Keep your hard hats on, the crazy levels of volatility across the FX CFDs will continue today as we look forward to the US employment number this afternoon.

It will be nice to get back to economic data driving moves in currencies, given trading has been totally dominated by central bank announcements and political news hitting the wires.

In no particular order, the market moving events have been US Fed Chairman Bernanke speaking yesterday, the Chinese premier suggesting they may invest further in the European bail-out fund and the ‘will they won’t they’ saga still playing out over Greece.

Throw some disappointing American data into the mix, stir together and sit back and watch the Euro-Dollar move like a yo-yo.

The Bank of England arch dove Adam Posen long argued for more QE before it became fashionable again, and he suggested yesterday that the Bank should not stop at buying Gilts in the easing process.

Mr Posen thinks corporate debt should be included in the debt the bank buys. This is based on the notion that the current mechanism supposed to lower rates on corporate debt is broken because the banks just park newly minted cash on their balance sheet and shun assets perceived as higher risk.

The BoE are expected to announce another £50bn of QE at their meeting next week, but it will be gilt only. It will take time, a considerable change in thinking in the Bank or a serious deterioration in the economic climate in the UK for Mr Posen to get his way.

The expectations this afternoon are for the US economy to add around 150K jobs in January, lower than December but expected by the CFD trading market because of the effect Christmas has on the job market.

As we mentioned before, the way the US Dollar reacts to positive data is changing from risk-on, risk-off to the complete opposite, where the Dollar rises on positive data.

Trying to guess which way the Dollar moves this afternoon is becoming increasingly difficult, which means trading will be choppier than usual in the build-up and immediately after the announcement.

 
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The Bulls re-entered the ring yesterday as the online CFD markets took a more optimistic view on global growth. In addition concerns on the Eurozone debt crisis eased.

The move into risk was prompted by a series of positive manufacturing reports from around the globe, in particular China’s PMI data remained positive.

The pound was bolstered by a rise in manufacturing activity for the UK last month showing output expanding at the fastest pace since March last year.

This helped the pound hit a 2 month high against the US dollar.

In fact the US dollar lost across the CFD trading markets, a rise in US manufacturing activity alongside China’s data helped swerve the markets into risk on mode which is USD negative.

Not surprisingly the USD lost against the usual suspects – the Pound, Euro, Australian dollar and other commodity based currencies and emerging market currencies.

Surprisingly the USD was also down against the safe haven Yen and Swiss Franc – this was due to nervousness on the threat of intervention by the Bank of Japan and the Swiss National Bank.

The current USD/JPY levels are very close to previous levels where the BoJ intervened in October.

In addition EUR/CHF is dangerously close to the 1.20 peg – currently trading at 1.2045 – the SNB has said that it will intervene to weaken the Swiss Franc at the 1.20 level. One to watch for the remainder of this week.

Back to the Eurozone and yesterday was a good day for a change with Eurozone country bond auctions successful and in turn yields on Italian and Portuguese debt eased.

Feelers were also hitting the markets that the negotiations on the private Greek debt deal were very close to fruition.

Today we could see some reversal in the fortunes for the Euro if the promises of resolution on the debt deal do not materialise.

 
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Wednesday trading began where it finished on Tuesday with the Euro still tittering on a knife edge while Euro leaders wait for an agreement to be reached over the Greek debt deal.

Discussions have been taking places for weeks now with Greek Finance ministers trying to arrange a significant cut in their debt to GDP ratio.

Comments from these meetings have been released on a daily basis with the latest remarks stating that talks will conclude “very soon”.

However, until this is signed off, risk to the Euros future still exist with the potential for a Greek default growing with every week that the Greek debt isn’t cut.

The other major story around at the moment involves the Swiss National Bank’s strong stance of protecting their currency and its 1.20 peg against the Euro.

Traders have been testing the 1.20 level and as yet, the SNB hasn’t budged, but expect to see them move if 1.20 is broken as a strong Swiss Franc is really damaging their recovery.

Today is a relatively data light day with the majority of focus surrounding the Greek and Swiss situations.

