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Morning Brief – Euro

Euro

 

Following yesterday’s ECB meeting confirming that European ultra easy monetary conditions will be maintained and with confirmation that there will be further stimulus measures to counteract the economic effects of Covid when necessary, the market was reassured and the EUR remained firm at USD 1.2150.

 

U.S. Employment

 

At a high level, of the 22 million jobs lost in March/April 2020 in the USA, 12 million have been restored. Yesterday in the USA, as expected there were 900,000 initial claims for the past week slightly down from the preceding week. Expectations are that it will take another 2 years for the US economy to recover these jobs lost as a result of the Covid pandemic.

 

South Africa

 

Initially praised for their swift and decisive action, the SA government is now under pressure to explain that while other developing countries such as Indonesia and Argentina are rolling out vaccination programs, South Africa has yet to start. While at present the ZAR is at its recent high at 14.87 versus USD, this is more to do with a weaker USD than a testimonial for the SA vaccination program.

 

Glastonbury

 

For the second year running the organisers of the Glastonbury music festival have bitten the bullet and cancelled this hugely popular and successful event once again. Tickets from both 2020 and 2021 will be rolled over to 2022. The numbers behind Glastonbury explain the financial success of the festival that has been going strong since1970: 900 acres, 200,000 people attend over a 5 day period; 79 stages and 2,800 acts fuelled by 400 food and refreshment outlets. Lastly, in 2020 tickets sold out in just 34 minutes.

 

I Wish

 

A huge hit for Stevie Wonder in 1976 that appeared on his album, Songs in the Key of Life and went straight to Number 1 on the Hot 100 on the US Billboard Chart. The song which seems from another and more innocent age was subsequently also recorded by Celine Dion.

Here is I Wish:

 

Looking back on when I
Was a little nappy-headed boy
Then my only worry
Was for Christmas what would be my toy
Even though we sometimes
Would not get a thing
We were happy with the
Joy the day would bring

 

Sneaking out the back door
To hang out with those hoodlum friends of mine
Greeted at the back door
With ‘Boy thought I told you not to go outside’
Tryin’ your best to bring the
Water to your eyes
Thinkin’ it might stop her
From whippin’ your behind

 

I wish those days could come back once more
Why did those days ever have to go
I wish those days could come back once more
Why did those days ever have to go
‘Cause I love them so

 

And….. we wish all of our readers a very good weekend!

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Inauguration

Inauguration

 

Passed down from Latin, to French and an English sounding ‘al’ stuck on some time in the late 17th century, inaugural is a word that had carried a similar meaning for a long time. The Roman and Greek picture of an inauguration involved an augur (appropriately named) watching out for natural signs like the behaviour of the birds or a change in the wind to see if the candidate had the will of the gods to fulfil the position the people had elected him/her to. It’s a bit of a far cry from ‘JLo’ singing from the podium to an empty crowd. Fortunately for President Biden, her high notes didn’t scare off the birds and force the augur to condemn his election against the will of the gods…

 

Joseph Robinette Biden Jr. has now been confirmed as the 46th President of the United States. Our modern day augurs appeared to bypass the constitutional requirement for a transition of power at 12pm London time exactly, with Mr. Biden being addressed as Mr. President a handful of minutes before. The pause that followed the short and sweet swearing in process didn’t stop the BBC presenter falling into a state of confusion and disarray as she wondered whether a 10 minute pause was now due and what on Earth she was supposed to do with it.

 

Following a term of division and recent chaos, the inauguration may have meant much more than usual for many US citizens. Indeed those that have felt the wrath of Trump’s policies abroad may too have focussed on the transition of power more than they usually might have. As expected the hours leading up to the inauguration ceremony were characterised by USD buying. Early session Dollar weakness met strong resistance at 1.37 and 1.215 versus the GB Pound and Euro respectively. The Dollar peaked immediately following Biden’s inauguration as the risk of civic unrest and disturbance subsided. The new President enacted as many as 15 executive orders immediately upon being sworn into office to set the course of his own administration. It is customary for an outgoing President to leave a note for their successor. The White House has confirmed this to be the case in the recent transition but has not released its contents to the public. My bet is on ‘MR Biden, you’re fake news’. Time will tell.

