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Daily News from Senior FX Analyst – Samuel Allen

Manufacturing production posted lower than expected this morning coming in at 0.3% growth rather then the 0.4% expected growth during July. This could be attributed to seasonal demand but it has dropped sterling lower this morning already. Government data from the UK has also shown that company liquidations in England and Wales have dropped by 19.1% to 4080 in the last quarter which can only be good news for the and could add to the growing optimism surrounding the slumbering economy.

If yesterday was dominated by the central banks then today will be dominated by the non-farm payrolls figure from the US. All eyes are closely whether last months poor figure will be compounded by another poor showing that could easily send shocks around the Forex markets. With cable at a dangerously high level this figure could act as a catalyst for a medium term reversal of fortunes. All those long cable positions which are in the money by a substantial margin could reverse very quickly if the job market in America shows any further significant deterioration.

Sterling is continuing to drop against the Euro this morning as the markets mull over the poor industrial production figures coupled with the positive spin on the European economy given by Trichet. Yesterday Jean-Claude Trichet praised the ECB’S handling of Europe’s credit crisis, including its purchases of debt of troubled countries “Since we have seen a very significant improvement of the overall market situation, it is not surprising at all that the level of activity of that particular program has been very meager,” he said.

Commodity currencies will see some volatility this afternoon with oil traders paying very close attention to the employment sector in America due to its impact on the prospects for global oil use, so clients with any Canadian Dollar requirements should certainly have a stop order in place to protect themselves from adverse movements. In normal market conditions the USD should strengthen on positive data and weaken on negative but because of the safe haven status of the USD we could still see it strengthen on bad data due to international investors buying up the greenback due to risk aversion.

The Royal Bank of Australia’s quarterly statement on monetary policy saw them estimate increases in both growth and inflation. This morning however, we saw no real changes to the Bank’s key forecasts. Goldman Sachs have said “The RBA certainly sounds in no rush to raise rates in the very near term, and we remain comfortable with our view that the central bank will pause until November. Relative to RBA forecasts, we believe household spending will surprise on the upside, compounding the widely anticipated supply-side sources of inflation.” If this prediction prevails then we could easily see a broad weakening of the AUD and the GBP/AUD rate could continue to rise in the near term past its 1.8 GBP/AUD resistance level.

Anyone who is looking to buy any currencies in the near future should certainly be in touch with a specialist currency broker who can help to explain to them the various contracts available to achieve the best exchange rate in their desired time frame.

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