Bob's Currency Focus - 13:00 GMT

EUR/USD
The euro briefly went to 1.4320 overnight before returning to 1.4285 - the level it traded at for most of Thursday evening, after the initial surge. As long as price remains above the previous high of 1.4280, the pair will maintain its bullish tone. With no economic data out Friday, market sentiment and risk aversion will drive prices through to the week’s close. The G7 summit starts later Friday and while it is probable European Ministers will try to raise the question of the weak dollar behind closed doors, it seems highly improbably that the US will permit the release of an official communique that mentions the dollar’s exchange rate. The same goes for Japan and the yen, so any official statement on currencies will probably again focus on the Chinese yuan, given that China are not part of the G7. Markets effectively don’t expect the dollar to get a public airing and that is why there has been a bold move to push the euro higher over the past few days. Today could prove to be volatile as currency traders closely track equity markets and volatility levels. If we get another run of momentum on the euro, we could see the single currency try to reach 2.0350 this afternoon. Stops should be placed at the overnight low of 1.4260 and if this gives way, we could be set for a return to 1.4240 and possibly even 1.42 later today. With no data and a lot of volatility out there, the safest option might be to stay away for the rest of the day and close out positions for the weekend. Any verbal intervention on the euro or dollar could see markets open at significantly different prices come Sunday night.

GBP
Despite all the forecasts of gloom for the UK housing sector and the potential for a major slowdown in the economy, today it was reported that the UK grew at an annualised 3.3% rate in quarter 3, above the 3.1% in quarter 2. It is the fastest economic growth seen for 3 years. The quarter on quarter rate at 0.8% was higher than the 0.7% forecast. Sterling has rallied back up towards USD2.05 against the dollar, while pushing the euro back to GBP0.6970 from the GBP0.70 reached overnight. Cable will struggle to hold above 2.05 in short-term unless there is more dollar weakness across the board. Sterling is still attracting plenty of selling interest with many analysts expecting a slowdown in the economy over the final quarter and into early next year. If the dollar stages a recovery late Friday, then cable could fall back to 2.04. there is no value n buying sterling at current levels against the dollar (2.0490), but sterling offers good value against the euro on any euro rallies towards 0.70.

Yen
USD/JPY hit 114.83 this morning as risk averse traders exit their long positions ahead of the G7 meeting. That is the lowest the pair has reached in 3 weeks and if equity markets significantly under-perform Friday, then we could see the yen reach 114. The yen will probably revert back to its funding role next week and weaken, unless there is an official statement from the G7 meeting directed at the currency. The euro has rallied back up to 164.90 against the Japanese currency at lunch-time, having fallen to 164.20 this morning. Expect the yen to weaken further today if US stock markets rally to the upside. In this event, the dollar could strengthen to 116, while the euro could reach 165.50.

CAD
The loonie hit yet another 31 year high Friday against the US dollar, in the wake of higher than expected consumer price inflation data and oil prices hitting $90 a barrel. USD/CAD fell over 80 points to 0.9653 soon after the CPI data showed the headline inflation rate in September rose to a much higher than expected 2.5% while the core rate slowed to 2.0%, in line with expectations. The headline rate was distorted by a massive increase in gasoline prices over the month and with the core rate (which excludes volatile items like food and energy) in check, it is unlikely to shift the Bank of Canada from its current neutral stance, so the market move we have seen today is a knee-jerk reaction. The loonie is grossly overbought at present and when we do see a genuine shift away form the currency, it is likely to be a very sharp one (CAD longs stand at 85%). The currency offers no value at present levels, and in terms of value against the loonie, the euro again offers the best buy, with the EUR/CAD cross back presently back down to1.38 today.

