Collinson FX Market Commentary: July 12, 2013 - A dose of reality

Elliott 7 - 2013 Auckland Cup, Day 3

Collinson FX market Commentary: July 12, 2013

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The Central bank domination of the markets continued with Bernanke adding to the minutes with a commentary aimed at verbal stimulus to reinforce QE infinity. He could not have been more aggressive in his language with this ..'Highly accommodative monetary policy for the foreseeable future' and 'we're not going to step on the brakes'.

This language is designed to impress the markets with the Fed's commitment. Verbal will work short term, but fundamentally the economy will not improve with corruption of the monetary system! Equities continued to rally as Wall Street fed off the boom stimulus but the drugs will stop and the wall is hard. The EUR rallied as the USD subsided with the promise of more printing.

The EUR jumped to 1.3100 and the GBP towards 1.5200. This is a massive leap in risk as the Dollar subsides due to the destructive policies of Bernanke. Locally the AUD reacted accordingly, rising towards 0.9300, but later settling back below 0.9200 as local reality sets in!

The KIWI also booked gains, rising to above .7900 before revisiting below .7800 and settling at .7830, but sustained considerable losses in the cross rates. Central Bank Jaw-boning was effective once but economic reality will destroy the bull-run!

Elliott 7’s - 2013 Auckland Cup, Day 3

Collinson FX market Commentary: July 11, 2013

The crises in Eqypt continues unabated which has hit Oil hard, now rising to over $106 which will have a negative impact on input costs and disposable income. Higher Oil prices act like a giant tax on the economy and hits all aspects from the Consumer to Manufacturing.

The only beneficiary is the energy sector with these companies able to improve margins, short term, and opens previously too expensive options. Equities drifted in the face of rising energy costs and with the Fed minutes release. The Fed minutes are expected to endorse the tapering process outlined by Bernanke as the economy slowly improves. The EUR continues to fall, now back to 1.2850, and the GBP 1.4925. Chinese demand is expected to fall with exports and imports dropping as the credit crunch impacts.

A dramatic fall in exports should push commodities lower but general economic confidence had boosted the AUD back towards .9200 before falling to 0.9120 and the KIWI to 0.7800. Vulnerabilities in demand and withdrawal of Central bank intervention spell danger for commodity currencies so be prepared.

The Fed has observed that several members endorse tapering, as Employment conditions continue to improve. The improving economic realities must overwhelm the reduction in QE for equities to perform. It is hard to see the global recovery gain much short term momentum.

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Collinson FX market Commentary: July 10, 2013
Equity markets continued the recent bull-run with sentiment on the improve as an acceptance of marginal tapering, which provides continued QE for the forseeable future. The shock will come when reality bites and Central Banks will realise the consequences of the record breaking monetary largesse! The EUR has drifted lower, despite the rising confidence, with the single currency falling below 1.2800.

The GBP fell to 1.4870, wiping out recent gains, after Manufacturing Production fell 2.9% and Industrial Production also down 2.3%. There is little good news out of Europe and Bond yields in the PIIGS nations are once again on the march. The IMF has again reviewed Global growth lower from 3.3 to 3.1%. The US growth has been downgraded from 1.9% to 1.7% and they have recommended continued QE. This is a terrible growth rate for the US but has failed to dampen the positive sentiment.

Equities are on the rise after Alcoa beat expectations opening the earnings season. Aluminium demand is improving and so are earnings expectations which has reinforced positive sentiments across the markets. It is hard to have faith in this rally considering the economic situation and the fiscal crises that faces most western countries which have been supported by record breaking monetary recklessness. Commodities found support with rising US confidence and the KIWI rallied to 0.7840 with rising credit card spending and Home Prices.

The AUD also found support from the markets despite weakening Business Conditions and Confidence. Business is struggling and these reports hit record lows reflecting the decline in investment in Mining. The AUD is again testing 0.9200 but this is externally driven and vulnerabilities remain!

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Collinson FX market Commentary: July 9, 2013
Markets continued to feed off last weeks positive Jobs data from the US and equities continued to rally strongly. European markets fed of the US lead despite weaker German Industrial Production and falling EU Investor Confidence. Positive news from Greece and Portugal also added to confidence and the EUR stabilised at 1.2875 and the GBP 1.4960. US Markets continued to rally strongly with Alcoa kicking off the earnings season this week.

The stronger Jobs data and acceptance of controlled tapering from the Fed has added to confidence prevailing in the US economic recovery. This has allowed the safety play to settle the Dollar and Bond Yields have also calmed recent spikes. Commodities rebounded and so did the associated currencies with AUD rebounding to just over 0.9100 despite Job Ads falling and unemployment on the rise.

Domestic data is certainly secondary in cause/effect on the currency. Employment is set to deteriorate in line with recent economic domestic data. The KIWI also recovered from the lows to test 0.7800 with local House Sales and Prices flattening out. Central Banks will continue to dictate market direction although local data and US earnings will also have impact.


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