Big data and interest rate week ahead

Today's Highlights

• Euro bank funding calms the markets a tad 

• Big data and interest rate week ahead.

FX Market Overview

Back in the cult we call forex, as Eurozone leaders did their press management thing, Sterling had rather a good day on Friday but only really against the US Dollar. Having dropped to around $1.5480 on Thursday, the Pound was back up to $1.57 on Friday but has dipped a little overnight. Sterling does though remain under pressure after last week’s data showing the UK economy shrank by a revised 0.4% in Q4 and by 0.3% in Q1 and in light of the comments from the Bank of England which suggest we will see expanded quantitative easing budgets at the Bank’s next meeting and perhaps an interest rate cut as well. That meeting is taking place this week so hold on to your hats.

The Pound also trickled lower against most other currencies, including the troubled euro. EU ministers did get a form of words in place that allayed some market fears over debt contagion across Europe but this was the 19th summit in the last 4 years that has said much the same so let’s not get too excited just yet. The news was that European Union leaders agreed to use the allocated EU bailout funds to directly add liquidity to ailing banks. That means they avoid adding to government debt in the affected countries and this process will be overseen by a new EU banking supervisor. They will also use the same bailout funds to buy government debt in an attempt to keep the cost of borrowing down and to avert further credit rating hits. Initial results were good as Spanish government debt dropped below 7% again but, as mentioned earlier, these are early results so caution is the key. We get an interest rate and QE decision from the European Central Bank this week so there is the potential for an expansion of QE and perhaps even an interest rate cut as the |ECB tries to steady the pitching and yawing Euro.

Today is a rollover holiday in Canada as 1st July marks Canada Day. Happy Canada Day to all our Canuck readers. It does mean we can’t settle trades to Canada today though so beware of that.

And that precedes the 4th July US holiday on Wednesday. So, because the US Dollar is the mid currency for almost all foreign exchange transactions, it is impossible to settle any currency transactions on that day. US traders will be preparing for Friday’s US employment report which, it is hoped will show a bit more vigour than a lot of the US data we saw through June.

This week is awash with data release though so please beware of the expected volatility. This morning’s Eurozone manufacturing data was poor and that has caused some excitement in early trade and the UK data was a little more upbeat so Sterling has already recovered a little ground. Oooh it’s all kicking off, as they say on bank LIBOR desks.

Have a great start to July and no I have no idea where the 1st half of the year went either.

Quote

For disappearing acts, it's hard to beat what happens to the eight hours supposedly left after eight of sleep and eight of work.
 Doug Larson