Thread: Markets Looking For Calm

15/08/2011

Following last weeks US credit downgrade thus creating the highest levels of volatility seen for years, markets today will be looking to restore some form of normality. We saw huge swings in the FTSE which fell below the key 5000 mark on two trading sessions. We saw a brief bounce following the US Fed Chairman Ben Bernanke’s statement that the US will maintain interest rates at a low level only for unfounded rumours of French sovereign rating threat pushing the FTSE lower again. This led to European leaders forcing a ban on short selling of banking stocks in four countries in an attempt to calm markets, however the success of this has been questioned by traders and City minister Lord Myners. He said authorities and the Treasury should focus on more high-frequency trading which places trades within micro-seconds that exaggerates market volatility.

As a result of last week’s volatility we saw the Swiss Franc and Japanese Yen strengthen significantly as investors seeking protection from rising uncertainty in the markets. Authorities in Japan and Switzerland are now looking at options to stop further appreciation in particular against the USD. Last week saw the JPY strengthen against the USD to 76.31 which last month prompted intervention from Japanese authorities to sell off the JPY. In Switzerland the Franc did lose some ground as the Swiss National Bank’s indicated that it could align its currency to the Euro to prevent further escalation which moved GBPCHF from a low of 1.1511 last week to currently over 1.29.

As for this week the main events are the Reserve Bank of Australia’s board minutes which will take place tomorrow. Will we see the tone switch to dovish? Speculation is growing that they could be the next national bank to cut interest rates. On the same day we have German GDP and UK CPI so this could lead to a volatile Tuesday. Next up we have Bank of England minutes on Wednesday where we will get an insight into the latest round of voting in the MPC, will there be any change from the last round of 7:2 in favour of maintaining rates at 0.5%? Finally, we have Canadian CPI to finish off on Friday.

Have a good week.

Report by Philip Ryan at Currencies Direct

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