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Darren Kilner

Darren Kilner

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When to buy Currency, Know when to buy Euros and Dollars

Disclaimer: THIS MATERIAL IS NOT INVESTMENT RESEARCH AS DEFINED BY THE FINANCIAL CONDUCT AUTHORITY

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CURRENCY SNAPSHOT

EUR: Euro supported as inflation remains at 0.2%
GBP: Manufacturing, construction and service sector figures in key focus this week
USD: Jobs report in focus as markets seek clarity if a rate hike is likely this month

LAST WEEK

The week began with stock markets across the globe falling over renewed fears over the health of the Chinese economy. As a result the euro and the yen strengthened as investors reacted to the Chinese developments by unwinding carry trades, in which we have seen dramatic movements for the AUD, NZD and ZAR as they are sold off to move back to the euro and the yen.

Markets calmed as the week continued after the People's Bank of China moved to ease monetary policy in order to shore up growth by cutting interest rates by 0.25% to 4.60%.

Data from the Eurozone also supported the single bloc currency as second quarter growth figures showed that Germany grew by an expected 0.4%, and inflation in the country only slowed to 0% instead of an expected -0.1%. Economic sentiment figures in the Eurozone as a whole increased further to 104.2. On a slightly negative note for the euro, ECB executive board member Peter Praet stated that the ECB would be ready to expand or extend its quantitative-easing programme if needed, citing the current decline in commodity prices and recent developments in global economic growth threatening its inflation goal.

Following an initial fall at the start of the week, the biggest gainer of the week was the US dollar as bets increased that a rate hike could occur this September. Consumer confidence rose to a 7 month high of 101.5, durable goods orders increased by 2% and second quarter growth surpassed expectations showing that the economy grew by 3.7%. Comments made by Fed vice chairman, Stanley Fischer, also added to bets of an imminent rate hike as he saw a likely rebound in inflation over the coming months.

The only notable data out of the UK, saw a second estimate of growth for the second quarter falling in line with expectations at 0.7%. Over the weekend, Bank of England governor, Mark Carney, commented that the current slowdown in China could put further pressure on inflation, however this would not change the central banks stance on when they would raise interest rates.

Over the week GBP/USD fell by 1.8%, and GBP/EUR finished marginally lower by 0.15% despite the initial fall at the start of the week.

THIS WEEK

Data this week has been supportive for the euro already with German retail sales coming in at 3.3% beating an expected 1.5% and Eurozone inflation remaining at 0.2% instead of falling to 0.1%.

Overnight Reserve Bank of Australia decided to keep interest rates at 2%

Following the strong gains made by the US dollar last week and leading into this month’s interest rate decision, markets will be focusing on Friday US jobs report where an extra 220,000 are expected to be added and the unemployment rate expected to fall to 5.2%.

The ECB’s monetary policy meeting will also be in focus to see if there is any substance behind Peter Praet’s comments last week that the Central Bank may be ready to expand its current quantitative easing programme.

Tuesday 01 September 2015, 10:30am

CURRENCY SNAPSHOT

GBP: GDP Figures have come out as expected so will be at the dollar’s mercy once more
EUR: German Preliminary CPI coming out as expected suggests a quiet day for the euro
USD: Following good gains yesterday it will be looking to continue the positivity with consumer confidence this afternoon

YESTERDAY

Yesterday was another pretty manic day and yet again the US was prominent in the moves. The pound was fairly quiet and only moved following EUR/USD activity.

In the morning the only relevant piece of data out was house prices which fell to 3.2% from 3.5%, 3.1% was expected.

The bigger news was of course the US Annualised GDP figures which were better than anticipated, it came out at 3.7% following the expectation of a move higher from 2.3% to 3.2%. Beating expectations injected a wave of confidence in the dollar which gained over 1% against most currencies. At the same time initial jobless claims were released which were overlooked, the figure came out at 271k just missing expectations of 274k.

TODAY

This morning Swiss GDP figures were out and they were better than expected, remaining at 1.2% when a fall to 0.9% was expected. German preliminary CPI figures have also been released at 0.2% which stayed the same as expected. The only piece of data for the UK is the second GDP estimate which has remained at 2.6%. Later consumer confidence will be released which is expected to rise to 93.3 from 92.9.

Friday 28 August 2015, 11:10am

CURRENCY SNAPSHOT

GBP: With no UK data today the pound will be at the mercy of movements in other currencies
EUR: ECB member comments on expanding QE may weigh on the Euro
USD: GDP, inflation and jobless figures in focus this afternoon

YESTERDAY

The US Dollar rallied against the pound yesterday as a lack of data allowed markets time to take stock of the dramatic fall in equities due to the Chinese situation. In addition the dollar was bolstered by a positive reading in durable goods, up 2.0% vs an expected -0.4%. Separately, Fed official William Dudley pulled back expectations of a Fed rate hike next month as stated that "international developments have increased downside risks to US economic growth" citing China's economic slowdown, falling commodity prices and pressures on emerging market, which result in financial market volatility. However, the fed Official did go on to say that it was important not to overreact to short term market developments. In the Eurozone, ECB executive board member Peter Praet stated that the European Central Bank would be ready to expand or extend its quantitative-easing programme if needed. This is due to the current decline in commodity prices and recent developments in global economic growth threatening its inflation goal. The dovish comments helped send the euro lower against the pound.