Bob B - Oct 19

Bob's Currency Focus - 15:00 GMT

EUR/USD
Yesterday’s woeful report on US housing starts and building permits was far worse than expected and sent shockwaves through the markets and the yield on US treasurys nosedived. The dollar now finds itself under renewed pressure as markets begin to price in a further Fed rate cut at the end of October. The US dollar index has also sunk to its lowest print ever Thursday and all of this ahead of the G7 meeting which starts tomorrow and at which European officials are expected to voice concerns about the weakness of the US currency (albeit unofficially). Markets don’t appear to expect anything to materialise from the G7, because the dollar continues to be sold off in large volumes. The euro this morning took out the 1.4280 lifetime high and hit a new high of 1.4312. With dollar sentiment so negative, the dollar is going to continue to struggle, with its rallies being limited to sell-offs owing to profit-taking. What is really worrying for the US currency is its sharp decline against a broad-based appreciation of both the yen and the Swiss franc today, which suggests that for now the dollar has been abandoned as a ‘safe haven’ currency by risk averse traders. The euro appears to offer little value at current levels, but the market may try to push it to as far as 1.45 in the near future. So long as the euro remains above the previous high of 1.4280, there is the potential for the pair to climb to at least 1.4350 by tomorrow. If the euro stalls and profit-taking ensues, then a fall back below 1.4280 will open the way for a retreat back to 1.4240, with an outside chance of a sharp decline to 1.4180 over the next 24 hours.

GBP
Sterling got a lift from a strong set of retail sales figures for September, which printed at 0.6% on the month, much higher than forecast. Cable rallied to just over 2.05, thanks mostly to a further dollar decline. Having taken out the 2-month high at 2.0492, cable now has the potential to rise towards 2.06 and the 28 year high at 2.0660. The pound fell against the euro this morning, with the single currency hitting 0.6984. With prospects of an interest rate cut in the UK this year now receding, on the back of stronger data, the pound should be able to keep the euro below 0.70 in the short term and again any rallies to this price level offer sell opportunities for EUR/GBP, although any attempt to take out 0.6950 is likely to hit resistance. UK third quarter GDP is out Friday and all the indications are that the number will match the robust 0.7% seen in quarter 2, for another annual 3.1% growth rate. A strong GDP figure should boost sterling and could see cable establish itself above USD2.05. On the crosses, sterling should be able to gain against the Canadian dollar and the Aussie dollar, particularly while risk appetite for the carry trade is somewhat more constrained.

Yen
The yen has gained significantly over the past day, with the aversion to risk, nervousness over the forthcoming G7 meeting, lower interest rate expectations for the US and a repatriation of funds all contributing to a strengthening Japanese currency. The currency has gained 100 points against the dollar since the close in New York Wednesday and the pair reached 115.23 today and is seemingly on its way to going lower. If equity markets continue to tumble, there is scope for further appreciation, possibly to as low as 114 by Friday. Against the euro, the yen should be able to push the single currency back towards 164 ahead of the weekend. But any shift in risk tolerance levels will see the yen once again go into retreat, so traders need to keep a firm eye on what is happening on equity markets.

CAD
Despite the record oil prices, the loonie has clung to the dollar for most of Thursday and it has lost out to all other currencies. The US dollar’s broad retreat was triggered by data released Wednesday that shows that the US housing sector crisis is getting significantly worse, leading many to believe the US economy is headed for recession. While bad news for the US dollar, it is hardly good news for a Canadian economy that sends 80% of its exports to the US. The loonie could be the one currency to watch in the coming weeks, because with 85% of all open positions on the currency now long, if the fate of the Canadian economy is coupled with that of the US in the minds of investors, we could soon witness a major reversal in the USD/CAD currency pair. For now, the US dollar must hold the 0.97 line against the loonie, while a rally that sees the pair close above 0.9830 could signal a possible rethink on which direction the pair is going in the near future. Friday's consumer price inflation data from Canada is going to be crucial and a very soft set of figures should trigger a sell-off of some of the current CAD long positions. On the crosses, the CAD will probably remain under pressure against both the euro and the AUD.