Look for the US Dollar to strengthen on any negative comments from the debt discussion and FX CFD trading investors will panic and run back into the safe haven at the first sign of trouble.

 
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Europe took a major step towards greater fiscal integration overnight, as all EU members except the UK and Czech Republic agreed to measures to reduce budget deficits and allow greater oversight by the European commission.

The pact should be in place by March with the ratification and implementation to follow shortly after. Automatic fines of around 0.1% of GDP will be levied on countries who fail to reduce their deficits by the agreed proportions.

The fines smack of a token gesture given it will be one of the PIIGS that fail the tests and clearly they would not be expected to pay. The fact that the Maastricht treaty imposed broadly similar rules which were blatantly broken by all member states is one of the reasons Europe finds itself in its current state of woe.

As with recent EU meetings, the news will likely trigger a short lived euro CFD trading bounce before selling pressure resumes.

Sterling continues to climb against the Dollar driven by the recent surge in the value of the Euro against the Dollar.

Apart from PMI figures, there is little by the way of meaningful UK data out this week to move Sterling so expect it to stay in lockstep with the Euro-Dollar.

Expectations for the PMI data is expected to show a mixed bag, but given the GDP reading earlier in the week there is more chance of disappointing readings than surprises to the upside and that should translate into Sterling weakness.

US data due today and for the rest of the week include personal consumption expenditure which is expected to show a slight increase and ISM manufacturing on Friday is also expected to show a positive reading.

Over recent weeks we have been seeing an about turn in the way the Dollar reacts to positive US data.

Over the past few years the risk-on, risk-off theme has been the dominant driver of Dollar movements where good US data was seen as risk-on and the Dollar fell.

Recently we are seeing a reversal in the theme, and positive US data is increasingly leading to the US Dollar strengthening.

 
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Since the beginning of the year EUR/USD has gained around 4%. The pair is trying to sustain a level above 1.3200 but struggled during Asia trading.

The euro rally, largely attributed to short positions, hit an all time high for last week. However, headline data is unlikely to provide much force to the euro, with monthly series of PMI manufacturing confidence indices as consumer confidence readings will be under the spot light.

Realistically the figures will demonstrate some stability but CFD trading investors will centre attention on the EU Summit beginning today and continuing Greek debt talks in addition to Italian debt auctions today.

Greek debt talks are likely to be confirmed this week including write downs of around 70% but nervousness over a German proposal to create a “budget commissioner” could be detrimental to the euro.

Under the spot light in the UK this week is the January PMI manufacturing survey however there will also be interest on housing data including mortgage approvals and house price surveys from the Nationwide and Halifax.

In general the data will do little to dismiss fears about the UK economy following the contraction in Q4 GDP announced last week.

The pound looks to remain sturdy against a backdrop of poor economic news however, but its gains look limited especially given the disclosure in the BoE MPC minutes that some members thought that additional QE will be required.

Having strengthened against the Greenback but weakened against the Euro over recent days, GBP continues to trade in a middle of the road manner. Cable sellers will likely emerge around the 1.5870 resistance level while EUR/GBP is set to consolidate around 0.8350.

 
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The Federal Reserve minutes from the meeting earlier this month were released yesterday evening and after several months of treading water the Fed decided to change its wording on interest rates.

The Fed now plans to keep rates at extraordinary low levels until the end of 2014. This is a year further than their previous stance and signals to the markets that the Fed will continue to provide a huge amount of monetary support even as the economy is recovering.

The consensus was that the Fed would begin to withdraw support once they thought the economic recovery had gained traction but yesterday’s announcement has realigned the market view to expect low interest rates for a long time to come.

The immediate reaction in the markets was positive with stock markets rising and a large move in the EUR/USD CFD market from 1.29 to over 1.31, which, given the size of the move, we can expect slight retrace back towards the 1.30 level during today.

The UK economy contracted by 0.2% in the previous quarter, which was slightly more than the consensus estimate of -0.1% but not large enough to overly worry the CFD trading markets given that ONS regularly adjusts initial GBP readings by over 0.1%.