TODAY

Data from the US will be in focus as we see Q2 GDP figures, weekly jobless claims and core personal consumption expenditure, which is a measure of inflation, all of which is due this afternoon. In addition, the annual symposium in Jackson Hole hosted by the Kansas Fed will run from 27-29 August. The topic will be inflation dynamics and monetary policy. Research presented at previous symposiums has been important in shaping the thinking of the FOMC and with a very timely topic this could be the case this year as well. Elsewhere, ECB executive board member Benoît Coeuré will be speaking in Paris. We may well hear similar points covered yesterday by ECB's Peter Praet.

Thursday 27 August 2015, 10:58am

CURRENCY SNAPSHOT

EUR: Euro loses ground as markets book profits following Monday’s gains
GBP: Sterling moves largely dictated by its counterpart currency as data for the week is minimal
USD: Consumer confidence hits a 7 month high causing the dollar to strengthen late in the afternoon.

YESTERDAY

Following Mondays much publicised ‘Black Monday’, sheer panic turned to calm yesterday as markets across the globe regained their losses following the Peoples Bank of China’s (PBOC) decision to cut their interest rate by 0.25% to 4.60%.

The PBOC cited that recent fluctuation in the currency markets were the reason behind the shortfall in long-term liquidity and vowed to use various tools available to keep liquidity under control.

In the currency markets, we saw similar price action with the euro losing pretty much all of its gains from Monday and also seeing AUD, NZD, CAD and ZAR clawing back their losses from the previous day.

On the data front, we saw promising data out of Germany with IFO business climate rising higher than expected to 108.3 in August. Preliminary readings of second quarter growth in Germany rose to 0.4%, helped by an increase in exports on account of a weak euro.

The afternoon was dominated by a deluge of data out of the US. These were broadly negative with Markit services growth slowing to 55.2 from 55.7 in August, new home sales falling short of expectations coming in at 507,000 and housing price index only rising by 0.2%. However markets focused on the better than expected consumer confidence figures, which rose to a seven month high of 101.5 in August causing the US dollar to strengthen towards the end of the afternoon.

TODAY

Speaking at the National Reform Summit overnight, Reserve Bank of Australian governor, Glen Stevens said desirable economic growth in Australia could not be delivered by only interest rate cuts or short-term fiscal initiatives but would need to come from more sustainable sources. Markets deemed this negatively with the Australian dollar weakening in overnight trade.

In focus today will be the US durable goods orders due for release at 1.30pm, which are forecasted to drop by 0.5% from a rise of 3.4% in June. The Fed’s William Dudley will also be making a speech in the afternoon, with markets looking to take cues as to what the Fed may be thinking ahead of September’s monetary policy meeting

Wednesday 26 August 2015, 10:53am

CURRENCY SNAPSHOT

EUR – The Euro strengthens dramatically following the Chinese market fall
GBP – Sterling holds ground against most currencies bar the Euro and surges up against NZD, AUD & ZAR
USD – The Dollar remains relatively weak on the back of China’s currency being weakened

YESTERDAY

Stock markets across the world fell yesterday over renewed fears over the health of the Chinese economy, as the Shanghai stock exchange dropped nearly 9%. In the UK, the FTSE had its worst run since 2003, ending 4.7% lower on the day and at one point had lost as much as £100bn off its value.

Sterling vs Euro rate had one of its biggest falls in 6 years yesterday, with a range of 4 cents. The euro rallied as confidence in the single currency was buoyed by Friday’s Consumer Confidence index for the Eurozone improving by more-than-expected and Greece confirming its third bailout. In addition, the Euro strengthened as investors reacted to the Chinese developments by unwinding carry trades, in which we have seen dramatic movements for the AUD, NZD and ZAR as they are sold off to move back to the Euro.

Carry trading is a means of making a profit by borrowing from a low interest rate currency and investing in riskier commodity based currencies with a higher interest rate yield, thus taking advantage of the interest rate differential.

Last night, the Fed’s Dennis Lockhart repeated that he expects the Fed’s first interest-rate hike this year. His view was unchanged despite his comments that ‘currently, developments such as the appreciation of the dollar, the devaluation of the Chinese currency, and the further decline of oil prices are complicating factors in predicting the pace of growth’

TODAY

Overnight, the People’s Bank of China raised the USD/CNY fixing to 6.3987, up 0.2%. However, the Shanghai stock market ended down 4.3% as such, focus will remain on emerging markets although there may be some stabilisation this morning.

