News announcements were relatively thin during the beginning of the week. As stated in last week's report, all eyes would be on UK GDP and US Employment Claims as well as anything to do with Spain. After the worst ever reading of GDP figures since 2009, UK Q2 GDP -0.7% q/q, -0.8% y/y, against forecasts of -0.2%, -0.3% respectively, the Dollar continued to rally as investors flock to safe haven assets. The report highlighted the weaker figures were due to more public holidays in the period and poor weather. Whilst many analysts are now calling for a weaker GBP, especially given the now increased probability of a downgrade by Moody's and a potential future rate cut to stimulate growth, cable traded in a range for a day and a half. Many were waiting for Thursday's speech from ECB President Mario Draghi. Now that everyone has essentially lost hope with Greece, Citibank are forecasting a 90% chance of Greece exit, all eyes are on Spain and there record level of borrowing costs and more importantly just how the ECB can afford to bail out another nation. Draghi's comment '[the] ECB is ready to do whatever it takes' led a surge in risk based assets as traders took profit on the positive news announcement.
Whilst all eyes will still be on the US and QE3, the current uncertainty around Spain will more than likely be at the forefront. Most importantly, is how Draghi's comments can actually be backed up with the powers and money they have. Watch for comments from Angela Merkel, as she has not responded to Draghi's comments even though it will be 'Germany' that has to whatever it will take to save the Euro. Next week's Spanish Manufacturing PMI, GDP and Employment figures will be looked at closely, as well as the FOMC statement, ECB press conference, GBP Rate Statement and Non-Farm Payroll. Comments from central banks will cause volatility as they respond to recent horrendous data and the high commitments set from the ECB. Happy trading!
Current trades - NZDCAD and GBPAUD (order)
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