Canadian inflation and retail data awaited

Today's Highlights

Swiss Franc volatile as SNB adopts negative interest rates

UK public debt data could be telling

Canadian inflation and retail data awaited

Rouble slides into Christmas

FX Market Overview

Thursday was a little calmer after such an eventful Wednesday. Nevertheless, there were some interesting surprises.

The Swiss Franc weakened sharply today when the Swiss National Bank moved its base rate into negative territory. So all the investors sweeping cash into Switzerland from the beleaguered Russia are going to pay for the privilege of depositing funds into Swiss banks. The knee-jerk reaction was a cent of weakness in the Swissie but when the alternative might be to hold roubles which are slumping and have halved in value in the last year, a 0.25% premium seems a minor inconvenience for the safety and anonymity Switzerland affords. That flow from Russia is causing the SNB all sorts of concern as the Swiss Franc could significantly strengthen in the weeks ahead if they don't take action now.

President Putin failed to stop the slide in the Rouble which actually lost 5% in value as he delivered what was supposed to be a supportive and reassuring speech. He maintained his mantra that there is no crisis. Really! With further EU sanctions being implemented next week and oil showing little sign of bouncing back to $100 a barrel, the problems for the Russian economy may be only just starting.

That weak oil price is having repercussions elsewhere though. Britain, Norway and some of the Latin American countries will be amongst those wondering if they can continue to produce crude oil at these wholesale prices. The effect on the currencies of these countries is an obvious one but the US Dollar, in which most oil trade is transacted, tends to strengthen when the underlying asset weakens and we have seen some of that.

Today's big news is the UK government borrowing data. The growth in the economy, fall in unemployment, the rise in average wages and the spike in retail activity as all to little avail if government debt is still ludicrously high. So traders will watch that with interest at 9.30am. Sterling is beating its head against the top of its current ranges so anything positive here could well push the Pound into an end of year rally much as we saw last December.

This afternoon brings Canadian inflation data and retail sales numbers for October. The forecasts are very mixed so the commodity market effects may well overshadow these releases.

And then we are into the fast downhill section of the race to Christmas. Pace picks up, turkeys and vegetables are bought in army-feeding volume and the last minute pressies secured and wrapped. Halo Financial will be active on all but the official bank holidays.

This will be the last Daily Currency Insight until the New Year so may I and everyone here at Halo Financial thank you for your custom over the last year. Can I personally thank you all for your emails and contributions to these reports. Most were positive I am pleased to report and some of the jokes were even publishable without censorship. Well done to those readers.

And finally, the whole team at Halo Financial would like to wish you, your family and your colleagues a very Happy Christmas and a peaceful and prosperous 2015. We will mark our 10th Anniversary in 2015 so we look forward to working with you in that celebration year and many more to come.

Currency - GBP/Australian Dollar

Events in Russia and slowing growth in China are driving the weakness in the Australian Dollar to some degree but the Reserve Bank of Australia's apparent resilience in the face of calls for interest rate cuts is also playing its part. The RBA is worried about the strength of the Australian Dollar which is harming exports but they are resolved not to lower the base rate for fear of fuelling inflation even though a rate cut would address their prime concern - a bit maybe. I have used a longer term charts to illustrate the turning point we may be at. In December 2013, the Sterling - Australian Dollar exchange rate tested the Fibonacci retracement level that marks a 38.2% recovery of the fall from the 2008 high to the 2013 low. We are seeing that same level being tested at the time of writing and if A$1.92 breaks, there is scope for a rally to the A$2.07 level which denotes a 50% recovery. A tad more sterling strength and/or a tad more AUD weakness would do it. I know there will be a few of you sitting with fingers crossed.

Currency - GBP/Canadian Dollar

A slump in oil prices has weakened the Canadian dollar over the past 6 weeks or so. Hence the Sterling – Canadian Dollar rate tested the top of its long term trading channel this week. However, a slip in the value of the Pound was enough to drop this exchange rate by a couple of cents over the last two days. Ultimately, events in Russia, China and at the OPEC meetings will heavily influence the Canadian Dollar and events in the US and therefore the US Dollar will also impact the loonie. As long as the Pound stays below C$1.82, there is every chance we will see this pair drop back to C$1.75 in the weeks ahead. A break above C$1.84 changes that picture significantly. If that happens, traders will be focussed on the 2014 high at C$1.8650 in the first instance.

Currency - GBP/Euro

Greek election concerns and tension between Germany and the recalcitrant French and Italians are combining to keep the euro weak. At the same time, Sterling is continuing to strengthen in most areas of the market and today's remarkably strong UK retail sales figures have not damaged the Pound in any way. The significant pivot points are highlighted in red in the chart above. €1.2750 is an approximate tipping point; above which we can see scope for a rally in the mid €1.28 area. Below the current rate, there is a clear support level around €1.2475. If the market trades below there we would see pressure on the Pound to fall to €1.2340 in the first instance. In essence, this is a great level for Euro buyers.

Currency - GBP/New Zealand Dollar

Like a number of other Sterling related exchange rates, the Sterling – NZ Dollar rate is testing the top end of its short term range. After the spike high we saw in October, the Pound has tried twice more to break to higher levels but the highs are decreasing. So we are in a downward trend in the short term. The fact that the Reserve Bank of New Zealand is stressing its neutral stance on interest rates is keeping things tight for the NZD but events in China, Russia and elsewhere are weakening income from commodity exports. So NZD buyers are best to target anything above NZ$2.02 and sellers would do well to target NZ$1.96 or below.

Currency - GBP/US Dollar

A glance at the chart above shows there is an undoubted downward trend in the Sterling - US Dollar exchange rate. However, the strength of the USD may be stalling as evidence by the double bottom we have witnessed in December. $1.5550 is proving to be a solid support level for the Pound and that is good news for those who need to buy US Dollars. Sterling even tried unsuccessfully to break above the downtrend this week. Sadly for Sterling sellers, that rally failed. So we remain in the tense situation where $1.5550 looks vulnerable and Sterling could fall through there but the support at that level has held up well so far. Either the support will collapse or the Pound will eke its way through $1.5650 and break to higher levels. I confess, I don't know which will happen first.