 

A policy decision at the ECB today will be pivotal to the Euro. No policy change is expected by the market either to interest rates or the asset purchase program (QE). Therefore any signs of deviation or comment on the Euro from President Lagarde could unsettle the single currency. The valuation in the euro however suggested that the meeting in combination with the EU summit presents risk to the Euro that is being reflected in its price this week. The potential for Lagarde to surprise us with an expansion in the QE program or a significant move forward in the bloc’s vaccination program could move the Euro dramatically.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – UK

UK

 

UK Consumer Price Index up by 0.6% v expected 0.5%. GBP unmoved by that but inflation watchers monitoring closer for any signs of price moves outstripping forecasts.

 

U.S.Treasury Secretary Nominee: Janet Yellen

 

Yesterday’s address by Janet Yellen to the Senate Finance Committee was closely watched by markets yesterday and she did not disappoint, urging further economic stimulus assistance to the economy and stating that interest rate rises can wait until the USA is back in recovery mode. “Act big” was her message to the Senate. On the exchange rate Janet Yellen was clear that markets should determine the value of the USD and not foreign central banks. Emboldened by that, the USD duly weakened to 1.2130 v EUR.

 

On Another Planet

 

We all know that it takes Earth 365 days to complete an orbit around the Sun. Mars on the other hand takes 687 days but at the far end of the orbit scale for planets is Neptune which takes 165 years! With NASA planning the first Moon landing for decades, later this year (once they sort out the white flash that brought their test to a premature end last weekend) space travel and looking up planets is a welcome diversion from the current orbit of restricted lockdown activity.

 

Ozzy Osbourne

 

Today is the 38th anniversary of the now infamous Ozzy Osbourne act of biting the head of a bat during his Brummie band Black Sabbath’s performance in Des Moines, Iowa USA this day in 1982. Even ignoring 2021 Covid awareness implications of eating bats, SGM-FX’s I.T. guru and committed vegan, Michael looked quite faint when some of his headbanging BS fan colleagues were speculating on the circumstances behind this. It’s now time to reassure him that the bat was thrown on stage by a fan and was already dead. Released in August 1970 is this song which defined both Black Sabbath and Ozzie Osbourne, Paranoid:

 

Finished with my woman
‘Cause she couldn’t help me with my mind
People think I’m insane
Because I am frowning all the time

 

All day long I think of things
But nothing seems to satisfy
Think I’ll lose my mind
If I don’t find something to pacify

 

Can you help me occupy my brain?
Oh yeah

 

I need someone to show me
The things in life that I can’t find
I can’t see the things that make true happiness
I must be blind

 

Make a joke and I will sigh
And you…

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Two hands on the wheel

Two hands on the wheel

 

Either the result of a calendar mixup or just a series of unavoidable events, the week ahead is packed with risks that will dominate foreign exchange flows. President elect Joe Biden’s inauguration will take place in Washington on Wednesday. This week members of the European Council, the EU’s executive arm, will also meet. If that wasn’t enough, no fewer than four of the G10 currencies have a monetary policy decision or announcement due this week. All of these events, in conjunction with the less than certain times we live in, should prove to unsettle markets and drive up demand for safe havens. This will create risks as well as the potential for rewards across the foreign exchange market.

 

Yesterday the market saw heightened and renewed demand for safehaven assets creating direct and indirect flows in foreign exchange. As a result of a flight to safety the world’s largest and most liquid currency, the US Dollar, rallied from a defensive market bid. Other classic safehavens including the Japanese Yen rose in value as investors sought protection from expected volatility from this week’s events. Commodity and emerging market currencies lost some traction as the reflationary cycle took a breather to account for this week’s great number of episodic risks. We could rightly expect these trends to continue to gather pace throughout the remainder of this week as markets continue to be defensive, wary of the potential for widespread change at each scheduled event.