Bob B - Oct 18

Bob's Currency Focus - 12:00 GMT

EUR/USD
We failed to see any real move upwards Tuesday and most of the price action was to the downside. 1.4150 was beached but not convincingly and immediate support for the euro is now found around 1.4140. US data yesterday was rather poor and with the international net capital flows coming in at a negative $163 billion in August, this should raise concerns within the US Treasury Department, as doubts amongst foreign investors intensify over the outlook for the US economy and by consequence dollar-denominated assets. August was the month when financial markets endured a major credit squeeze and this will have distorted the capital flow numbers and we will have to wait until next month to see if yesterday’s shock report was a one-off, or the beginning of a worrisome trend. Wednesday sees key inflation and housing data released and the best outcome for the dollar will be a bigger rise than expected in inflation and a better than expected set of housing figures. The core inflation rate is expected to remain unchanged at 2.1%. but should this rise to 2.3% or more, the Fed’s hands may be tied on interest rates later this month and it should give the dollar a much-needed lift. The housing data is expected to be poor – housing starts are forecast at a 1.285 million annual rate. If the number comes in sharply lower than this, then expect risk aversion levels to rise and currency markets to become more volatile. The euro’s prospects of hitting the lifetime high of 1.4280 this week are reducing with each day, as we get closer to the G7 meeting at the weekend. With European politicians expected to raise the issue of the strong euro Vs the dollar and the yen at the weekend (unofficially), many would-be euro supporters will remain on the sidelines for fear of some form of intervention, thus curtailing the scope of immediate euro gains. The dollar does therefore have the potential to break to the downside, if the US inflation data is robust and we could possibly see a retreat to 1.41, or below, later on. If stock markets fall again, it will tend to hamper the euro. On balance, I would rather sell down Wednesday on any price advances towards 1.4240, presuming 1.4242 stays intact. Even if the euro does rally, it will find it difficult to hold its gains, given the wider risks at play.

GBP
Good old David Blanchflower didn’t let the side down at October’s MPC meeting, when being the only member of the committee to vote for a rate cut. The solitary vote is significant in market terms because it means a rate cut is now at least in the mindset of committee members and a cut is likely to command a more heated debate at the next Bank of England meeting in November, particularly following yesterday’s soft inflation report and recent housing data that points to a slowdown in that sector. September's favourable employment report didn’t reveal any new inflation concerns on the wage front and will have little impact on interest rate policy. Cable has managed to hold above the 2.03 line again today but it looks good value for a sell-down on any advances close to 2.04, with the possibility of a return to 2.0250 within the next few days. The pound will continue to struggle to make much progress against the euro, but should be able to prevent any immediate moves by the single currency to retake the 0.70 price level. Sterling will come under pressure on the yen and swiss franc crosses, if risk aversion levels rise again later.


Yen
The yen has given back nearly all of yesterday’s gains this morning, as a bounce in European markets Wednesday has attracted a flood of carry trades. There is plenty of high risk data scheduled for release in the US though and any further sharp deterioration in US housing data could spark another sell-off in US equities and see the yen come back into favour. It is difficult to see the US dollar advancing beyond Y118 in the short-term, given the current level of negative sentiment, while any yen advances are likely to occur in bouts of sporadic attacks, similar to what we have seen in the past two days. A significant decline in stocks could see the yen push the dollar back below Y116, with the potential to spike lower towards Y115, if the trend continues into the tonight's session. The euro could rally back up to Y167 against the Japanese currency, if markets manage to stabilise.

CAD
The Bank of Canada issued a broadly neutral statement Tuesday, when voting to keep rates unchanged, as expected. They were not as vociferous in their language about the currency’s high value as they might have been and many market players who are currently long on the CAD may see this as a let-off. At the same time, the statement did see inflation risks as tilting to the downside and have at least left the door slightly ajar for a cut, should events point to any deterioration in the economy. While oil prices are generally supportive of the loonie, the fact that prices are rising on the back of a weak US dollar and a slowing US economy should cause some alarm and the loonie will struggle to penetrate the 0.97 31-year low in the short-term. If US inflation data proves to be soft and US housing data is in line with expectations, the loonie should be able to hold its own. High US inflation data coupled with a rise in risk aversion levels could see the US dollar advance to 0.9850, if only temporarily. The euro is again a good buy at levels close to 1.38. A sharp fall in oil prices might also be seen as a reason to sell the CAD.

