fx

ECB negative rates and FX

Data/Event Risks EUR: All eyes are on the ECB. The expectation is that they will cut the main reference rate (currently 0.75%) by 25bp. The bigger issue for euro is whether discount rate (which remunerates funds ‘parked’ at the ECB by banks) is cut to a negative number (currently it’s zero). This would be a far more negative factor for the single currency, ultimately setting up EURUSD for a re-test of 1.30 in the near-future.
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02/05/2013 @ 07:21 GMT

Growth and FX

The latest indications on output from both China and the Eurozone paint a disappointing picture for near-term growth prospects, but maybe not a wholly surprising one. There is a striking pattern to the way data is turning out in the developed economies over the previous two years. If we’re on a path to further disappointment, what could this mean for currency markets in the rest of the second quarter?

23/04/13 @ 14:06 GMT by Simon Smith, Chief Economist

Churning times

As yesterday’s trading session made clear, the performance of risk assets and currencies over coming weeks will be held hostage to perceived progress in those tricky fiscal cliff discussions across the pond. If it appears that negotiations are grid-locked, then the dollar will climb as demand for safe-haven assets grows; alternatively, if the prospects for a deal are hopeful, then risk assets will rise and the dollar weaken.
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29/11/2012 @ 09:34 GMT

Finding FX trends

We’ve a few weeks to go before the year draws to a close, but unless something dramatic happens this is shaping up to be one of the least dramatic years for FX in recent times. Not only are we seeing less volatility, but looking at the net changes across the majors, now vs. 2011 closing values, the standard deviation is the second lowest over the past 12 years. Remove the yen (USD/JPY up 7% this year), then the standard deviation of net changes is the same as for 2011. The other way of interpreting this is the multi-year lows we are seeing in overall implied volatility measures (e.g.

26/11/12 @ 12:52 GMT by Simon Smith, Chief Economist

Low FX vols are disturbing

Invariably, a period of calm in either currency or asset markets presages trouble immediately ahead. Indeed, what increasingly disturbs us is the remarkable stasis that has beset the forex market in recent months, despite on-going concerns regarding Europe/Spain/Greece/France, the turgid global economic backdrop and the worsening geo-political climate ahead of the critical leadership changes that will follow in two weeks time in the world’s two major economic superpowers.
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25/10/2012 @ 13:33 GMT

Euro bulls’ conviction being tested

After surviving a crucial test of their resolve yesterday, euro bulls are again under pressure this morning, with the single currency creeping back down towards the 200d moving average at 1.2825. Not helping the mood were the latest eurozone confidence figures from the EC which showed that morale fell to a 37mth low this month. The confidence readings produced by this survey are consistent with a decline in Q3 GDP for the eurozone of around 0.5%.
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27/09/2012 @ 10:31 GMT

A pause to reflect

Yesterday witnessed a slightly more contemplative mood in financial markets, with some mild profit-taking in risk assets and currencies after some heady moves over recent days and weeks. A number of developments appeared to trigger this more reflective disposition, including the growing tension between China and Japan, the protests across the Muslim world directed at the United States, Israel’s increasingly hawkish rhetoric towards Iran, a sharp increase in bond yields for Mediterranean sovereigns and Chinese growth concerns.
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18/09/2012 @ 07:09 GMT

Half full or half empty?

The actions of the US central bank last night are being felt across all markets. In FX, it’s apparent in the follow-through on the dollar, even after the weakness of recent weeks, which reflects the fact that the Fed’s open-ended commitment to buy assets went beyond what was generally anticipated. European stock markets are around 2% higher, following through on the near five-year high being seen on the S&P500 index. Yields in European peripheral bond markets are down modestly, with Spanish 10-year yields near to early-April levels just above 5.50%.
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14/09/2012 @ 09:26 GMT

The dollar's downward drift

The dollar’s downward drift Over the past few weeks the main focus of currency markets has been on some of the positive developments emerging out of the eurozone. Draghi’s OMT initiative elicited a particularly positive response when the details were announced last week. However, it is also the case that the dollar has been subject to consistent selling pressure - since late July, the dollar index has fallen by 4.6%, a sizable decline that has attracted less critical comment than might have been expected.
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11/09/2012 @ 09:51 GMT

A dangerous calm

A pause can be refreshing, but after a while sustained inaction can become downright dangerous. The reflexes slow, the mind numbed by a somnolescence that inhibits proper decision-making. Currency markets in particular, and assets markets more generally, fit this depiction at the present time, but before too long this contented acquiescence will likely morph into something more in tune with the increasingly problematic risks that are gathering in the financial skies around us. Confirmation of this complacency can be found in the VIX index, which fell to a 6yr low on Monday.
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16/08/2012 @ 07:17 GMT

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