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Ongoing uncertainties let the EURO alternate

Ongoing uncertainties let the EURO alternate

Having won the preliminary vote yesterday evening, Greek PM Papandreou now needs to secure the final ballot against the background of the second day of a 48-hour general strike. The vote in Greece happened as Merkel and Sarkozy met in Frankfurt at an event to mark Trichet’s departure from the ECB to try to narrow their differences over the role of the ECB in leveraging the EFSF after reports had emerged that an insurance scheme was being worked on that would increase the effective size of the EFSF to €1 trillion.

General confusion over unfolding events in the eurozone has seen equity markets falter. Wall Street closed lower in response to an underwhelming Beige Book Report. Given stronger hard data, there had been hopes that the report would record some mild strengthening in economic activity. Instead, the pace of growth was described as ‘modest’ or ‘slight’ with CAPEX and hiring ‘restrained’. Asian markets followed the US lower and European bourses are expected to fall by over 1% at the open.

But uncertainty over resolving the eurozone sovereign debt crisis has left the single currency floundering. Euro-dollar is from $1.3850 to find support at $1.37 this morning. Euro-sterling traded in a tight range around £0.8720 overnight. Cable is trading around $1.57 with the unanimous decision by MPC Members to vote for an increase in asset purchases in October suggesting that more could follow.

Following on from slightly stronger than expected industrial production and trade data, further clarity on the outlook for Q3 will come from September retail sales data. We look for headline sales to rise by 0.2% on the month, which would leave quarterly growth at 0.2%, a little below the 0.7% pace seen in Q2. However, retail sales are falling as a percentage of consumption as spending power is being diverted from the High Street towards utility bills. This weakens the correlation between retail sales and total household spending, which we suspect will be more robust. The three-month on three-month percentage change accelerated from 0.1% to 0.3% in August as very weak spending in May dropped out, it is the weakness of Q2 data that supports our view of a technical bounce in Q3.

The market is looking for a sharp bounce in the Philadelphia Fed survey. Consensus is for the October reading to rally from -17.5 to -9.6, which would mark the highest reading since July. However, the Empire State Manufacturing survey was broadly unchanged in October, which implies that the Philly Fed survey could also be extremely soft. We expect consensus to be disappointed.

The fall in pending home sales in August suggests that existing home sales will be flat in September. The market is looking for a 2.5% fall on the month, which would push volumes down from 5.03 million to 4.91 million. The underlying trend is flat as households struggle to obtain mortgage credit.

What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.

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