US growth upgraded

This Week's Highlights

Federal Reserve cuts bonds again

US growth upgraded

FX Market Overview

I know banker-bashing is the sport-du-jour for governments and most certainly some bankers deserved all the bashing and more. But for the Argentinean government to be upset because hedge fund managers want to be repaid is a bit beyond the pale. Lending money to people who couldn't repay was the catalyst for the 2008 crash and the catalyst for all the bank bashing. In this instance, how are the Argentineans any different to a self-certificated, over-committed mortgagee in 2007? The irony seems lost on them.

Aside from the Argentine default story, the markets were also focussed on the US Federal reserve's interest rate and bond decisions which we got to hear yesterday evening. The Fed talked up the economy and cut their monthly bond buying budget by a further $10 billion to just $25 billion this month. Bond buying will be stopped altogether in October. These comments plus an improvement in the GDP growth data meant the US Dollar strengthened a little.

Sterling lacks impetus and that is because it lacks data. We did have data showing a slowdown in UK house price growth yesterday and that is perhaps to be expected when mortgages are becoming rarer than hip-hop records that praise women for their intellect. We should probably expect more flat trading as we end July and begin August but month-ends can and do bring volatility due to traders squaring up their positions so, while the data may be lacking, we cannot assume the volatility will be similarly featureless.

The Euro has also been pretty listless but unemployment data and a smattering of inflation data may well shake it out of that stupor.

Away from the markets, under the heading of 'how tasteless can you get!' a clothes store in China is trying to attract shoppers by re-enacting the execution of Japanese soldiers with employees dressed in World War II uniforms. What the........? The Store Managers says it allows people to 'reminisce and buy clothes'. Therapist to aisle 3 please.

Currency - GBP/Australian Dollar

These are interesting times for the Australian Dollar. I am going to talk technical initially so I apologise in advance. The most interesting thing about this chart is the downward sloping trendline that capped the market right up until the beginning of July. What Sterling has done is stay within the upward trend channel, correct after hitting the top of that channel and has now found support along that trendline. Hence the small bounce over the last week. In lay-language, the strength of the Pound has combined with hints from the Reserve Bank of Australia that they might cut interest rates again. That combination has caused another rise in the Sterling – Aussie Dollar exchange rate and it has stayed above a crucial support level. There is still room for a drop to A$1.7950 and plenty of opportunity for a rally to A$1.84 again. That is quite a narrow range for this pair but it still offers enough scope for both buyers and sellers to make some hay.

Currency - GBP/Canadian Dollar

The whole of 2014 has provided a very simple strategy on the Sterling – Canadian Dollar exchange rate. The trading channel is currently C$1.80 to C$1.85 and Canadian Dollar buyers should buy at the top and sellers should sell at the bottom. 'Simples' as that meerkat says. The Pound is currently edging its way to the top of that range and is starting to look overbought as it does so. That would suggest another dive is on the cards in the weeks ahead; just as soon as the top of the range has been challenged. This metronomic pattern plays into the hands of both buyers and sellers and is not an unusual event in the Sterling – Canadian Dollar exchange rate. Enjoy

Currency - GBP/Euro

Mixed data from Europe and exhaustion over sterling's rally have combined to allow this exchange rate a small correction. I thought the Pound might make €1.2750 but it encountered a number of trendline resistance levels on its way and has topped out at €1.2680 or thereabouts. It'll take a big push by Sterling buyers to get it through all of those technical levels but there is a target at €1.3026 which marks the 38.2% retracement of the all-time high to the all-time low. I am pretty sure we will get there but I'm equally sure we will see some dips and troughs along the way. We could even see a drop to €1.20 and still be in the upward trend.

Currency - GBP/New Zealand Dollar

With the Reserve Bank of New Zealand raising interest rates and the bank of England being a long way away from doing so, the attractiveness of the NZ Dollar as an investment currency grows by the month. In fact, were it not for the Pound's strength across the board, the GBP-NZD exchange rate would be much much lower. But we are where we are and the upward trend in this pair has been established for 18 months now. It is a shallow rally but the range is fairly evident. Sterling buyers are very active around NZ$1.94 and NZ$1.90 if they get a chance. NZD buyers are filling their boots every time we get anywhere near NZ$2.00 to the Pound. Unless the RBNZ starts to admit they have raised rates enough times, I can't see Sterling crashing above NZ$2.00 but strong UK data could make that happen. In the meantime, we have to use the ranges we are being given. If life gives you lemons, make lemonade.

Currency - GBP/US Dollar

Recent US data has come with all kinds of caveats and revisions and that is making it hard for USD traders to know what to do for the best. They do have a nice strong upward trend to use as a guide and the 50% retracement of the 2007 high to the 2009 low is looming. Than can be seen at $1.7329but we haven't quite reached that level yet. I suspect we will and I suspect it will happen quite soon but the selloff in the Pound that follows will be the most interesting feature. A 3 or 4 cent drop would not be a surprise as traders take profit so this next few weeks will be very volatile.

Currency - Euro/USD

How was July for you? Did it feel momentous? It should have done because, in the last three weeks the Euro – US Dollar exchange rate has broken below a support line which has been in place since July 2012. 2 year trends don't break that often so we should all be whooping and high fiving really. Sorry I forgot I was writing in England. Tea and a bit of tutting ought to suffice. What does this all mean? Well we should now see a correction to $1.3247 in the first instance and perhaps and extended decline to $1.30 in the months ahead. In the midst of that, another bounce to $1.36 is perfectly possible and the way the Euro reacts at that pound will be the key to the future direction of this pair. Volatility is assured in the weeks and months ahead.