July 21st, 2010 12:49:41 GMT

Cable getting hit again; this time its for real

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Traders are blaming a US corporate for blasting the pound against both the dollar and euro in the last few minutes. The pound has dropped from the 1.5270 area to 1.5235-ish so far.

1.5193 was the fat-fingers low earlier in the day…Offers are seen in EUR/GBP between 0.8410 and 20.

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July 21st, 2010 12:38:11 GMT

AUD attracting some real money sellers

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Traders note early real money sales in AUD from US investors in the 0.8830s. So far they look to have been absorbed with relative ease as prices inch higher.

Focus remains on the 100-day moving average at 0.8868 and the 61.8% retracement of the 0.9390/0.8065 fall at 0.8884. Buy stops lie just above the latter level.

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July 21st, 2010 12:35:09 GMT

YouGov/Citi: UK Year Ahead Inflation Expectations Fall

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–July Year-Ahead Inflation Expectations 2.7% Vs 3.0% in June
–Longer Term Inflation Expectations Steady At 3.3%

LONDON (MNI) – UK year ahead inflation expectations fell in July,
bucking the upward trend in recent months, according to the latest
YouGov/Citi survey.

Bank of England Monetary Policy Committee members have frequently
cited concerns that inflation expectations would become un-anchored as a
result of the run of high inflation outturns, but the latest YouGov/Citi
survey does not show this happening.

The median inflation expectation for the year ahead in the July
survey fell to 2.7% from June’s 3.0% in June and May’s 2.8%. hitting its
lowest level since April.

The survey found among those expressing a view, 30% predicted
inflation would be below the BOE’s 2.0% target in a year’s time,
compared to 19% in June.

Longer term inflation expectations. for 5-10 years, held steady at
3.3%, matching the June outturn.

Citi economist Michael Saunders said the survey results “suggest
that the marked rise in CPI inflation, and Budget VAT hike, have not
destabilized inflation expectations so far. This is likely to give the
MPC some reassurance, given their close focus … on inflation
expectations.”

Saunders warned, however, that with inflation likely to remain
above the 2.0% target for an extended period, it was too early to “sound
the all clear.”

–London Newsroom: Tel:+44207 862 7491;email:drobinson@marketnews.com

[TOPICS: M$$BE$,MT$$$$,M$B$$$,MABDS$]

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July 21st, 2010 12:21:48 GMT

It’s always most volatile at tops and bottoms…

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That’s an old market adage, so perhaps we’re seeing signs of the euro putting in a top for this cycle…Lots of intraday volatility, that’s for sure.

There is no US data today making Bernanke’s semi-annual testimony on the hill the highlight of the day. Traders will look for signs that the Fed is considering more extraordinary measures to boost the economy.

The knee-jerk reaction to more measures would be a dollar slide and a risk-on reflation trade. Commodities and commodity currencies and carry trades would be the beneficiaries.

11 Comments

July 21st, 2010 11:45:25 GMT

Germany: Merkel Again Defends Her Budget Consolidation Course

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BERLIN (MNI) – German Chancellor Angela Merkel Wednesday once again
defended her government’s budget cutting plan, vowing that it will be
successfully implemented.

“The consolidation of the budget is a painful process, but it is
absolutely necessary,” Merkel told reporters here. She argued that
consumers in Germany are more willing to spend when they believe that
the government will produce sound public budgets.

The current economic upswing in Germany is “quite strong but not
yet sustainable,” Merkel cautioned. The GDP level of 2008 will be
reached at earliest at the end of 2012, she acknowledged.

Addressing criticism on the state of her center-right CDU/CSU-FDP
coalition government, the chancellor said she was “very certain” that
the coalition won’t break up. “We will govern very well in this
legislature,” Merkel said. The legislature still runs until autumn of
2013.

Merkel said bank stress tests in Europe, results of which are
scheduled to be published Friday evening, are necessary to instill
confidence in financial markets. She called the testing criteria
“realistic,” and reminded that there are two separate aid funds for
fiscally ailing Eurozone member states.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

[TOPICS: MT$$$$,M$G$$$,M$X$$$,MGX$$$,MFX$$$,MFGBU$,M$$CR$]

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July 21st, 2010 11:38:07 GMT

Who wants some aussie stuff?

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We sit presently at .8840 in AUD/USD.

Talk corporate buy orders down at .8800/10.  

Talk barrier option interest at .8880.

Talk of stops gathering above .8880.

Is it home time yet?. I’ve had enough for today.

P.S I’d hazard a guess some stops not far below .8800.

