Daily Forex Brief London: Thursday 8th March 2012

Underlying unease

Ahead of today's ECB and BoE meetings, and the impending Greek PSI announcement, both investors and traders displayed an understandable reluctance to commit to risk yesterday, although overnight nerves steadied just a little. For example, the single currency is back near 1.32, after lingering threateningly near 1.31 yesterday afternoon. The recovery is partly on the back of positive noises regarding participation in the Greek debt-swap, with the minimum participatory level (below which would mean a disorderly default) apparently set to be reached. Despite the partial overnight recovery, equity markets are on edge too and commodity prices are on the defensive. The gold price for instance has really struggled of late, falling USD 100 since late last month. A sharp decline in both German industrial orders and Spanish industrial production contributed to the underlying tension. Unsurprisingly, high-beta currencies in Asia have been tentative while the yuan has been softening as well.

Also in today's Daily Forex Brief:

• Beyond the Greek PSI
• RBA refuses to countenance Aussie FX intervention
• Reasons to question the ECB

Daily Forex Brief London: Tuesday 6th March 2012

Dollar wobbles

It's the Aussie and Kiwi that were hurting overnight, the Kiwi taken to a five-week low vs. the USD. Whilst there were domestic factors that were evident in both moves, the wider tone is one of more caution so far this month. There's a certain dynamic at play, in that there is a concern that the large amount of cash that European banks are currently sitting on could shift the euro into becoming a carry currency. But the more important issue is that where the cash might go. There are concerns with all the high yielders that have done well in recent months, such as Brazil's desire to weaken its currency and the simple fact that many are viewing the dollar bloc as looking rich, especially if we are entering a period of slower growth in China. Furthermore, the impetus to invest in eurozone debt is less than was the case in December, given the rally in yields seen over the past two months. For now, the cash seems happy to sit at the ECB, but we've got to watch the numbers given this situation is unlikely to last.

Also in today's Daily Forex Brief:

• The ECB numbers
• Russia's slow road to ruin
• China's subtle shift

Daily Forex Brief London: Friday 2nd March 2012

Some good news in Europe

The deadline and hurdles for Greece are passing at a pace. Yesterday it was the decision that CDS would not be activated on Greek bonds, although this does not mean that they won't be in the future (for lengthy technical reasons). The other factor to note is that, even thought the EU has delayed the approval of the full EUR 130bln of the second aid package, there were positive responses to the degree of progress made by Greece to date in fulfilling the 38 requirements needed before full approval will be given. Don't expect any major headlines from the remainder of the EU summit today, with just a set-piece signing of the 'fiscal compact' on the main agenda. The other small slice of good news was an agreement to further speed up payments into the new rescue fund (European Stability Mechanism) which starts in the middle of the year. The single currency was feeling heavy during yesterday's session though, seemingly still pondering the implications of the ECB cash injection from earlier in the we.

Also in today's Daily Forex Brief:

• The recovery of gold
• The liquidity risks in Europe
• What makes Portugal different

Daily Forex Brief London: Thursday 1st March 2012

Month-end wobbles

Yesterday's session was something of a roller-coaster for three reasons. Firstly, it was the last trading day of the month, which always elicits rebalancing and liquidity-induced flows. Secondly, the market had to digest the implications of the ECB's 2nd injection of 3yr funds, which is not easy when you don't know exactly where they have gone and what the participating institutions plan to do with them. Thirdly, there was Fed Chairman Bernanke's testimony, which reportedly disappointed markets because he did not lead us into Q3, but was he ever going to? Gold was one of the big losers of the day - down 5% on the day - together with Portuguese bonds, with investors worried about the progress of the country towards achieving the objects of their austerity program. There was talk of the ECB checking prices, although not necessarily buying bonds. For today, the focus is with the meeting of EU leaders. There's no point in setting ourselves up for disappointment by expecting anything major from it. The main focus for the markets is whether leaders are poised to increase the fire-power of the rescue fund(s), but Germany has played down any imminent announcement on this. That said, Germany is looking increasingly isolated in its opposition, principally beyond EU borders.

Also in today's Daily Forex Brief:

• Lessons from the German labour market
• Double the money

Daily Forex Brief London: Tuesday 28th February 2012

Hanging on for the ECB

As we head into the second auction of 3Y funds from the ECB (results announced tomorrow), markets remain in a positive frame of mind. Bond yields in Italy are near the lows of the year, stock markets remain bullish (Euro Stoxx 50 up nearly 10% year to date) and the euro is firmer against the dollar, even though S&P announced Greece was in selective default. Despite this bullishness, it's become apparent that sentiment is still uncertain regarding this week's 3Y auction, with both bullish and bearish cases being constructed around high and low outcomes for the total allocation of funds (see our Insights blog of last week 'The ECB's LTRO dilemma'). There's clearly a risk of a classic 'buy the rumour, sell the fact' scenario around the ECB auction.

Also in today's Daily Forex Brief:

• The ECB sits back for a second week
• Turning the eurozone lending tide
• Accelerating yen weakness