Bob B - Oct 17

Bob's Currency Focus - 12:00 GMT

EUR/USD
Currency markets are on a volatile footing Tuesday after stock markets declined overnight and we witnessed a sharp sell-off in the carry trade this morning. This has made the euro more vulnerable, because it has appreciated significantly against the yen in recent weeks. The euro has dropped to 1.4150 against the dollar this morning, a level that has held since the middle of last week and with no key US economic releases Tuesday, direction today will be determined by risk tolerance levels. A further unwinding of carry trades will undermine the euro and the pair could retreat to 1.41, with the outside possibility of sharp return back close to 1.40, if fear intensifies. If equity markets settle, then the current market price should be taken as a buy opportunity and the euro could bounce back to 1.4240. Bernanke’s comments overnight during a speech in New York were not especially positive for the dollar and there is still a strong sense that the Fed will move to cut rates again, possibly at the end of this month. This will keep the US currency on the defensive in the short-term and any dollar rallies should prove to be temporary, so long as market conditions remain stable. October's ZEW business survey index for Germany was unchanged from September and this must be taken as a plus for the euro, given the concerns raging about higher energy costs and the high value of the euro. Euro inflation for September was confirmed at 2.1%, the first time the rate has exceeded the ECB’s guideline rate of 2.0% since August 2006. With the ECB likely to maintain their hawkish stance against this background, there is every opportunity for the euro to take out the lifetime high of 1.4280 this week. For today, I would be inclined to buy around 1.4150 to 1.4160 with a stop at 1.4125 and a target price of 1.4240.

GBP
Sterling bulls took a knock this morning when September’s consumer price inflation came in unchanged at a benign 1.8%. It is the third consecutive month that the CPI rate has come in below the Bank of England’s 2% target. With inflation under control the Bank are in a position to lower UK interest rates within the next two months, if a further deterioration is seen in the housing sector or if financial markets encounter another credit crunch. We will find out on Wednesday, when the Bank of England minutes from the October meeting are released, just how dovish or otherwise thinking is on the Monetary Policy Committee. Sterling is certain to come under selling pressure against the euro and the dollar, particularly after it has rallied. Cable again looks like a good sell-down opportunity on levels close to 2.04, while it is difficult to see EUR/GBP breaking significantly below 0.6950 in the short-term, and any price near this level offers an opportunity for a rally back up towards 0.70. Sterling could fall sharply against the yen today, if the carry trade comes under increased pressure.

Yen
The yen came through like a train this morning as market panic overnight sent the first layer of carry traders running for the exits. USD/JPY went as low as 116.43 this morning and has currently settled around 116.75. The euro also fell by more than Y1.5 since last evening’s close and it currently at 165.26. We may see further sharp appreciation by the Japanese currency is risk aversions remain high today and traders need to keep a close eye on the performance of US stock markets. If the Dow IA strikes triple digit losses again today, then we could see the dollar fall to at least Y116 and maybe 115.50. te euro could decline back as far as Y164 in the short-term. However, the yen is not a currency traders like to hold for long and if stock markets rebound, then the currency will depreciate sharply, possibly back as far as Monday’s levels of Y117.50 against the dollar and Y167 against the euro. The biggest gains from a major carry unwind should be made on the AUD/JPY and NZD/JPY pairs. The yen is a dangerous currency to be trading in current market conditions and the rewards/losses can be substantial.

CAD
This is D Day in many respects for the loonie. With the currency having appreciated by 8% since the last Bank of Canada meeting in September, all eyes today (14:00 GMT) will be on what the Bank has to say about the country’s runaway currency. A rate cut, though unlikely, cannot be ruled out, but at the very least I expect the Central Bank to issue a strongly worded statement in an attempt to rein in a currency that has gained a massive 20% against the US dollar in the past 6 months. A failure to do so will be taken as the Bank effectively turning a ‘blind eye’ and could propel the loonie to further rapid gains, particularly since it is now armed with accelerating oil prices. Today is a stern test of the Bank of Canada’s mettle. The loonie will face a major reversal if rates are cut, or if the Bank’s statement signals a shift to an easing policy. Such a shift could see the dollar return to parity against its Canadian counterpart in the coming days, even in the face of rising commodity prices. Anything less will be taken as the committee being passive towards the currency’s appreciation and we could quickly return to the low at 0.97 for USD/CAD, with the possibility of a slide to 0.95 in the coming days. EUR/CAD and AUD/CAD offer good buy prospects, particularly if markets settle today and the Bank of Canada are dovish on monetary policy.

