rose 71,000 after increasing 31,000 in June.
• The government revised payrolls for May and June to show 97,000 fewer jobs than previously reported.
• Analysts polled by Reuters had forecast overall employment falling 65,000 and private-sector hiring increasing 90,000.
• The unemployment rate was unchanged at 9.5% in July for a second straight month, just below market expectations for a rise to 9.6%.

It was a similar sentiment in the UK as both consumer and business confidence dipped again.

The most recent purchasing managers’ index from the services sector indicates that, while growth continues business expectations have suffered a fall of about 10% since Spring.

Friday’s PMI data showed a rise in cost of 5% which is rather high and pulls inflationary pressures into focus.

The other area of alarm for most is the idea that whilst interest rates remain low and are expected to stay as such until 2011 there seems to be greater comment around the fact that when they start to move they are likely to move quickly.

It is still a very fine balance to control inflation, implement spending cuts and tax hikes whilst in the meantime not cause a double dip. The general market view seems to be that interest rate rises back towards more ‘normal’ levels can only be implemented if the economy grows confidently the idea of pushing an already fragile economy back into recession is simply not palatable.

This week we have Mervyn King also know as Merve the Swerve will be speaking and The Bank of England is expected to give a gloomy assessment of Britain’s short-term prospects this week, forecasting weak growth and high inflation.

This has been the case viewpoint-wise for a while and they are quite correct the market was heavily positioned short and we have seen sterling recover dramatically; the popular view is we may see further gains before the market renews its negative view and momentum.

It’s a key week for the majors, with the Federal Reserve meeting on Tuesday for their monthly policy announcement with speculation intensifying of further support for the economy to be announced.

Also in the US we await the release of July’s retail sales, June’s trade balance and the latest inflation report.

In the Euro zone we await the results of growth figures for Q2 with flash GDP estimates for April to June expected on Friday.

In the UK, the BoE release their quarterly inflation report on Wednesday which will be watched very closely to see what effects the government’s tightening fiscal policies are having on the economy.

Article written by currenciesdirect.

None of the above information constitutes, nor should be construed as financial advice.

Pressure on the Dollar continues as the forex market digests the unpalatable fact that the US Federal Reserve may reignite its stimulus packages.

Unfortunately most of the money issued over the last few years has been swallowed up by a larger Public Sector and in rebuilding of Bank balance sheets.

The reality is that this is not particularly helpful, at least not from a sustainable growth point of view. If a renewed stimulus is on the cards, the Federal Reserve needs to find a better way to spend the funds.

This said, evidence of a double dip recession in the US seems to be anomalous at very best, irrespective of what Ben Bernanke and Alan Greenspan say. Naturally it is understandable that both men are cautious. Of course one does get the impression that a weaker Dollar is the goal of their more recent statements. That would naturally help exports and reduce imports. Those day traders selling the forex CFD trading markets should take note.

Aside from a spike lower back in November 2009, from which the markets recovered immediately, the Japanese Yen has reached it highest close versus the Dollar since 1995. The CFDs Dollar/Yen rate is now at ¥85.

What this is doing to Japan’s exporting business is difficult to gauge. However, in the UK, car sales are reported to be suffering from the price differentials. Not surprisingly any Government tends to get a little upset if they feel that there is foreign exchange manipulation going on. We may find that a few words are being spoken behind closed doors. Or we may not. Either way it looks like the investors are CFD trading on a weaker Dollar.

In reality any woes for the US are probably woes for both the UK and Eurozone. Having said all this, both the UK and Eurozone look to be exercising some fiscal control via a wide range of austerity measures. If the US does not follow suit then that could be more bad news for the dollar. And more good news for the speculators.

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Looking at the last week, as far as the UK economic data were concerned it was a low-key week for sterling.

Nationwide announced a -0.5% monthly fall in house prices, the Bank of England reported a slight fall in the number of mortgage approvals in June. Gfk’s index of consumer confidence was three points lower at -22.

The only statistic that made any difference – and it was a positive one – was the CBI’s distributive trades survey. It was surprisingly strong with a net 33% of shopkeepers reporting higher sales in July; the strongest reading for three years.

In one of sterling’s luckier weeks it had also a minimal amount of non-statistical flak to avoid. The National Institute for Economic and Social Research (NIESR) shot wide when it assessed the risk of Britain’s economy falling back into recession next year at one in five.

Prior to June’s emergency budget that risk was one in seven. NIESR thinks living standards will not return to pre-crisis levels until 2015, roughly the same time horizon recently mentioned by the Federal Reserve in the States. Another damper-than-usual squib was Bank of England Governor Mervyn King’s appearance in front of the Treasury Select Committee. His comments were in line with recent Monetary Policy Committee minutes and sparked no reaction from sterling. The governor was evasive at times: Answering a question about the impact of the emergency budget, and the risk of it derailing the recovery, he said ‘I don’t think it made a significant difference to whether we would get what is technically called a double-dip recession.’

If anything it is the United States that face that threat more squarely. Three months ago it was the US leading the way out of recession, courtesy of giga-buck stimulus programmes initiated by George Bush and Barack Obama. That situation has reversed. Britain and Euroland are the ones delivering the higher-octane economic statistics today. German consumer confidence went up from 3.5 to 3.9; not a fantastic achievement but it did go up, not down. German unemployment fell by 20k from 7.7% to 7.6% of the workforce. All three of the EU’s confidence measures (economic, consumer, industrial) improved in July.