In the lead up to the announcement Sterling was sold off across the board quite heavily but once the data was announced we saw a broad recovery in Sterling throughout yesterday.

The Bank of England minutes gave no more clues about when further QE might be launched, the Governor did a good job in the proceeding days to forewarn the market that QE is still on the table without specifying exactly when it might start.

Positive German business climate data was the main driver of the currency markets yesterday morning but the rally ran out of steam once the US opened and focus turned to the impending release of the Fed minutes.

We do have a large amount of EU data due today, along with the key US durable goods orders later this afternoon.

 
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This morning’s Q4 GDP numbers while disappointing weren’t that much of a surprise given the weakness of some of the recent economic data, especially in respect to industrial and manufacturing production.

It is also worth noting that this is the first estimate of GDP, at -0.2% will no doubt be subject to significant revision, while Europe’s problems are well documented.

The latest minutes from the Bank of England showed that policymakers remained split on whether further asset purchases are required, while a number of members remained unconvinced that inflation will quickly fall below target, especially in the second half of 2012.

This could well prompt a split on whether to embark on further QE at the February meeting in two weeks’ time.

The risks to the upside on inflation are set to come from rising oil prices due to rising tensions in the Middle East and also from firms looking to increase margins, especially with the Olympics and the Diamond Jubilee coming up.

It remains likely that inflation will continue its recent downward path with last year’s VAT rise due to drop out in the January figures and the fall in energy prices also set to filter through in February.

Even with those falls it is by no means certain that prices will fall back below the 2% level as indicated by Mervyn King, given that even the core inflation rate still remains above the 3% level.

Judging by recent comments by Mervyn King in a speech in Brighton last night he appears to be in the Posen camp with respect to further QE, with the likelihood that further asset purchases will be on the agenda at the February meeting.

Given that an extra £75bn was added to the economy in October and the economy still slipped back, it could be argued as to the effectiveness of the delivery mechanism of the extra asset purchases. This then lends itself to ask how much more effective will any extra QE be.

CFD trading markets are entitled to ask if the Bank is boosting the economy in the most effective way possible.

Certainly October’s additional stimulus wasn’t the panacea that the Bank hoped it would be, and there’s no guarantee that further QE will be any different.

This is on the basis that this money doesn’t appear to be filtering down into the real economy. in the form of business investment.

The effect on the pound has been remarkably benign despite the speculation of further QE and there certainly hasn’t been the weakness one would associate with such a policy.

This can be mainly put down to the problems in Europe and irrespective of the measures taken by the central bank, we could well see further sterling gains against the euro.

The key level on EUR/GBP is currently around the 0.8425 area. and further sterling strength seems likely towards 0.8065 while this level holds.

Especially if the situation in Europe continues to weigh on sentiment and the ECB continues its recent relaxed monetary policy, and its policy of QE by the back door in the form of more LTRO’s in February.

Against the US dollar it is slightly different scenario and it is here we could well see sterling weakness.

The pound is currently pushing against a range of resistance levels above the 1.5610 level which could well limit further upside.

Today’s slide lower could well signal a bearish daily reversal on the candlestick charts and signal a retest of the 1.5240 lows earlier this month.

Certainly a close around the 1.5550 level could well signal a move back towards the January lows at 1.5240, but we would need to see a close around these levels in NY today.

This evening’s FOMC press conference could well play a factor in the future direction of the cable especially if the Fed pushes out its low rates policy beyond 2013, which could result in some short term US dollar weakness.

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CFDs trading update from Michael Hewson, Market Analyst, CMC Markets.

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The Euro enjoyed its first strong day of 2012 yesterday with signs that some confidence could be returning to the single currency.

One of the main topics of discussion at the moment is the ongoing Greek debt deal.

Negotiations had taken a turn for the worse over the weekend after the authorities asked CFD trading investors to accept new bonds yielding 3.5% rather than the previously agreed 4%.

The Greek government had hoped to complete talks by Monday, but as yet, no agreement has been made.