 

Top of the list of risks is this week’s Presidential confirmation. We have already learned of the heightened security due at the Capitol for Biden’s inauguration. As a result of the violence witnessed last week at least 25,000 members of the national guard will secure the streets of Washington to ensure a smooth transition of power. As a result of a ‘small fire’ yesterday the entire complex was put into temporary lockdown with lawmakers inside told to stay away from external windows and doors. The tensions therefore could not be higher moving into the inauguration, pushing investors into less risky assets.

 

The EU Summit too will be of particular importance given the scope of potential and planned discussions. With Italy’s Prime Minister teetering on the brink of resignation, the European Recovery fund still facing problems and the vaccination program all up for collective change, risks behind the Euro are mounting too. The ECB is also one of those central banks in the G10 currency space making a decision this week. Given the Euro’s persistent advance the market is still wary of the damage Lagarde and her Board could do with passing comments about the single currency’s strength.

 

Whilst less is expected from other central banks hosting decisions this week, including banks behind the currencies NOK, JPY and CAD, the overall picture of risks is daunting. This has been driving the wider market to take protection behind USD at the expense of riskier currency holdings. This market positioning and a focus on individual currency pairs will reveal market opportunities as this week unfolds. Our desk would be glad as always to talk you through how to maximise your exposure to these potentially market moving events.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – US Federal Reserve

US Federal Reserve

 

Next meeting for the Board of the Fed is on 26/27 January and following comments from members including the Boston Fed President, there is little expectation of any tightening in rates nor the reduction or removal of the bond buying program designed to inject stimulus into the US economy. Despite both the $1.9 trillion stimulus backed by President elect Biden and an expected pick up in the economy now that the vaccine program is being rolled out in the USA, markets have concluded that easy monetary conditions will need to prevail for the foreseeable future.

 

South Africa: Eskom

 

South Africa is experiencing rolling blackouts and Eskom has been using the mechanism of “load shedding” between 2300 Sunday and 0500 Monday. Unplanned maintenance, outage delays and breakdowns have been exacerbated by Covid infections among contractors and while not at its highest level, load shedding is currently at level two. Eskom as a 100% state owned utility is seen as the bellwether for South Africa and the health of the economy. Back in April 2020 USD was trading at ZAR 19.05 and having reached 14.54 in December 2020 is now at 15.23.

 

Brandy Supply Chain: It’s Getting Serious

 

This weekend I researched online and then ordered a particular bottle of cognac from a UK company that is Dutch owned and staffed. The problem is that those staff are locked down and therefore stuck at home in…Holland while the stock including my brandy is in North London. With little prospect of an early lifting of restrictions, I have been warned that I may need to be patient until the end of February when the company hopes to restart their supply chain in the UK. Meanwhile I am rediscovering some “treasures” at the very back of the drinks cupboard. Creme de menthe frappe anyone?!

 

That’s What Friends are For

 

Dionne Warwick, Elton John, Stevie Wonder and Gladys Knight released this song for charity in January 1986 and it went to Number One. Originally sung by Rod Stewart in 1982, it struck a chord with the public in 1986 and was the best selling record of the year. Now at this time in 2021, it resonates:

 

And I never thought I’d feel this way
And as far as I’m concerned
I’m glad I got the chance to say
That I do believe, I love you

 

And if I should ever go away
Well, then close your eyes and try
To feel the way we do today
And then if you can remember

 

Keep smiling, keep shining
Knowing you can always count on me, for sure
That’s what friends are for
For good times and bad times
I’ll be on your side forever more
That’s what friends are for

 

Well, you came in loving me
And now there’s so much more I see
And so by the way
I thank you

 

Oh and then for the times when we’re apart
Well, then close your eyes and know
The words are coming from my heart
And then if you can remember

 

Keep smiling and keep shining
Knowing you can always count on me, for sure
That’s what friends…

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – US Dollar

US Dollar

 

Still on an upward path at 1.2130 versus EUR, USD is strong on the effects of the expected $1.5 trillion Biden stimulus package. The yield on the US 10 year Treasury Bond has increased by 0.20% in the past month and now stands at 1.17%. US Equity markets on their highs.

