London Trading Session, Essential Market Insights from Gain Capital's Trading Desk!

Published: September 25, 2007 7:23 AM

Tuesday�s London Session has brought another [B]round of negative stories [/B]out of the UK, which has driven trading thus far. Market conditions can best be characterized as �typical�, especially in terms of volume, volatility, and the magnitude of ranges. The first piece of major economic data for the week, [B]the September German IFO[/B], hit the market today as well. As far as trading is concerned, currency pairs have held the recent levels seen over the past few days. The high-yielders have been under pressure, along with a heavy, story-driven British Pound.

European traders entered to hear multiple negative stories out of the UK. The one that garnered the biggest headline was the following: According to a British media source, the UK’s deposit protection scheme holds just GBP 4.4 million (compared to the American Federal Deposit Insurance Corporation’s GBP 24 billion). The fund initially had GBP 9 million, but this has been whittled down by payouts to depositors of failed credit unions. [B]The concern of financial markets from this report would be that the GBP 4.4 million level would not be enough to meet the Chancellor Darling’s pledge to offer a guarantee of GBP 100,000 to holders of UK bank deposits.[/B]

The second topic out of the UK related to [B]Bank of England[/B]. The usually hawkish MPC committee member Andrew Sentence surprised the market with the following statement that lead traders to believe a rate cut may be coming:

“�the recent changes in global financial market conditions could weaken demand conditions in the UK and internationally - exerting downward pressure on inflation. [I]These are all factors we need to take into account in our interest rate decisions.”[/I]

These news items were digested in the Asia Session, crushing the GBP. London traders took a different approach to reach the same end. Market players bought EUR/GBP, pushing the pair well-above 0.7000, as seen last week. The difference between today�s highs and Friday�s peak is the manner in which the pair ascended. As opposed to rising with EUR, today EUR/GBP rose due to the fall of GBP. Meanwhile, EUR/USD has been stagnant around 1.4100. In yesterday�s Gain Capital London Session Update, this subtle idea was covered: [I]�EUR/USD notched a new all-time high at 1.4130. However, just as occurred late last week, we have not seen a convincing follow-through. This is a stark contrast to the previous advances in the pair, which saw strength accompany new highs.� [/I]This theme is certainly one to watch over the course of the week.

While London traders essentially ignored weaker-than-expected German IFO data, New York market players will be focused on the US housing numbers due out at 1000 EDT.

[U]Upcoming Economic Data Releases (New York Session)[/U]

[U]1000 EDT Sept US Consumer Confidence, consensus: 104.3 (relevance: medium)

1000 EDT Aug US Existing Home Sales, consensus: 5.48M, -4.6% (relevance: high)