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Market fragmentation provokes multidirectional movements of currencies

Market fragmentation provokes multidirectional movements of currencies
Yesterday’s behavior of the exchange market reflects the lack of prevalent tendency in the market, currencies react to different events separately. Japanese yen grew sharply after Kuroda’s comments and Australian and New Zealand dollars followed it, British pound grew after positive data on manufacturing (and ignored weak data on industrial production). Against this background euro showed almost the weakest result. All attempts to grow during the day failed. The reason is the lack of decision on Greek issue. Yesterday the most impressive thing was collapse of New Zealand dollar almost at night, after decrease of interest rates by the Reserve Bank of New Zealand. Although the probability of such event was repeatedly mentioned, the market reacted to it as it was an absolute surprise. Herewith growth of Australian dollar in this morning at Asian session, after positive data on unemployment, looks noticeable. It is remarkable as there is a strong correlation between these two currencies and after decrease of rates Aussie followed Kiwi, but Kiwi practically ignored the data on unemployment from Australia. The market has become fragmented and expects strong drivers, which let decide on further movement directions.

Today the market will be probably under influence of two opposite events, which have been kept players in a state of high alert for last weeks – American statistics and Greek debt. In the U.S.A. one of the most important indicators will be published – retail sales. For last weeks US economic data have shown unstable results, what postpones the start of monetary policy tightening by the Fed. Positive report could improve these expectations and forecasts promise considerable growth of buyers’ activity. Still, it makes sense to take into account that energy prices have increased during last two months, what might influence consumers’ desire to spend, so there are risks that forecasts won’t be met. We should just remind that weak correlation of forecasts with American statistics provokes sharp and unexpected movements. Still, today the positive of American statistics can be offset by the surprise of Greek debt issue. Negotiations are very intensive. Yesterday the meeting of Hollande, Tsipras and Merkel came to nothing, the meeting of Tsipras and Juncker is scheduled for today. Now compromise seems to be real and achievable. If such news appears in news lines, then euro can grow sharply, and pull other currencies. Now, despite separate strong movements of currencies, uncertain state is retained.

 

Trade tactics:

We continue to keep euro’s long position from 1.1235, stop is at the entry point. The pair is in unstable balance and exit from it is possible to any direction. Now we are just waiting for development of events.

 

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