 

Germany

 

The German economy shrunk by 5.0% in 2020 which is less than expected and considerably better than the -9% expected in both Italy and France. EUR has weakened versus GBP by 1.5% in the last week.

 

France Property

 

Expectations are that transaction volume will decline by 8% in 2021 but somewhat optimistically it is expected that prices will remain stable. Despite greater difficulty for buyers to obtain finance and a slower market, French property always has plenty of both actual and shy sellers which is the reason that sellers are expected to hold firm in 2021. Early signs are that the French rental market looks ok this year as le staycation is going to be the limit of most French peoples’ holiday plans.

 

In the Air Tonight

 

Exactly 40 years ago today Phil Collins released his single, In the Air Tonight on 15-01-81 which is a long rather bitter scream of pain based on his then wife leaving him. Hardly a first but what made it different was that in the Top of the Pops film, he positioned a tin of paint and paintbrush on the piano in camera shot, thereby confirming for close Phil Collins watchers that his wife had indeed departed the marital home with their painter and decorator. History does not relate whether it was indeed that 80’s favourite, avocado. Here’s (some of) In the Air Tonight which sounded better than it looks below:

 

I can feel it coming in the air tonight, (Oh lord)
And I’ve been waiting for this moment, for all my life, (Oh lord)
Can you feel it coming in the air tonight, oh lord, (Oh lord)

 

Well, if you told me you were drowning
I would not lend a hand
I’ve seen your face before my friend
But I don’t know if you know who I am

 

Well, I was there and I saw what you did
I saw it with my own two eyes
So you can wipe off that grin, I know where you’ve been
It’s all been a pack of lies.

 

And I can feel it coming in the air tonight, (Oh lord)
Well I’ve been waiting for this moment for all my life, (Oh lord)
I can feel it coming in the air tonight, oh lord
Well I’ve been waiting for this moment for all my life oh Lord, (Oh Lord)

 

On a happier note: Have a great weekend!

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – Governor

Governor

 

GBP has been on a winning streak this week, re-testing 32-month highs versus the US Dollar yesterday. The price level, around the 1.37 mark versus the US Dollar was ultimately rejected once again by markets and GBP sent backing. However, momentum behind the UK pound has not been stalled so much yet as to jeopardise or unwind the recent uptrend. The local currency has been supported by the rise of global commodity currencies this week on the back of firming commodity prices. The expectation of global economic recovery and expansion by Q2/3 this year has led to revised estimates of demand for commodities and therefore the currencies of commodity exporters. The one key element pushing GBP’s performance above the rest of the pack has been comments from Bank of England Governor, Andrew Bailey.

 

On Tuesday the central bank Governor made his most decisive comments yet on the use of negative interest rates in the UK economy. Fortunately for the value of GBP those comments were particularly pessimistic of their use, citing domestic banking and home owning trends as problematic to their use. The comments forced fixed income markets to make a U-turn. Ahead of the announcement and for most of this year so far markets had been pricing a BoE rate cut into negative territory by the May meeting. That had hampered GBP demand as investors and commercial positions would have to pay for upside exposure to the UK Pound. As a result of Bailey’s speech, the yield curve corrected higher into positive territory for the vast majority of this year. Pushing GBP forward markets lower, the spot market lifted to set GBP on a decisive trend higher.