However, Greek finance minister, Evangelos Venizelos, said progress was being made and this was one of the main reasons for the Euro strength. He has now set a new date of 1st February to conclude talks.

Although these comments have improved the confidence level of a deal being agreed, until any deal is signed, expect the Euro to remain weak as the threat of a default is still alive.

The Bank of Japan keep their interest rates fixed at 0.1% as the bank noted that the Japanese recovery is moving slower than expected.

In FX CFD trading, the strong Yen remains a problem for the economy with corporate revenues likely to be down as a consequence. The ongoing debt problems in the Eurozone remain the biggest risk to the Japanese economy.

Sterling has remained in the middle against its major rivals as the Euro strengthened against both the Dollar and the Pound dragging Cable higher with it.

The main news out this week for the UK is the release of 4th Quarter GDP with a -0.1% figure expected.

This significant change in momentum has been priced into the value of the Pound though it will be a massive blow to the global recovery and could be the first of many negative GDP figures from around the World as a second recession starts to bite.

 
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Against all the odds the single currency has been resilient this week moving up towards the year to date highs of 1.3068, clawing back its losses and more.

The EUR CFD trading markets ability to defend bad news in Europe has been remarkable and its gains have reflected a speculative market that has been extremely short.

As we are light on headline data today the markets will have to observe the outcome of the somewhat positive Spanish and French debt auctions while keeping one eye on Greek debt talks with private investors.

But for yet another failure of talks in Greece the EUR should continue on a positive footing.

How long this will last is uncertain, particularly given the dangers ahead but at a time when investors have become progressively more bearish on the EUR it may just extend its bounce over the short term.

One country to watch is Portugal whose bonds have underperformed recently as markets speculate that it could be the next contender for any debt note.

Back to the UK and Retail sales have been announced close to median forecasts of +0.6% m/m and +2.6y/y.

Sales have improved in December but the improvement is likely to be short-lived, suggesting any support to GBP will be brief.

Sterling has underperformed even against the firmer EUR of late but this is supporting better levels for the market to take long positions versus EUR.

This explains the move in relative European/US interest rate differentials, which has been linked with the move in EUR/GBP.

Overall, Sterling could outperform EUR over coming months to around 0.80, with the former continuing to benefit from the simple fact that it is not in the Eurozone and has therefore acquired a quasi safe haven status.

Nonetheless, as reflected in the drop in Nationwide consumer confidence in December, this year will be particularly difficult for the UK economy. GBP will be restrained by the prospects of more quantitative easing by the Bank of England as inflation eases further.

 
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The recent rally in the Euro is very surprising given the lack of any positive or even specific Euro related news over the past couple of days.

Sentiment in the forex CFDs market about the single currency remains low because a Greek default is looming ever larger and European policy makers are still arguing over the rules that they hope will make the Eurozone stronger moving forward.

In fact short positions hit record highs over the past couple of weeks, which suggests the recent rally is more about shorts covering their positions, leading to the price of the Euro rising forcing other shorts to cover, commonly known as a short squeeze.

If, as is likely, this explains the recent up-tick in the Euro we can expect Euro selling to resume once the squeeze runs out of steam.

Data for the Eurozone for the rest of the week is extremely light, with the ECB monthly report showing how much the ECB is lending to stricken banks due Thursday along with French and Spanish bond auctions.

Both auctions will be closely watched in light of the S&P downgrades on Friday.

Sterling has been fairly steady in the early part of the week, but that might change this morning with jobless claims for December due at 9.30.

The consensus is for a 7K rise but there is scope for a larger number because of the deteriorating economic picture and so a bigger movement in the pound when the data is released.

UK Retail sales are the only release of note for the rest of the week but worth noting because they report over key Christmas period for the retailers. Moreover, they will probably give a good idea to the CFD trading market if the UK economy is heading for (or is already in) another recession.

The US bank holiday on Monday has meant the USD has also been fairly quiet so far this week, but Thursday and Friday sees a large amount of US data including the CPI figure. Hopefully this should give the market an end of week shot of much needed direction in an otherwise rudderless few days.

 
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