IG Markets - Forex Focus September 7, 2010

IG Markets - Forex Focus

September 7, 2010

EUR/USD

Details

Prev close 1.2896 52 week high 1.5144
Last trade 1.2879 52 week low 1.1877
High 1.2919 Low 1.2867

Bloomberg Median Forecasts

Q1 2010 1.39 Q3 2010 1.25
Q2 2010 1.25 Q4 2010 1.25

Commentary

The euro pared earlier gains against the US dollar after a report showed European investor confidence slipping in September. The Sentix Investor Confidence survey showed an unexpected drop in confidence to 7.6 in September from 8.5 the previous month. A Bloomberg survey of economists forecasted that the gauge would increase to 9. The drop in investor confidence took some of the shine off of last week's better-than-expected US jobs data, which was still a major factor driving equity market sentiment this morning. As a result, EUR/USD pared earlier gains to trade near its previous close at $1.2883. With the US market closed today for Labor Day, the euro has been taking its cues from European equity that have held onto gains in the absence of any significant economic data that was released this afternoon. The German factory orders, scheduled for release tomorrow, will be the next major economic gauge to watch out for. Dan Cook, Chicago

GBP/USD

Bloomberg Median Forecasts
Q1 2010 1.60 Q3 2010 1.52
Q2 2010 1.47 Q4 2010 1.52

Commentary
Sterling encountered a sharp sell-off this morning as poor economic data released in the UK last week took its toll on European investors. GBP/USD was trading at $1.5489 shortly after European equity markets opened this morning, but proceeded to lose 140 pips to $1.5347 by midday (London time). Cracks began to appear in the UK economy after a series of weak PMI surveys pointed to a tepid recovery. Also contributing to sterling's decline was a report that showed new car registrations fell by 17.5% in August compared to a year earlier. The sharp decline in GBP/USD this morning came despite UK manufacturing expanding at a record pace in the third-quarter. The Engineering Employers Federation (EEF) and BDO survey showed manufacturing output and new order balances jumping by 33% and 35% respectively in the third quarter, the largest expansion since the survey began in 1995. The growth does come off a low base and investors may have discounted the report on the longer term view that fiscal austerity in the UK will end up hurting the domestic economy. According to Jeremy Stretch from Canadian Imperial Bank, if UK growth does show serious signs of stalling then 'There is going to be some building momentum for the bank to at least discuss the prospect of coming back to the quantitative-easing agenda.' [1] Speculation over further quantitative easing may see sterling remain under selling pressure ahead of the Bank of England's interest rate policy meeting this Thursday. Dan Cook, Chicago

AUD/USD

Bloomberg Median Forecasts
Q1 2010 0.9 Q3 2010 0.88
Q2 2010 0.9 Q4 2010 0.88

Commentary
AUD/USD was slightly higher ahead of the Reserve Bank of Australia (RBA) interest rate decision tomorrow. The consensus view is that the central bank will keep interest rates on hold at 4.25%, as uncertainty over the health of the global economy is likely to encourage the central bank to adopt a wait-and-see approach. Over the weekend, TD Securities released their inflation report, which showed year-on-year inflation rate of 3% in August, right on par with the upper comfort range for the RBA. Manufacturing output in China has also improved, which supports growth for the Australian economy. There are also preliminary signs that the US economy is improving, which could revive global growth. However, with only one week of upbeat economic data it is clearly too early to say that conditions will continue to improve. Considering these factors, the growth prospects for the Australian economy still look very healthy and investors will be expecting a hawkish tone on the economic outlook from the RBA. 'We expect inflation to pick up,' said Tim Toohey of Goldman Sachs & Partners Australia Pty. 'The next interest rate hike is most likely to come in November, but an earlier move in October cannot be ruled out.' [2] Dan Cook, Chicago

Notes: Source: [1][2] Bloomberg News (6 September 2010). Bloomberg Median Forecasts are produced by Bloomberg by taking the median level from rates forecast by a number of contributors. These contributors consist of leading banks and security firms.

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