Brave New World

Lunchtime Update 12/02/2009

The Foreign Exchange market “declined” according to a post on an FX trading website! By that it meant that the recent sharp rise in gold- rising a further 2.7% yesterday to $941 a troy ounce- was not accompanied by a strong move in EURUSD. As the price of gold rose, there was no corresponding sell off in the USD. The pair remains rangebound, although witnessed a fall to below 1.28 this morning risk aversion remained elevated with continued concerns over the direction and focus of the US stimulus package and the lack of detail on the bank rescue package in the US, and further bad news coming out of Europe. 

USD- Congressional leaders have reached agreement on the economic stimulus bill pushed by the White House, cutting spending on health and education in order to retain support of moderate Republicans in the Senate. The final agreed package is $789bn. Equity markets were up yesterday, although sentiment remained bearish following Tuesday’s non-statement by Geithner. 

EUR- Eurozone data has done little to provide upside to this bearish week. Industrial production fell -12% on an annualised basis in December following a previous -8.4%. The flight to safety led EURUSD lower. Having briefly broken through the 1.2800 pivot point the pair should test the 1.2730 level. EURJPY slipped more than -80 pips into the 115.80/90 level. Spanish GDP figures were marginally better than expected at -1% Q/Q versus the consensus forecast of -1.1%. The ECB monthly report cut its growth estimate for 2009 to -1.7%. It also predicts barely any growth in 2010; at 0.6% compared with its previous prediction of 1.4%.

GBP- Sterling continued to look weak, with Cable dropping to a low of 1.4135 before recovering. EURGBP broke through 0.9000 and has tested the 20 day SMA 0.9065 resistance level. The comments made by King yesterday in the Quarterly Inflation Report continue to reverberate around the market, with markets now fully pricing in zero percent rates and quantitative easing. This has led, predictably enough, to a rush to gilts, lowering yields along the curve by between 30 and 50bps.