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The FX markets are waiting for some strong signals… Oct 16

By • Oct 16th, 2012 • Category: Currency

The Coracle Online Currency podcast for Oct 16, 2012 in association with Crossbar fx

Significant items this week:

Tues 16th Oct UK – Inflation/CPI…hopefully within a whisker of the 2% target now.
US – CPI, Industrial production, Net long term TIC flows

Wed 17th Oct UK – Unemployment

Thurs 18th Oct China – GDP
UK – Retail sales – slight improvement? No Jubilee, Olympics or Bank holiday to blame it on this time.

Thank you for downloading the foreign exchange market report podcast for October 16th from Coracle Online and Crossbar fx.

Last week was was another rather quiet one in the FX markets. Data that would usually move the market was pretty much ignored and despite an upbeat US report, the currency markets, and the USD hardly moved at all. The University of Michigan consumer sentiment index surprised everyone with its jump from September to October but it would seem that no matter what happens in ‘Dollarworld’, the market is either waiting for a sustained string of positive data or clear election results. As it stands at the moment we are all seemingly trapped in limbo.

Merkel visited Greece and pledged her support, and much the same came out of the Eurozone finance ministers meeting. Spain has still to apply for aid and had their credit rating downgraded to one level above junk. Greece is going to need longer and has the added issue of unemployment now at 25%. Italy and Portugal continue to pretend its not really happening to them. The Germans have been playing hard ball with everyone but even they seem to have concluded that Greece should stay in the EMU. It has proved difficult to find even the smallest fig leaf to cover up further concessions but all the posturing of recent weeks may fool some German voters. Another very recent German concession has been to allow the ESM bailout fund to lend directly to banks, but only in future and subject to troika monitoring. This is slightly better news for Spain (if they want help) but not for Ireland and Portugal (who are understandably very unhappy).

In the UK there is a rather gloomy picture. Data releases are mostly negative, industrial and manufacturing output are down and the value of exports fell by 2.4% in the last few months, and some bright spark has pointed out that we shall be borrowing more than Greece this year at 8.2% of GDP compared to their 7.5%! Our deficit will also be bigger than theirs next year! As things stand the debt will not start to fall until 2 years after the original prediction from the Chancellor. Calls for Plan B will no doubt grow louder. Plan B being the option to spend your way out of debt by creating growth by spending, and then hoping it generates enough growth to enable you to then begin saving to pay off the debt.. It’s a novel approach, not because its not been thought of before but its just never been thought of as a plan that in anyone in their wildest economic dreams has thought could really work.

Thanks for listening