In the Eurozone, the ECB’s vice president Vitor Constancio will speak. His comments will be followed closely following yesterday’s equity sell-off and as the drop in the oil price is threatening the ECB’s outlook for higher inflation.

In Germany, data already out this morning shows a small increase in business climate and expectations and German GDP is in line with expectations at 1.6% YoY Q2 and 0.4% QoQ.

Later in the day, US consumer confidence should be supported by solid job growth and lower oil prices, thus expectations are for 93.3, up from the previous 90.9.

Tuesday 25 August 2015, 10:55am

CURRENCY SNAPSHOT

EUR – The Euro strengthens dramatically following the Chinese market fall
GBP – Sterling holds ground against most currencies bar the Euro and surges up against NZD, AUD & ZAR
USD – The Dollar remains relatively weak on the back of China’s currency being weakened

YESTERDAY

Stock markets across the world fell yesterday over renewed fears over the health of the Chinese economy, as the Shanghai stock exchange dropped nearly 9%. In the UK, the FTSE had its worst run since 2003, ending 4.7% lower on the day and at one point had lost as much as £100bn off its value.

Sterling vs Euro rate had one of its biggest falls in 6 years yesterday, with a range of 4 cents. The euro rallied as confidence in the single currency was buoyed by Friday’s Consumer Confidence index for the Eurozone improving by more-than-expected and Greece confirming its third bailout. In addition, the Euro strengthened as investors reacted to the Chinese developments by unwinding carry trades, in which we have seen dramatic movements for the AUD, NZD and ZAR as they are sold off to move back to the Euro.

Carry trading is a means of making a profit by borrowing from a low interest rate currency and investing in riskier commodity based currencies with a higher interest rate yield, thus taking advantage of the interest rate differential.

Last night, the Fed’s Dennis Lockhart repeated that he expects the Fed’s first interest-rate hike this year. His view was unchanged despite his comments that ‘currently, developments such as the appreciation of the dollar, the devaluation of the Chinese currency, and the further decline of oil prices are complicating factors in predicting the pace of growth’

TODAY

Overnight, the People’s Bank of China raised the USD/CNY fixing to 6.3987, up 0.2%. However, the Shanghai stock market ended down 4.3% as such, focus will remain on emerging markets although there may be some stabilisation this morning. In the Eurozone, the ECB’s vice president Vitor Constancio will speak. His comments will be followed closely following yesterday’s equity sell-off and as the drop in the oil price is threatening the ECB’s outlook for higher inflation.

In Germany, data already out this morning shows a small increase in business climate and expectations and German GDP is in line with expectations at 1.6% YoY Q2 and 0.4% QoQ.

Later in the day, US consumer confidence should be supported by solid job growth and lower oil prices, thus expectations are for 93.3, up from the previous 90.9.

Tuesday 25 August 2015, 10:51am

CURRENCY SNAPSHOT

EUR – The Euro continues to rapidly strengthen following Friday’s strong data
GBP – Sterling remains stable against the US Dollar following last week’s CPI data
USD – The Dollar remains relatively weak on the back of China’s currency being weakened

LAST WEEK

We had a very quiet start to the week and first piece of data of real significance was the UK’s CPI on Tuesday. This came in slightly above expectations at 0.1%. Although historically this would be a particularly weak reading, because this was above expectations Sterling strengthened across the board. On Wednesday US CPI was also released, and this also came in at 0.1%. However, this was below expectations keeping the US Dollar relatively weak.

On Thursday there was a mixture of US data, which included existing home sales and the Philly Fed manufacturing index. The data was generally good, however this data did not cause any significant movement.

On Thursday the main thing of note was that the Greek Prime Minister, Tsipras, decided to resign and hold a snap election in Greece. This led to the Euro beginning to significantly strengthen.

On Friday European manufacturing figures were released. These were mixed with France coming below expectations. However the German reading and Europe’s reading as a whole was positive – meaning the Euro continued to strengthen. The only other thing of note on Friday was Canada’s CPI which came in line with expectations at 0.0%.

THIS WEEK

We once again have a relatively quiet week ahead on the data front, with nothing of note being released today. Tomorrow there is the German Ifo Business Climate, which will gauge the state of the German economy. There is also a consumer confidence reading released from the US that afternoon.

On Wednesday we have core durable goods from the US, which will be followed on Thursday by preliminary GDP and unemployment claims. All eyes will focus on the US Thursday, as the data will indicate whether a US rate rise is in the pipeline with the GDP reading expected to come in at 3.2%. On Friday, the UK will also release a GDP figure which is expected to stay the same at 0.7%.

