Last week was a quiet one on the fundamental economic data front, and as such the currency market looked to equities to lead the way again.  The week was a particularly strong one for Sterling, not because it made vast amounts of ground, but because it was able to consolidate at certain technical levels that indicate it could push further up, particularly against the important adversaries of the greenback and euro.

 

Although there was a dearth of data in the lead up to Easter, we did start the week with some tier one data in the form of European retail sales, which were received relatively poorly, beginning a solid week for the pound. Sterling was further buoyed by the news of the impressive 97% uptake of the HSBC rights issue, and the general confidence that fed through to the important financial sector stocks. 

 

The earning season began on Wednesday, with some poor results calling out the spectre of risk aversion to haunt sterling into submission later in the week. Thursday’s Bank of England rate decision was an anticlimax, with rates left at current levels, and no sign of a change to the quantitative easing program currently in place.

 

Volatility was high throughout the week, of the majors jostling for position it was GBP/USD (Cable) making the largest movements.  As ever, USD was heavily affected by risk appetite which is illustrated by equity movements, and the positive week for stocks meant a negative one for the dollar. The USD Trade Balance data released on Thursday was unable to claw back any ground for the Greenback, which ended the week on the ropes.

 

Asian markets news also provided further reason to move out of the dollar, with reports that China was planning a new stimulus bill aimed at boosting consumption. The Chinese Premier, Wen Jiabao, also commented that the economy was doing better than expected, a view supported by March industrial output figures which showed a slight improvement. The Japanese government is also planning on spending 15,400bn Yen itself to stimulate their economy, a larger sum than initial expectations predicted. The Yen weakened on the back of this, as Asian equities bounced, stemming safe haven inflows. 

 

We have another short week, and the economic data calendar is also light.  Events stateside will dominate the news, starting with this morning’s PPI data arriving worse than expected.  Retail sales were also out, disappointingly down 1.1%.  The market will pay close attention to Ben Bernanke’s comments later today, as he earlier indicated his belief that the economic decline may have slowed.  Consumer Price (CPI) Index data follows tomorrow from the US in the late morning closely followed by Industrial Production and NAHB housing market data at lunch.  CPI and Industrial Production data is the only notable offering from the EU on Thursday.

 

Overall, we anticipate the lack of fundamental data out this week to continue to force the market to be driven by equities, and we are looking for a consolidation of the recent sterling strength.  Looking away from the data, we have many companies releasing their Q1 earnings reports and should positive news from the banking sector continue, Wells Fargo and Goldman Sachs have already surprised the market higher, sterling should stand to benefit.

 

Trade of the Week

 

The trade of the week is relevant to a seller of sterling and a buyer of Euros. This zero premium structure enabled the client to hedge their exposure for a six month period through a ‘window convertible forward’.

 

The client has a worst case rate (WCR) of 1.09 and can benefit 100% of any and all upside up to a rate of 1.22 during the relevant window period. Should GBP/EUR hit 1.22 at any point in the window period, the structure reverts to a forward contract at 1.09. For full details of this structure please contact one of our options traders on 0207 801 9050.

 

Enjoy the week ahead

 

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Please feel free to contact me (rick.roache@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our:

Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.

 

To view any past or present currency blogs please click on the following link www.worldfirst.com/blog

 

Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.

Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.

 

This financial promotion is issued in the United Kingdom by World First Markets Limited which is authorised and regulated by the Financial Services Authority (“FSA”) to provide advice on and execute trades in derivatives.  Please note that other activities that may be referred to in this material, such as the execution of spot foreign exchange trades, do not fall under the remit of the FSA.  World First Markets Limited’s FSA Firm Reference Number is 477561.Investing in any of the hedging strategies contained in this material involves certain risks, for example that the exchange rate at expiry of the contract is less favourable than if you had entered into a forward contract.  Please ensure that you fully understand these risks before investing.  If you are in any doubt as to the nature of these risks, please speak with your financial adviser or an adviser at World First Markets Limited.

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