Bob B - Oct 16

Bob's Currency Focus - 13:00 GMT

EUR/USD
The euro held support at 1.4150 Friday even though US economic data was stronger than expected. The dollar is simply unable to gain any momentum at present with the market effectively anticipating a further Fed rate cut later this month. We have key inflation and housing data out in the US this Wednesday and ahead of that there is a speech by Fed Chairman Ben Bernanke tonight. Bernanke is unlikely to give too much away in tonight’s speech ahead of a key policy meeting later this month, but if he does emphasis continued weakness in the housing sector and further downside growth risks to the wider economy, then the dollar will suffer. The euro is ideally positioned price-wise to take out the lifetime high at 1.4280, if Bernanke says the ‘wrong’ thing this evening. If he says nothing or talks up inflation risks, then there is plenty of scope for a pullback to 1.4160, or below. Failure by the dollar to take out 1.4150 will however leave the bulls firmly in control. Expect most of today’s price action to be between 1.4150 to 1.4250.

GBP
Sterling bounced back rather miraculously on Friday and made further inroads Monday on the back of broad dollar weakness and increased appetite for the carry trade. Sterling has been very volatile in the past week and has fluctuated sporadically against nearly all currencies with little clear directional pattern developing in the short-term. This is a major week for UK data, with consumer price inflation data Tuesday and the Bank of England minutes of the October meeting released Wednesday. Tuesday’s inflation data could determine whether or not the BoE have scope to cut interest rates when they meet in November, while the Bank of England minutes will inform us whether or not the MPC are inclined to move on interest rates at all. Cable should remain in a 2.03 to 2.0440 price range until Tuesday’s data, while the pound should attract support on any rallies to 0.70 against the euro.

Yen
The only currency doing worse than the US dollar right now is the yen, which continues to be the target of risk-hungry carry traders. This situation is unlikely to change unless there is a distinct rise in risk aversion levels. The dollar should be able to rise to 118 against the yen in the short-term, although it could prove difficult to hold significantly above this level ahead of the weekend’s G7 meeting, when weakness of both the dollar and the yen may be raised as an issue. The euro rose to above 1.6750 against the yen Monday morning and now seems on course to challenge the lifetime high at 1.6894 this week. There appears little reason why this level won’t be taken out and if the yen cedes the 118 price line to the dollar, then expect the euro to hit the all-time high against the Japanese currency in the coming days.

Cad
The loonie hit yet another 31 year high against the greenback Friday (and Monday), when the dollar slipped to 0.9705 against its North American rival. Canada’s leading indicator rose 0.4% in September and vehicle sales rebounded to jump 2.8% in August. Record oil prices are helping to curtail the extent of any US dollar rally and the key question now for the pair is how low can it go, or how low will it be allowed to go? The Bank of Canada meet Tuesday and they find themselves in a serious dilemma. While the country’s underlying fundamentals appear to be sound, many of the economic reports released of late do not reflect the impact of the loonies surge through September and October, during which time it appreciated by almost 8 cents. There has to be concerns within the Bank of Canada about the serious implications for the competitiveness of Canada’s economy moving forward and they may well use the opportunity this Tuesday to signal their intentions on how to manage the impact of the loonie’s strength. It is not beyond the bounds of possibility that they could even cut rates tomorrow, or signal to the market that the next rate move is likely to be down. Tomorrow is a major risk event for the loonie and it could retreat back to at least 0.98 ahead of the Bank of Canada statement at 13:00GMT Tuesday. The euro looks at present to offer good value at levels close to 1.38 against the loonie.

Bob B - Oct 15