Daily Forex Brief London: Friday 25th May 2012

The euro bails out

Markets approach the end of what has been a pretty difficult week. The single currency has made news lows for the year (vs. the USD) and markets have no more faith in the ability of eurozone leaders to quell speculation around a Greek exit as anti-bailout parties retain their lead in the Greek election opinion polls. We've also seen the capitulation of the single currency, something which we talked about earlier this month, where the euro has been the weakest currency in a period of dollar strength, rather than the more traditional high-beta currencies, such as the Aussie. The price action on the single currency this week means that we run the risk of short-covering activity into the weekend. Also, the Swiss franc is worth keeping a small eye on after yesterday's volatility (at least compared to recent activity), which was mostly on the back of - so far - denied rumours of further measures to quell currency strength.

Daily Forex Brief London: Thursday 24th May 2012

Europe's impossible dream

Probably not by accident, yesterday's Brussels dinner party of EU leaders ended too late for the European press to pass judgement. There was a weight of expectations, which was largely misplaced given this was an informal meeting to pave the way for the main summit of leaders at the end of next month. The same differences remain on common bonds and the financial transaction tax (UK opposing) and more subtle differences on the growth agenda. Of course, everyone would like more growth but delivering it alongside a program of continued austerity is naturally a different matter and, for now, it remains the impossible dream for European leaders and a balance which Europe (and indeed others) has yet to achieve. In the FX markets, after the push lower through the 1.26 level into the European close yesterday, EUR/USD has held steady overnight, but activity elsewhere shows that dollar-dominance remains the underlying theme.

Daily Forex Brief London: Wednesday 23rd May 2012

Dollar dominance returns

The dollar index made a new high for the year yesterday, 3.8% higher than the level seen at the start of the month. This follows on from two sessions of downward pressure on the dollar, which was more down to the extent of short positioning on some of currencies under pressure for most of the month. As we start the European session, EUR/USD itself is not that far off the lows for the year at 1.2624 as EU leaders meet for an informal summit in Brussels. Germany is looking increasingly isolated with its austerity - with no Plan B stance - and continues to rule out any sort of common debt for the eurozone. This summit is designed to shape the plans around the next formal summit at the end of June, so don't expect any major statements, but the surrounding comments will be key in shaping the debate ahead of that meeting. For now, currencies look set to reflect the theme of dollar dominance once again, with stock markets seen heading lower in Europe after the recent breather.

Daily Forex Brief London: Tuesday 22nd May 2012

All about positioning

The price action seen on both Friday and also yesterday reflects the fact that, it's all about positioning in the FX markets for the moment. This has been most evident on the euro, not only in the weekly CFTC data which is reflecting a record amount of speculative shorts, but also in the price action. The single currency has pulled away from a threatened break of the year's low, not that surprising after a run which saw EUR/USD up on only two of the last fourteen trading days. The Aussie has also corrected from the recent lows, partially reversing a downtrend of similar style as seen in EUR/USD. Even though the relationship between the two has broken down a little of late, stocks also look set for a second day of gains after the recent down-run. The underlying themes remain in place, namely continued concerns surrounding Greece and the other peripheral eurozone nations, so the current correction should not be aligned with a perception that things are improving underneath, because they are not.

Daily Forex Brief London: Monday 21st May 2012

Here we go again

It's Monday and the shifting sands of the European mindset are moving (not for the first time) towards the issuance of common bonds as a means of overcoming the sovereign crisis. This is one of the changes in momentum that has emerged from the weekend's meeting of G8 leaders, together with giving the EFSF the ability to re-capitalise banks. It's a sign that there is stronger desire to see an alternative to the hard-line German stance of austerity, with few after-thoughts. Furthermore, the German Chancellor will find it increasingly difficult to resist this shift, especially when it is being endorsed at the international level. The wider issue is that at no point have European leaders really seized the initiative on the crisis, compromising by doing just as much as they believe necessary to stop things getting worse, rather than going all in to turn things around. Imagine where we would be if Greece had restructured its debt back in May 2010, a decent firewall was set-up and a shift towards common bonds was put into train. Most likely, we'd be in a better place than we are now. The single currency recovered on Friday, despite the weaker tone to stocks. This is partly a function of the extent of the short-positioning that has built up in the single currency, which could mean that a push below the year's low at 1.2724 could prove a little tougher than some expect.