The English week or five steps of a grief for pound

Remains secret whether really there was a personal call of the chancellor Merkel to the president Obama concerning the claim to DB, but there are steady data that the amount of claims is already lowered from critical $14 billion to $5,4 billion.

For the first time for many years NFP is out of focus. The market, at last, realized that Brexit is inevitable and Britain won't be able to leave the union on comfortable conditions for its economy. Euro has complex because of Deutsche Bank, oil beats up and down between a hurricane and OPEC. The first shock was endured, we wait for stabilization.

Double crash of pound last week reminds that the first step of English «grief» - denial of results of Brexit, just because «it can't be the truth». The second - angry statements, that the result is unfair. The third - attempts of the bidding and hope that everything will manage (suddenly will allow the Norwegian or Swiss model!). At the fourth step the world stands now - the hard statement of May about start of the actual Brexit by the end of March of the next year and the subsequent pessimism which covered everything that is somehow connected with pound. We didn't reach the fifth stage yet - humility and acceptance.

An impression is made that the market punishes regulators for policy which isn't pleasant for the market. The Bank of England in comments called Flash Crash situation «the one-stage event which doesn't have serious reasons», but the fact that the pound was recovered only till 1.24, and not to levels of the beginning of fall at all, talk about various things. Even if negotiations on an exit from the EU will take place smoothly, GDP growth of Great Britain in 2017 will be slowed down to 1,1% - these are estimations of the IMF. Now the British economy shows quite good figures of statistics, but it`s impossible to overcome fear of investors of Brexit consequences, and therefore all failures of sterling, first of all, are emotional reaction. From the moment of holding a referendum the pound already lost 23% against dollar.

The actual technical reason of fall of pound in a night session with October 6 for October 7 to 30-year minima, there is even lower than the level of crisis of the 2009th, isn't important already. The question is natural - whether this fall has a bottom? This the Phantom of the Opera in the form of GBP/USD was noticed at significantly different levels depending on trading platform, because each of them shows only those transactions (and at those prices) which were performed in its system. On pound usually take quotations of a trade platform of EBS (the interdealer broker of ICAP) for a control point - on it the pound showed at least 1.1938 (on low amount). Bloomberg reports about fall to 1.1841, but worst of all GBP was on friendly terms with Reuters, where the system fixed at least 1.1378 (5 figures lower!). Besides, Reuters publishes data of «a market minimum» on «good amounts» (at least ₤5 million), and this value - 1.15., so current levels 1.2400-1.220 look quite profitable to the English pessimists.

Rumors that the ECB is going to curtail euroQE to €10 billion a month without specifying of certain terms, appeared on «initiative» of Bloomberg. There is no official comment of the ECB, though Draghi on the G20 on Friday provided the indirect opinion: the reasoning on toughening of policy of the ECB is a mistake. Nevertheless, speculation on this subject continues. Now the reason of a break which Mario took in August is clear - to think. He kept silent also in September, and not to bring down the markets went on the way of distribution of rumors, with the goal that the markets were nervous and showed how they are ready to react, when this idea will be true.

Remains secret whether really there was a personal call of the chancellor Merkel to the president Obama concerning the claim to DB, but there are steady data that the amount of claims is already lowered from critical $14 billion to $5,4 billion. Besides, Deutsche Bank discussed options of building-up of the equity in the union with other banks, and the largest companies of Germany are also ready to provide the equity in case of need. The German BaFin regulator didn't find proofs that Deutsche violated the money laundering legislation in Russia, and isn't going to assess bank with penalties in connection with activities of its Russian division. Bank shares rose by 0.9% (to €12.18). However «the Russian case» isn't closed yet, and the subject remains current for euro.

The long-awaited data Non-Farm Payrolls supported the current line of expectations of increase in an interest rate of FRS. This data is insufficiently strong in respect of Payrolls surplus, but also there is nothing very bad in them. The quantity of workplaces seasonally limps, but quality steadily grows: the income gradually grows, and involvement of a labour forces approached a local maximum. The local data «press through» FRS on increase in a rate against the background of global disorders.

From information of last week it should be noted:

  1. Oil prices grew within a week against the background of data on reducing inventories in the USA and optimism concerning OPEC. Purchases (generally from investment managers) were expected the coordinated reducing production of OPEC to 32,5 - 33 million bars/day - the agreement of representatives of cartel is reached within informal meeting in Algeria. Nevertheless, the transaction of OPEC can't be considered as concluded officially so far. The blow of the hurricane «Mathew» was not so strong as on the Caribbean islands, but the oil market continues to be under pressure from possible long lasting consequences because of a flood.
  2. The European Commission plans to expand a field of activity of the European Fund of Strategic Investments, still benefit from fund was received only by 15 richest EU countries. The European Investment Bank declared that the program generated new investments for €105 billion only for the first year of the work.
  3. The London hedge fund Marshall Wace reported about the multimillion line item against Commerzbank - the second-large bank of Germany. Within the new business strategy the bank suspended dividend payouts, declared intention to dismiss 7300 employees, to invest in development of digital technologies and to carry out reorganization to increase the falling profitability. Total costs on restructuring are estimated at €1.1 billion. At this particular time the British fund opened a short position in the amount of 0.63% of bank shares, and on Wednesday it was increased to 0.72%. The general size of a position - about 9 million shares, the price which was payed for them isn't disclosed. Besides, the fund holds a short position for 0.88% of shares of Deutsche Bank. We wait for the English breakthrough…
  4. In September currency holdings of China were reduced by $18,79 billion - it is the strongest monthly fall for the last four months, showed data of the People's Bank of China. The biggest in the world currency holdings of the country were reduced within three months in a row, but at the same time increase in gold holdings up to 59,11 million troy ounces continues the fourth month. The Asian dragon obviously prepares for something.

On Monday day off for Canada, USA, Japan and China - the market will be thin, on Wednesday you may read protocols of the last meeting of FOMC, on Friday we will pay attention to data of the American retail sales and incomparable Janet before closing of week.

EUR/USD: resistance: (1.1202/1.1222) - 1.1240 - 1.1270 (strong) - 1.1340 (very strong, breakdown will open a way to 1.1450); supports: 1.1150 (strong) - 1.1086 - 1.1013 (system of supports) - 1.0980. The mystical mark 1.1111 and level 1.1000 are protected from breakdown down. There are risks of the movement to protection in the range (1.0982/1.0954). For the movement sure trade higher than 1.1300 is necessary up.

GBP/USD: business is done in a binding to medium-term protection (1.2410/1.2500) and level to Flash Crash - 1.2614. Intraday supports: 1.2320 - 1.2260 - 1.2150. Yet in the market there are no ideas for the strong movement up. Speculation on falling much lower than the level 1.2000 is urgent.

Author: Alexander Ward,
ForexChief Currency strategist