Online CFDs investors’ concerns about Greece’s fiscal position have not been exacerbated by last week’s truck drivers’ strike; such things are a regular feature in France even in peacetime. The allegedly fudged stress tests of European banks’ balance sheets have faded into history. Hungary’s spat with the EU and the IMF, over what voters saw as the unacceptably onerous terms of their bail-out, simmers in the background but no longer alarms the market. The forint actually strengthened against the euro over the week. None of this is to say that all in Euroland is suddenly sweetness and light but investors are not feeling any urgent need to panic about the ifs and the maybes. No country and no bank has gone bust and everyone is fine with that for the time being.

With a strong GDP performance for Q2 sterling is making strenuous efforts to break above technical resistance that has held it back for a month.

In the forex CFD trading market, if Sterling can break higher, two cents or more will be within its grasp. Buyers of the euro should take care not to lose out in the event of setback for sterling. They should place a ‘stop’ order that would provide protection against an unexpected fall.

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It makes a very refreshing change to see the pound leading the charge in the currency markets, outperforming all of the major currencies.

Against the USD the pound hit and tested a Fibonacci retracement level at 1.5968- it did not break it but this will be the target again for today and beyond this the 1.60 level. So what is behind the sustained turn in fortunes for the pound?

A recent improvement in economic indicators has been a key driver and this has followed more recently with strong results in corporate earnings and banking results. In addition the global market sentiment has improved and the return to risk in the markets is always a boost for sterling.

HSBC, Lloyds and even Northern Rock have demonstrated a boost in profits and this is leading to sentiment that the recovery is gathering momentum with gains also posted in the FTSE.

Also in the CFDs online markets, the pounds good run will also be supported by UK Halifax house prices rising 0.6% for July, however services PMI came in weaker than expected at 53.1 against a forecast of 54.5. GBP/USD slumped a touch on the news but is now starting to recoup those losses.

Overnight the Australian reserve Bank kept interest rates unchanged at 4.50%, the pace of growth is continuing in Australia in line with expectations allowing the reserve bank to slow the pace of rate rises following a succession of hikes.

Later today we have more feedback from the US economy with US personal income and spending, US factory orders and US pending sales. Economic data from the US will now be closely scrutinized for any further indications that the pace of growth is slowing- this has led to a sharp turn of fortune for the USD which has lost ground across the currency markets.

The Fed recently indicated that if growth stutters going forward then further stimulus measures could again be introduced- this would be negative for the USD especially if other major economies continue to grow ahead of the US economy.

Article written by currenciesdirect.

None of the above information constitutes, nor should be construed as financial advice.

The pound jumped to a six month high against the US dollar this morning amid hopes that the recovery is gaining momentum.

It hit $1.5963 which is the strongest level since early February and traded at a one month high of €1.2083 against the euro. Investors are betting on the UK’s economy outpacing the US recovery, which economists fear is only months from slipping back into recession. The question is can sterling push on past $1.60 in the CFD markets?

British Manufacturing had another good month with production rising in July for the fourteenth consecutive month, although at a slightly slower pace with Eurozone wobbles weighing on exports.

The Markit/Chartered Institute of Purchasing and Supply (CIPS) manufacturing PMI fell to 57.3 in July, from 57.6 in June, beating a consensus forecast of 57.0. This reading remains well above the 50 mark that divides contraction from expansion. The index held close to May’s 15-year high of 58.1 and a jump in new orders growth from June’s level suggested the slight dip merely marked a stabilisation at a high level.

The pound was also help by HSBC, the UK’s largest bank that reported pre-tax profits of £7bn for the first six months of 2010 – more than double its profits for the same time last year.

The bank said it was profitable in every region, except for North America where it saw losses of $80m. Shareholders will receive a second dividend this year, totaling $1.4bn. HSBC have been quick to comment on the fact that new loans to small companies were up by 38% and is bankrolling 2,500 start-ups a week.

This was a poignant response to Mervin Kings comments last week about banks unfairly turning away viable businesses and highlights that in this case his theory is not proven. The UK’s other major banks Lloyds, Barclays and RBS are due to report their results later this week. Unlike Lloyds and RBS, HSBC survived the financial crisis without receiving direct government support. In a sign of the improving conditions in the banking sector, it said the amount of money set aside to cover bad loans had fallen to $7.5bn – the lowest level since the crisis began in 2008.

The Euro stayed near three month highs against the dollar after improvement in risk appetite and the release of positive manufacturing data from Europe. Meanwhile, the dollar hovered near three month lows against a basket of currencies following Bernanke’s comments indicating the US economy is still far from a full recovery, forcing the Fed to keep interest rates low.

The Bank of England and the European Central Bank are scheduled to announce the results of their policy deliberations on Thursday. Although neither of the central banks are set to change interest rates, the subsequent policy statements will be closely analysed to gauge the timing and scope of any changes over the coming months.

These economic reports will be the key driver in the currency markets this week, culminating in the closely watched labour report on Friday.

Article written by currenciesdirect.

None of the above information constitutes, nor should be construed as financial advice.