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Fundamentals, Gold and FX Movements, Week September 30 to October 4

Our weekly summary of fundamental news on FX that aims to explains price movements, with particular emphasis on the possibly biggest mysteries: the gold price (GLD) and the Swiss franc (FXF) .

The clear winner of the week was the Aussie, supported by a positive PMI and positive news from the RBA. In the previous week, the U.S. government shutdown made the risk-off currencies CHF and JPY the winners, this development was partially reversed this week. The biggest weekly loser, however, was Sterling.

FX Movements September 30 - October 4



Thursday, October 3
For us, the U.S. Non-Manufacturing ISM index is the most important and leading global economic indicator because it reflects the state of a big part of the U.S. economy and the U.S. consumer, the main driver of global demand. The index came in short of expectations, 54.4, far weaker than the 57.4 expected. Since it is still on similar levels as in 2011 and 2012, it can be expected that GDP growth for 2013 won’t be higher than in 2011 or 2012.

Non-Manufacturing and Manufacturing ISM Index 2013

click on graph to expand

On the other side, U.S. manufacturing has recovered: major reasons are the relatively low oil prices and the falling competition from Emerging Markets due to quickly rising wages.
A recovery of manufacturing together with weak oil prices would imply a reduction of the U.S. trade deficit and it would exercise further downwards pressure on gold. At 55.4, the Chinese Non-Manufacturing PMI was stronger than the previous reading at 53.9. European retail sales came in better than expected, but a look on the details shows the massive contraction compared to last year in Greece, Cyprus or Spain (between -6% and -14%), the continuing Germans reluctance to spend (+0.4% y/y) and the French resistance to austerity (+1.7% y/y). The Italian Services PMI managed to be close to the German Services PMI (52.7 vs. 53.7). If the PMIs for the rest of the eurozone are able to overtake the German one, then this might imply a rising EUR/CHF. The PMIs usually reflect y/y GDP growth (see below). However, given that Italy was in a big economic trough, it is far easier for them to grow than for Germany that has had stronger GDP growth for years.

Market PMI Eurozone September 2013

Click on graph to expand

With better European and Chinese news and weaker U.S. data, “anti-dollar currencies” or safe-havens like AUD, NOK, SEK, JPY and CHF appreciated. USD/CHF fell slightly under the 0.90 support (-0.33%) and EUR/CHF to 1.2246 (-0.11%). Gold was nearly unchanged at 1315$.




 

 

Remark:

 

This post is an extract of daily posts on our CHF and Gold News Bar on our home page or at this address.

It explains daily CHF and gold price movements based on the most important fundamental indicators in a few sentences. Keep in mind that the only Swiss fundamental data that is able to move the CHF must come from the SNB and from Swiss  inflation data – from 1% y/y CPI the SNB should remove the CHF cap. The other data is global macro: mostly US and German data, some European and Chinese/Japanese news publications determine CHF behaviour. CHF is positively correlated to good data from Germany and to some extent China and Japan. Good data from the United States lets CHF fall against both USD and EUR; it is hence negatively correlated to good US news. As for EUR/CHF, the Swissie is negatively correlated to good Southern European and French data. Understand the terms “American bloc” and “Asian bloc” (read here). As for gold prices please understand the basis here. Remember also that the currency movement over months is a combination of the daily movements explained here.

George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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