 

Momentum was challenged yesterday as markets not only encountered considerable technical resistance in the GBPUSD cross but Covid-19 deaths reached record highs in the UK. Whilst there was some statistical explanation behind the data point, it’s release still fostered pessimism surrounding the UK’s fight with the pandemic. Johnson’s second warning this week about the potential for tighter lockdown restrictions added to Sterling’s setback. Rising infection rates in the US and across much of Europe are also beginning to take their toll on risk conditions once again which could delay Sterling’s next challenge of this important resistance level.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – Commodities: the next frontier

Commodities: the next frontier

 

Traditionally associated with oil production, Norway is not the location that immediately springs to mind when it comes to the announcement of the discovery and 2023 mining of substantial new reserves of cobalt, copper, zinc, gold and silver. Challengingly, these minerals are not only under the sea and 700kms offshore, but still in Norwegian territorial waters. What has captured the market’s interest is the announcement that the Norway Government will be issuing exploration licenses following 3 years of study and that these deposits will contribute hugely to EVs and green energy being used in not only car batteries but wind farms. NKR has strengthened from 8.57 yesterday to 8.51 today versus USD. That could be down to the Copper reserves alone being estimated to be in excess of the annual global copper production of 21.7 million tons.

 

Sonic Boom

 

Those of us in East London and East Anglia were treated(?) to a very loud sonic boom yesterday at 13.19hrs which rattled more than just windows as birds took to the air and alarmed people took to social media. The sonic boom turned out to be caused by a RAF jet scrambling near Cambridge to intercept a private German jet that was not responding to air traffic controllers from Stansted. GBP had a less dramatic reaction to the boom but nevertheless benefitted from the market reducing its expectations of an interest rate cut in February and so GBP duly broke through USD 1.36 before subsiding back down to 1.3580 as the Germans safely disembarked at Stansted. EUR slightly weaker at 0.8938.However this morning the USD has given up some of its gains from the past 3 trading sessions and GBP is back over 1.36.

 

Village People

 

Back on this day in 1979, those fun loving Village People (see below for a reminder) who had earlier released their chart busting song, Y.M.C.A. found themselves in hot water and on the receiving end of a writ from the YMCA(Young Men’s Christian Association) which took exception to both Village People and the song. No need to explain about the reasons behind the law suit as it was subsequently dropped, but much to the chagrin of the YMCA, it lives on…and on. Here it is: Y.M.C.A:

 

Young man there’s no need to feel down
I said young man pick yourself off the ground
I said young man ’cause your in a new town
There’s no need to be unhappy

 

Young man there’s a place you can go
I said young man when you’re short on your dough
You can stay there and I’m sure you will find
Many ways to have a good time.

 

It’s fun to stay at the Y.M.C.A.
It’s fun to stay at the Y.M.C.A.
They have everything For young men to enjoy.
You can hang out with all the boys.

 

It’s fun to stay at the Y.M.C.A.
It’s fun to stay at the Y.M.C.A.
You can get yourself clean
You can have a good meal
You can do whatever you feel.

 

Young man, Are you listening to me
I said, young man, what do you want to be
I said, young man, you can make real your dreams,
But you’ve got to know this…

 

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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Morning Brief – 2.3M

2.3M

 

In the UK, 2.3 million people have received at least one dose of an approved coronavirus vaccine. Compared with a population of 66M or so, and with 3.12M people already having had the virus, that number may seem small. However, the speed of vaccination, particularly keeping in mind that it so far meets the Prime Minister’s own ambitious target is providing an element of support to the UK Pound. It is a long way ahead to economic recovery and the rhetoric remains tilted towards tightening, not loosening measures, however, GBP was optimistic yesterday that the UK’s vaccination efforts are bringing that point closer than it otherwise might have be. Although the domestic outlook may be bleak in the short run, there are movements afoot in the markets that should give us hope of a brighter spring and still yet warmer summer.