Monday 24 August 2015, 10:32am

CURRENCY SNAPSHOT

EUR - Greek Prime Minister Tsipras’ resignation will play on the market
GBP - Lack of data from UK means Retail Sales figures still hold importance
USD - Possibility of interest rate rise being pushed back weighs on Dollar

YESTERDAY

Yesterday morning began with the release of revised UK Retail Sales data for July, coming in below expectations. Sterling weakened ahead of the release against a basket of currencies and then fell sharply on the release. This set in motion the trend for the rest of the day as the Pound gradually declined against the commodity currencies and struggled to gain ground against the Euro.

The key exception was Cable which finished the day broadly where it started, influenced by the set of US data released throughout the afternoon. The revised Initial Jobless Claims showed a small increase, helping to boost Sterling’s recovery. The rest of the data came out largely positive for the US with the Philly Fed manufacturing index recording the second highest figure of 2015.

Yesterday evening, Greek Prime Minister Alexis Tsipras resigned from his post. The Euro strengthened overnight on the back of this. A new round of elections are planned for mid-September and could again spark further volatility in the lead up.

TODAY

This morning the Chinese PMI figures disappointed at 47.1, below an expected 47.7. This represents the lowest figure since March 2009 and 6th straight month that manufacturing activity fell.

France’s preliminary Markit Services and Manufacturing PMI both came in below expectations respectively, allowing Sterling to regain some ground this morning. The rest of the Services and Manufacturing PMI data for Germany and the Eurozone came in slightly above expectations and it will be interesting to see how the markets interpret the figures today.

Attention will switch to Canada this afternoon with the release of its inflation data for July as well as retail sales figures for June. The month-on-month CPI figure is expected to drop marginally, with the core figure unmoved at 0%. At the same time, retail sales (MoM) are expected to fall sharply, mirroring the global trend for a slowdown in retail sales. This may place further pressure on the struggling Canadian Dollar.

Friday 21 August 2015, 09:54am

CURRENCY SNAPSHOT

EUR – The Euro is buoyed as Sterling and the US Dollar stumble with low CPI readings
GBP – Loses further ground with poor retail sales data this morning
USD – The Dollar remains relatively weak as a possibility of a September rate rise is weakened

YESTERDAY

Yesterday morning was particularly quiet. The only thing of the note was Europe’s current account, which came in above expectations at €25.4 billion. This was no surprise though, considering the weak state of the Euro. In the afternoon we had CPI data from the US. This highlighted the deflationary threat still lingering within the global markets, as the US’s core CPI came in at 0.1%. Despite this the US Dollar was relatively unmoved. This was due to the markets already pricing in low CPI levels considering the recent drop off in the commodity markets.

In the evening, the FOMC meeting minutes were released from the US. Despite hopes that a rate rise could be indicated for September, there was no indication in the minutes that the rates will go up weakening the US Dollar.

TODAY

Retail sales were released from the UK this morning, and they came in below expectations once again at 0.1%. A bounce back was expected as the previous reading was negative. This has led to the weakening off of Sterling this morning against currencies such as the US Dollar and Euro.

This afternoon all eyes will then turn back to the US when unemployment claims is being released at 1:30pm. This will be followed by the Philly Fed manufacturing index and existing home sales. In light of yesterday’s weak CPI reading, it will be interesting to how the US Dollar moves on the back of this data following the minutes released yesterday evening.

Thursday 20 August 2015, 10:28am

CURRENCY SNAPSHOT

EUR – The Euro is buoyed as Sterling and the US Dollar stumble with low CPI readings
GBP – Loses further ground with poor retail sales data this morning
USD – The Dollar remains relatively weak as a possibility of a September rate rise is weakened

YESTERDAY

Yesterday morning was particularly quiet. The only thing of the note was Europe’s current account, which came in above expectations at €25.4 billion. This was no surprise though, considering the weak state of the Euro.

In the afternoon we had CPI data from the US. This highlighted the deflationary threat still lingering within the global markets, as the US’s core CPI came in at 0.1%. Despite this the US Dollar was relatively unmoved. This was due to the markets already pricing in low CPI levels considering the recent drop off in the commodity markets.

In the evening, the FOMC meeting minutes were released from the US. Despite hopes that a rate rise could be indicated for September, there was no indication in the minutes that the rates will go up weakening the US Dollar.

TODAY

Retail sales were released from the UK this morning, and they came in below expectations once again at 0.1%. A bounce back was expected as the previous reading was negative. This has led to the weakening off of Sterling this morning against currencies such as the US Dollar and Euro.

This afternoon all eyes will then turn back to the US when unemployment claims is being released at 1:30pm. This will be followed by the Philly Fed manufacturing index and existing home sales. In light of yesterday’s weak CPI reading, it will be interesting to how the US Dollar moves on the back of this data following the minutes released yesterday evening.

Thursday 20 August 2015, 10:24am

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