5 Comments

July 21st, 2010 11:35:54 GMT

ECB Nowotny: S-T Mkt Rate Rise Normal, Not Recovery Risk:Rtrs

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FRANKFURT (MNI) – The recent rise in Eurozone interbank lending
rates is not a concern to the European Central Bank, but rather is part
of a normalization process, ECB Governing Council member Ewald Nowotny
told Reuters in an interview published Wednesday.

Even if EONIA rates rose to match the central bank’s main
refinancing rate of 1%, this would be a “normal situation,” Nowotny, who
leads the Austrian National Bank, said.

He said he wasn’t concerned that higher interbank rates would
dampen the Eurozone’s economic recovery, since they do not affect
long-term interest rates, which are relevant for investment decisions,
he said.

However, the situation is not yet sufficiently normalized for the
ECB to stop conducting its 1-week and 3-month refinancing operations on
a full allotment basis, Nowotny said.

Such unlimited tenders are “not part of the normal ECB instruments,
but after such a big economic crisis it would be premature to think
about [stopping] that,” he said. “Until the end of this year or so, I
do not see any perspective of changes.”

He added: “It’s a matter of how stable the process of normalization
is. I think we do have a process of normalization but it still needs
more stability.”

Nowotny said the ECB “is very cautious with the exit strategy.
There is always a full allotment window available so that there is
always a certain safety element in that.

In regards to higher interbank borrowing rates, Nowotny said, “We
don’t see this as something disturbing. I see this as an element of
normalization because — in the amount as we have it now — it is a sign
of functioning money markets.”

Asked about the spread between EONIA and the refi rate potentially
narrowing to near zero, Nowotny said, “I can give no forecast but you
know that in the history of ECB monetary policy we had such situations
that EONIA had a very close relationship with our main refinancing
rate.”

“I see no liquidity issue for the European banking system,” he
added. “On the contrary, there has been a massive withdrawal of ECB
liquidity without any negative effects or market turmoil.”

Given the low level of core inflation expected for the foreseeable
future, interest rates will likely stay on hold through the rest of this
year and next year, Nowotny suggested.

“Core inflation is low and will stay low for the foreseeable
future, that means definitely for next year,” he noted.

“We do not see this as an aberration from any kind of inflation
goal. As long as we see these developments in the normal range, we do
not think that there is a need for specific reactions,” he concluded.

Nowotny asserted that the recent rebound of the euro will likely
not hurt recovery prospects in the single-currency area. “I don’t think
it will have major effects on our export performance,” he said. But he
warned that weaker economies might be affected by the upturn more than
countries exporting high-tech products, such as Germany and Austria.

–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com

[TOPICS: M$$EC$,M$X$$$,M$$CR$,MGX$$$]

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July 21st, 2010 11:05:12 GMT

Analysis: BOE To Cut GDP, Up CPI Forecasts; 3-Way MPC Split?

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–July Minutes: Near Term Inflation Forecasts Too Low, Growth Too High
–Sentance Backs Hike But Minutes Show Easing Back On The Agenda

LONDON (MNI) – Bank of England Monetary Policy Committee members
acknowledged at their July meeting what many other forecasts have long
been saying – the BOE’s projections for near-term inflation have been
too low and its growth outlook overly optimistic.

The MPC will cut the growth forecasts in the August Inflation
Report and, with members worrying about elevated inflation expectations,
the spectre looms of the committee splitting three ways. The July
minutes revealed the MPC mulled the case for modest easing and modest
tightening, although the final vote was the same as in June, with seven
members voting for no change and only Andrew Sentance voting for a hike.

But the minutes have highlighted the potential for wider dissent
within the committee in the coming months as financial markets remain
turbulent and the prospects for a sustained and solid recovery look
less certain.

The MPC looked at the case for “modest easing” and “modest
tightening”, with the arguments for easing that the “softening in the
medium term outlook for growth” would add to downward inflation pressure
and that pay growth has been subdued despite high inflation outturns.

On the hawkish side there was the resilience of UK inflation, the
fear inflation may continue not to respond much to spare capacity in
the economy and the robustness of international and domestic demand.

In a Dow Jones interview published Tuesday, MPC member Adam Posen
said policy could go either way – if things get worse “we have to try to
act” and if they don’t deteriorate then the arguments for tightening
become relevant, with the odds more in favour of easing than tightening.

Posen said the MPC’s inflation projections suggest a “more than 50%
likelihood in my estimation the right next move will be to loosen rather
than to tighten” policy, he told the newswire.

For the majority on the MPC, it seems unlikely they will sanction
near-term tightening.

The MPC members who wrestle on a daily basis with financial markets
and the banking system, Executive Director Markets Paul Fisher and
Deputy Governor Paul Tucker, will be only too aware of the stresses
still out there and Governor Mervyn King has put himself in their camp.

When Sentance first publicly backed a hike in June, Fisher was
quick to publish comments warning against premature tightening.