 

Deemed overplayed at the end of last year, the so-called ‘reflation trade’ was losing conviction. This trading pattern that dominated the market attempted to profit from economic normalisation and the expectation that inflation would return to the underlying economy as the health crisis proved more manageable and huge monetary and fiscal support remained in place. With yields still stubbornly low and global infections rising at the end of last year, it looked like the incumbent phase of optimism and reflation could stumble. However, 2021 has started on a more optimistic footing. Whilst by historical standards 10-year yields are still remarkably low, the falling price of US treasury is pushing financial conditions back towards normality. The equity market remains solid with commodity prices continuing to find support. What’s more important is that economic forecasts still point towards recovery in Q2. All of these facts have added conviction to the flagging idea of reflation and normalisation and paints a rosier financial picture of the global economy.

 

2020 was a year to forget for many and the global economy lost approximately 5% of its annual output. Much of the pain although staved off by fiscal and monetary action has already been produced and felt. Economic activity levels are forecasted to restore and produce additional growth in 2021. We have recently spoken about these indicators and the importance for a smooth transfer of power to foster further progress on these trends. In the longer run, this continues to spell USD weakness that without or even in spite of ECB intervention could see EURUSD retrace the steps it took early on in the millennium, higher into the 1.20s. Commodity currencies should see solid demand into Q2/3 ‘21 with NOK, SEK and AUD the expected out-performers. South American currencies too are expected to benefit from the weaker US Dollar and more robust international aggregate demand.

 

 

 

Discussion and Analysis by Charles Porter

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Morning Brief – The Terminator

The Terminator

 

Yesterday Arnie Schwarzenegger(a Republican) issued a statement: “Mr President you are terminated.” Whether indeed the Democrats follow through with their promise to impeach Trump(again) and garner enough Republican votes to support that motion, political tensions in the USA remain high, but (so far) the world’s markets have remained calm despite that. As we begin the second full week of 2021 and the last full week before the inauguration of the President elect, it is worth looking at the key indices: WTI oil $52.73; gold $1848; EUR at $1.2220; GBP at $1.3560; 10 yr Govt bond yields: US 1.12%, Germany -0.52, UK 0.29 and Japan 0.05. With 9 days to go until the US inauguration and with US equity markets at all time highs, the market will be hoping for a smooth and quiet transfer of power. What happens subsequently and in particular with the 70,222,058 voters who supported Trump or at least the Republicans in November, is more likely to preoccupy markets after January 20.

 

Chinese EV manufacturer Nio

 

This weekend has seen the launch of the not so catchily named but very elegantly styled ET7 electric car by Chinese manufacturer Nio. This car has unashamedly set its sights on competing with Mercedes and BMW in China and, no accident, has been announced at the same time as Elon Musk has launched a new SUV in China. With a range of over 1000 KMS between charges and a cost of Yuan 448,000 or $69,000 (including battery), the ET7 will give German manufacturers a run for their money in China-and beyond. The BMW 5 series costs the same in China. SGM-FX petrolhead Harry Clynch was last seen excitedly checking the internet to see when the ET7 will be available in Cheshunt. European markets had better get familiar with Nio and their main competitor Xpeng as one way or another, the Chinese car manufacturers are coming.

 

Ring of Fire

 

For Johnny Cash fans casting their mind back to 1964, this was the week that Ring of Fire went straight to the top of the US Country Music Billboard Chart. Johnny Cash’s music is timeless and no song sums up the memory of him better than Man in Black:

Well, you wonder why I always dress in black

 

Why you never see bright colors on my back
And why does my appearance seem to have a somber tone
Well, there’s a reason for the things that I have on

 

I wear the black for the poor and the beaten down
Living in the hopeless, hungry side of town
I wear it for the prisoner who has long paid for his crime
But is there because he’s a victim of the time

 

I wear the black for those who’ve never read
Or listened to the words that Jesus said
About the road to happiness through love and charity
Why, you’d think He’s talking straight to you and me

 

Well, we’re doing mighty fine, I do suppose
In our streak of lightning cars and fancy clothes
But just so we’re reminded of the ones who are held back
Up front there ought to be…

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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