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Steve Sedgewick
The euro-dollar’s currently trading at 1.3423, euro-sterling 0.9130, and we have the dollar-yen
at 99.59 elsewhere. The dollar versus the Hong Kong dollar, I know Hong Kong was a hot
topic yesterday, 7.749. Peter A. Rosenstreich is the Chief Market Analyst at Advanced
Currency Markets and joins us now. Peter, very good to see you today, thank you very much
indeed for joining us. In terms of the reaction on the foreign exchange markets, I guess they
didn’t move too much, or did they?
Peter A. Rosenstreich
Well they got a little, you know, they actually had a nice bounce. I think the direction for
specifically the dollar and euro-dollar I think caught the market off guard. I think it goes into
sort of the broader market reaction not expecting the core data response at the G10, not
expecting the ECB to go 25 instead of 50, really caught the market off guard, there was a
negative sort of blanket over the market, when that news hit euro-dollar just took off and I
think the market will sell down a little bit today.
Louisa Bojesen
I was just about to say, I mean that was the real surprising element in yesterday’s session,
that ECB rate cut, much less than anticipated as you say. Does this change anything though
in the longer term for a euro-dollar stance at the moment? I mean are we still looking at the
current play holding or being held intact at least in the slightly longer term?
Peter A. Rosenstreich
We agree. I mean, or excuse me, I agree. We think euro-dollar’s going to be capped around
the 1.35 levels, we think the fact Trichet did not come out and really talk about QE, said he
was going to push it off to the next meeting really is going to put a cap on the euro-dollar,
where it can trade. Looking at everything, all the events that took place yesterday, the market
I believe is going to start readdressing exactly what each of these means, whether it’s the
$1.1 trillion G10 response or the language coming out of the ECB, or today’s non-farm
payrolls, and I think when they actually start, and we should also put in the change of mark to
market as well, when they actually start taking a look at these events they’re going to see that
there’s enormous risk in the marketplace and this risk appetite trade that’s put itself on pretty
squarely in the equity market is going to start coming off a little bit, and we should see
movement back into the dollar as people sort of get a little bit more concerned about exactly
what all this means.
Silvia Wadhwa
Peter, it’s Silvia here in London as well. What’s happening to the second row currencies I
dare say, there was a little bit of a feeling that we had more risk appetite in the last few days
for the Aussie dollars and the currencies that are beyond the top three or four.
Peter A. Rosenstreich
Right, well, you know, our longer term view is that we’ll start seeing movement in
commodities, we’re going to see the stabilisation in the global marketplace, and that should
help, as you said, the second tier currency. Aussie particularly should benefit, especially with
the RBA not going as low as previously anticipated. But right now the currency markets are
really moving lock and step with risk aversion. I expect to see some decline in the equity
markets, and I guess US futures are trading lower now with the non-farm payrolls, with the
downside risk, you know, pushing above 660,000, we’re looking at 680, I’ve seen numbers as
high as 7+, really could put a damper on this risk appetite.
Holger Schmieding
Peter, a question from Holger here in London, what do you think over the next three months
will be the major factors driving the big currency? Will it be the waxing and waning of risk
appetite, will it be speculation about quantitative easing, how much the ECB may or may not
do, or what do you think is the stuff we really need to watch?
Peter A. Rosenstreich
Well I think, you know, the risk aversion trade, looking at the correlations between equity
markets and the dollar, you cannot just sort of discount them, in the next three months it’s still
going to be the primary driver. Right below that is the ECB and what direction they’re going to
take in terms of QE. There’s enormous discrepancy in the marketplace of what type of steps,
if there are going to be steps how low the ECB is going to move in terms of monetary policy,
all of that is very, very uncertain and the fact that the markets went into yesterday’s ECB
meeting with such confidence, about 15 and 25 for the discount window, just highlights the
fact that there’s enormous uncertainty with that regard in the ECB.
Steve Sedgewick
Yeah, let’s just see whether Jean-Claude Trichet added any clarity to the uncertainty you
mentioned when he was talking after the rate decision yesterday.
Jean-Claude Trichet
It is the intention of the governing council to decide on the further non-standard measures. I
will give you rendezvous at the next decision meeting of monetary policy in one month’s time
here, and I could tell you that this is the decision, these are the decisions of the governing
council.
Steve Sedgewick
They’re taking their time aren’t they, Peter?
Peter A. Rosenstreich
Not much clarity there. You know, I’ll tell you tomorrow really doesn’t help the markets or give
it any really level of confidence. Again, the discrepancy on what exactly tools the ECB can
use is enormous from, you know, simple buying sovereign debt to buying Eastern European
currencies. So I think that the fact that this is unsettled, we have to wait another month, is
really going to put pressure on the euro and create sort of volatility in the FX markets.
Silvia Wadhwa
Peter, I’ve been watching the ECB for a long time and the Bundesbank before that, if I had to
put my money on it I would say forget QE. How much disappointment would there be in the
markets if they didn’t do anything like that?
Peter A. Rosenstreich
I think a lot of it depends on the underlying economics of the European union as well as the
global landscape. If Europe keeps on declining, deteriorating at the rapid rate that it has and
the ECB does not take proactive steps I think there’ll be enormous disappointment in the
market, and really punish the euro. If we start seeing some level of stabilisation, both globally
as well as domestically in the Eurozone, I think the market will be less likely to punish the
ECB. But the direction that we see the Eurozone trending in right now, the ECB really needs
to step up and QE really would provide the push that the Eurozone needs.
Steve Sedgewick
Peter, very nice to speak to you today, thank you very much indeed and have a great
weekend.
Peter A. Rosenstreich
Thank you very much.
Steve Sedgewick
Peter A. Rosenstreich, Chief Market Analyst at Advanced Currency Markets. |