Aussie Dollar may strengthen on China deal

Today's Highlights

• Sterling paused ahead of rich data week

• Eurozone under the spotlight

• Aussie Dollar may strengthen on China deal

FX Market Overview

The murder of Peter Kassig is undoubtedly as vile and inhuman as it is pointless. ISIS isn't going to change US policy through the cold blooded murder of a Muslim aid worker, so this depraved act is little more than grandstanding by these Middle Eastern gangsters marauding under the guise of jihadists. However, thousands of Syrians, Iraqis and others have died at the hands of these murderers but little is said about that in the western press. There is a heavy and rather distasteful scent of parochialism in the reporting.

In the financial markets, there has been a lot of talk over the weekend and at the G20 meeting about the poor state of the global recovery. Aside from President Putin leaving the talks after Russia was criticised for its role in Ukraine, the main talking point was how Europe is paused to re-enter recession, how Japan is flagging and how Chinese growth has slowed. No major solution was advanced but the concern was evident.

As we return to looking at the data rather than the hot air, last week’s Eurozone data was marginally better in some areas but that didn’t lift the mood and the euro remained weak in most currency pairs. Such is the concern over the future of the Eurozone that there is growing talk of an Italian exit from the Euro and the lack of financial stimulus from the European Central Bank is being cited as the main problem for Italian politicians. WE get Eurozone trade balance figures at 10.00am GMT which ought to provide further evidence of the disparity between struggling Eurozone exports and equally uninspiring Eurozone retail demand.

China and Australia have strengthened their ties by signing a preliminary free trade deal which has taken 10 years to finalise. The Aussie Dollar hasn’t strengthened a great deal but Sterling is weak so the GBP-AUD rate is lower. I suspect, with the agreement negotiations having been so protracted, maybe traders will want to see the signatures on the real deal in March before they get to o excited. The RBA Governor will give a speech early tomorrow (UK time) re the bank’s meeting minutes and I am sure this will be one of the influential factors.

Tomorrow also brings UK inflation data which is likely to provide an annualised 1.2 or 1.3 per cent figure and that is unlikely to move the Pound. Sterling may well be influenced by the release of the minutes from the last Bank of England meeting and those will; be in the public domain Wednesday morning. The markets have sold the Pound after BOE suggestions that the base rate isn’t going to rise until late 2015 so any change in that perception will undoubtedly alter the value of Sterling. We will get UK retail sales on Thursday; also influential.

Wednesday also brings the release of the minutes from the last US Federal Reserve meeting but, as they hold press conferences right after their meetings, the effect of that release will be less impactful. US inflation data is due for release Thursday and a small decline in the headline rate is expected. That won’t weaken the rampant US Dollar. Several factors are keeping demand for the USD in very positive territory. A drop in commodity ad oil prices generally favours the US Dollar because most commodities are valued and traded in USD. Tensions in the Middle East and Ukraine remain and that tends to favour the safe haven USD. And US interest rates may well be amongst the first to rise as the US economy recovers; another positive for the USD. As you can imagine, it would take quite a lot to unsettle the US Dollar which continues to strengthen in most markets.

Away from the markets, if you want to do an impersonation of Napoleon Bonaparte, apart from squatting down, the only thing you need is a theatrically poor French accent and a two pointed (bicorn) hat. Well one South Korean investor has the perfect prop now that he has paid £1.5 million for one of Napoleon’s own hats at auction. He’ll have to practice that haw-he-haw accent though.

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There is no place in a fanatic's head where reason can enter.
Napoleon Bonaparte