“Stresses in financial markets had persisted during the month.
Measures of volatility and spreads on a range of riskier assets had
remained high,” with bank funding markets impaired, the minutes said.

“A range of economic data had been released during the month that
were interpreted as signalling that the pace of economic recovery was
likely to be slower than previously expected, particularly in the United
States,” the minutes said.

The BOE’s implied growth forecasts in its May Inflation Report for
2011 were not only above consensus, but above those of the supranational
bodies such as the International Monetary Fund and the Organisation for
Economic Co-operation and Development and the newly formed Office for
Budget Responsibility, whose forecasts the Treasury now uses.

The implied BOE forecast for growth in 2011 was 3.4%, more than a
full percentage point above the OBR’s 2.3% forecast.

The MPC will have to factor in the full impact of the fiscal
tightening in the emergency June budget into its August forecasts,
although Posen told Dow Jones the impact on growth may not be that
great.

Posen said that the negative impact of the tightening “will be a
little bigger in the next 18 months than we had built into our forecasts
…The difference we’re talking about is in tenths of a percent of GDP,
not in whole [percentage] points of GDP, and in relatively few tenths of
a percent,” he said.

While inflation both near-term and going into 2011 will be driven
up in part because of the looming VAT hike at the start of next year,
the inflation forecast at the end of the two-year forecast horizon
could well be brought down.

David Page, economist at Investec, said the implication of the
lower growth forecast would be a rise in downside inflation risks and
quite probably a reduction in the central inflation forecast further
out.

The combination of higher-than-expected near term inflation and
lower than expected growth will be an uncomfortable combination for the
MPC.

The majority, however, are likely to continue to take the view in
coming months that “wait and see” is the optimal policy response, with
markets currently pricing in no change in policy this year.

–London newsroom: 4420 7862 7491 email: drobinson@marketnews.com

[TOPICS: M$$BE$ M$B$$$]

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July 21st, 2010 10:58:27 GMT

European Morning Wrap: The craziness continues

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  • Swiss National Bank expects half-yearly loss of around CHF 4 bln.  Sharp appreciation of the franc, in particular against the euro, resulted in exchange rate losses of over 14 bln francs
  • Japan govt keeps economic assessment unchanged in July report
  • BOJ dep gov Yamaguchi: Watching forex moves carefully
  • BOE minutes: Voted 7-1 in July meeting to keep rates at 0.5%, Sentance voted for 25 bps rise. Voted 8-0 for keeping QE at 200 bln
  • Euro stress tests asks banks to estimate tier 1 capital at end 2011 under two adverse scenarios – Document
  • China foreign ministry expresses “deep concern” over U.S., S.Korean military drills
  • Germany’s Merkel: Economic recovery is strong
  • Borrowing by Portuguese banks from ECB at record 40.2 bln in June – Bk of Portugal

Yesterday was crazy. This morning was crazier.  If you’ve been trading cable this morning you’re probably in need of a nice lie down in a darkened room right about now. Or maybe a few stiff drinks would do the trick.

Cable rallied from an early 1.5270 to just above 1.5300 in orderly early trade. Then suddenly all hell broke lose and then some.  We plummeted below 1.5200 in the blink of an eye (who knows where actual low was, I’ve heard any number of levels) and then rallied back above 1.5300, albeit not quite as quickly as the sell off.

I’ve heard any number of reasons given for the price action. The one I’ll go with (gotten from usually reliable source) is that it was caused by a  Dutch bank and an algo machine whoopsie.  Fat finger foul up mentioned as well, 3 mln sell interest morphing into 3 bln.  Whatever it was, it was a cock up.

Anyways we’re presently at 1.5270, unchanged on the day.  Middle East central bank seen selling decent amounts from 1.5320 helping cap rally at 1.5334. Same central bank was reportly seen selling down around 1.5300 as well.

EUR/GBP down at .8385 from early .8435.  Australian bank reportedly notable seller of the cross today.  Stops tripped through .8415 and more seen now around .8380.

EUR/USD down at 1.2810 from early 1.2880. Rallied early to 1.2913 session high.  BIS is said to have sold around 1.2905 and a US bank, thought to be acting on behalf of real money clients, sold decent amounts at 1.2900/10. It was all downhill from there.  Speculation had the BIS acting on behalf of the SNB.

Interesting to see the EUR/CHF cross fall sharply, presently at 1.3468 from early 1.3574.   Half expected to hear rumours of BIS/SNB selling the cross ;) , but didn’t. Can’t imagine they’d ever do that. Can you imagine?

USD/JPY sidelined, very marginally lower at 86.95 from early 87.10.

ps It’s been soooo crazy, I got my times muddled and done wrap hour early.  whoops

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