Category: Daily Look

Looming Election and GDP Figures Weigh on Sterling



The past week has been a volatile one on the forex markets as the UK, US and Eurozone have all taken turns in the spotlight. We started out with news from the continent, as Greece continued to squabble with its creditors who refused to relax their repayment terms.

Attention shifted to the UK on Tuesday, as the first estimate of Q1 GDP was published. Despite expectations of a +0.5% reading, it came in at a disappointing +0.3%, which immediately harmed the Pound across the board, though losses against some currencies were recouped.

The US was back in focus on Wednesday as they too published a disappointing GDP number; +0.2% compared to an expectation of +1.0%, and the under-fire Greenback hit recent lows against both Sterling and the common currency. Later on Wednesday we saw the Fed stick to their guns with no policy amendments. Most analysts are now expecting to see a rate hike in September.

We also saw Greece receive more emergency liquidity funding in the shape of another loan from the European Central Bank, removing any short term fears of an imminent default in May. This cannot continue forever, and a long-term sustainable solution remains elusive.

In election related news, we saw David Cameron finally turn up to a leaders’ debate, with most polls picking him as the winner over Miliband and Clegg. Nigel Farage continued his mission to alienate audiences wherever he went, and UKIP are now falling away as serious contenders in a number of ridings.

It’s a quiet start to next week with a bank holiday in the UK on Monday, however Thursday’s UK General Election and Friday’s American Non-Farm Payroll (NFP) results will give FX market plenty to trade on.

Thursday’s UK Election is being called the most uncertain in a generation and given that it’s flown largely under the radar thus far it presents serious downside tail-risk for Sterling next week. Polling suggests that the incumbent Conservatives and challenger Labour; whom are the two traditional government forming parties, are locked in a neck-and-neck battle for pole position. However neither are expected to win enough seats in parliament to form government on their own. This means that the victor would need to form a coalition with any one of 4 or 5 peripheral parties to make government. Thus at first blush there are 8-10 likely possible outcomes on May 7th, each iteration of which has its own unique influence over the direction of British politics.

One only needs to look back to the Scottish Independence referendum this past autumn to gain insight into how FX markets tend to discount political uncertainty with respects to valuing the British Pound—especially against the Greenback. GBPUSD gave up 5-cents in the course of a week in early September when surveys suggested there was a possibly of an independent Scotland. It is surprising to think that GBPUSD has rallied over 8-cents in the last couple of weeks to multi-month highs. Especially given that the outcome of this election could see the Scotland question as well as the future European Union membership both revisited. As such the risks of sudden and extreme swings in Sterling pairs seems elevated.

On Friday, April American employment statistics will be published. Expectations are that the unemployment rate in the world’s largest economy edged down a notch to 5.4%, marking a fresh 8-year low. While this is an encouraging number, financial markets won’t be uncorking the Champagne until they’ve seen the NFP results. Last month’s dismal reading of +126k versus expectations of around +250k was a cause for concern. Expectations this month are for a +205k outcome, a result of at least that will be required to help alleviate fears that the American labor sector might be softening. Given the raft of disappointing economic data out of the United States lately (GDP, employment, Durable Goods…) the Big Dollar is likely to be particularly sensitive to a miss.

In our latest podcast we ask: Did the market get it right on the Fed’s hike? And cover the big upcoming events.

Subscribe to Market Movers on iTunes

Quiet sessions

Quiet sessions

We start a new month with many countries observing a Bank Holiday either today or next Monday so we are likely to see a couple of quiet sessions, in particular since there is no nonfarm payroll release today, which happens next Friday instead. We saw little in the way of overnight action from the Asian

EURUSD, GBPUSD, USDJPY Pivot Points, TA – May 1 2015

EURUSD, GBPUSD, USDJPY Pivot Points, TA – May 1 2015

EURUSD Daily Pivots R3 1.1496 R2 1.1379 R1 1.1301 Pivot 1.1184 S1 1.1107 S2 1.099 S3 1.0909   EURUSD has reached the target resistance/support level at 1.117 after briefly spiking to 1.125. A retest to 1.117, which if holds, could see a further push to the upside for EURUSD. However, the sharp rally in this

EUR/USD, USD/JPY, GBP/USD Technical Analysis, Pivot Points – Apr. 30

EUR/USD, USD/JPY, GBP/USD Technical Analysis, Pivot Points – Apr. 30

EURUSD Daily Pivots R3 1.145 R2 1.1319 R1 1.1222 Pivot 1.1089 S1 1.0994 S2 1.0861 S3 1.0764   EURUSD reached the target zone to 1.117 yesterday and has since then eased off from the highs. Price action looks a bit tricky at the moment as the current bearish candles could potentially turn out to form

The Fed is  cautiously optimistic

The Fed is cautiously optimistic

Yesterday’s US GDP data confirmed the divergence between the UK and US, which has now been building for some months and we saw GBPUSD crescendo higher. It is now not far from recording a new 2015 high, but we are still some way off the 200 day moving average, which sits around the 1.5700 level,

Slim chances for Fed rate hike

Slim chances for Fed rate hike

Ahead of the FOMC it’s the turn of the US to release GDP data today which is expected to see the Q1 annualised rate decline from 2.2% to 1.1%. This evidences the drive of GBPUSD’s recent strength and yesterday’s poor US consumer confidence data allowed “cable” to forget the weaker than expected UK GDP data

Greece waiting for a deal

Greece waiting for a deal

The economic calendar is busy today with UK GDP data this morning being a focus and one of the reasons for the recent strength in GBPUSD. There’s been a shift in the paradigm as US data has been showing signs of an economy running out of puff, whilst UK data continues to show a recovery

Markets await US services PMI

Markets await US services PMI

Last week the pound put in a stellar performance against the dollar as GBPUSD hit a five week high against the tide of uncertainty ahead of the UK General Election in just ten days time. We have looked at how the political stalemate (see here) is likely to cap sterling gains, however this move higher

Crude Awakening

Crude Awakening

After Saudi Arabia resumed its bombing campaign over Yemen yesterday, oil prices are sitting near a 2015 high this morning, with Brent trading at $65 a barrel while the West Texas flavour nears the $58 mark. The loonie has taken flight in response, pushing toward a key psychological threshold as brightening economic hopes translating into

This week in the markets: GBP/USD pushes up to 1.51 by Friday

This week in the markets: GBP/USD pushes up to 1.51 by Friday

The pound got a boost this week as the minutes from the last Bank of England Monetary Policy Committee cut a hawkish tone. They stated that the decision between holding and raising rates was “finely balanced” for two MPC members. It is safe to assume that these two members are Ian McCafferty and Martin Weale