Euro Consolidates Gains, 1.60 Next?

Having closed above 1.5740, the EURUSD price action has consolidated in a tight 130-pip range. The pair showed a Hanging Man bearish reversal pattern following the close above the previous top, suggesting the up move was exhausted for the time being. The subsequent downside has been limited however, with the pair looking to be consolidating above resistance-turned-support at 1.5730. Having failed to violate the up trend, the EURUSD retains a bullish bias. On balance, US economic data turned from bad to mixed last week, so price action may continue to lack a clear direction until Friday’s Nonfarm Payrolls release. Though we will continue to Buy Euros, the lack of a strong signal means we will keep a close eye on price action and cut losses quickly as we look for a test of the psychologically significant 1.6000 figure.

The British pound extended its losses today

The British pound extended its losses today, hitting an intraday low of 1.9883.

UK economic data was mixed with the GfK consumer confidence report and Nationwide house prices falling short of expectations. The current account did improve, but not enough to offset the bearish sentiment. The quarterly pace of GDP growth in the fourth quarter was unrevised, but the annualized pace of growth was lowered from 2.9 to 2.8 percent. Like the US, the UK economy is very vulnerable especially since consumer confidence hit a 15 year low. The Financial Times is also worried about the health of UK lenders. All three of the country’s largest banks hiked mortgage rates yesterday, putting further pressure on home

British Pound Could Fall Further if Disaster Hits UK Mortgage Lenders

According to an article in the UK Times, Nationwide, the country’s second largest mortgage lender is planning to turn away business.

We wonder why a mortgage lender would resort to this unless trouble was brewing in house. The Times argues that Nationwide is attempting to gain greater control over the amount that it lends and is doing so by increasing the rates on its tracker deals by more than 50bp. Efforts such as these are exactly why central banks including the UK and the US are struggling to contain the credit crisis. Despite interest rate cuts and liquidity injections, banks and mortgage lenders have reluctantly offered new loans while scrutiny has increased for potential borrowers, making it difficult for everyone. The liquidity crisis has hit the UK and US housing markets in more ways than one. If a mortgage lender announces major losses or even worse, is forced to fold shop, the British pound could easily slip. The news from Nationwide completely erased the British pound’s earlier gains which were driven by stronger economic data. The CBI retail sales survey rebounded this month, while fourth quarter total business investment beat expectations. More UK numbers are due for release today with Nationwide house prices, current account for the fourth quarter and the final Q4 GDP numbers due for release. Expect decent volatility in the British pound.

ECB not to cut rates anytime soon! - Traders Buy Euros

US Dollar Slides as ECB President Trichet Denies Future Rate Cuts

US dollar pessimism heightened as fresh data hampered the growth outlook for the troubled economy. As market participants sold off risky assets, including forex carry trades, the Swiss franc and Japanese yen gained against the US dollar. Against the European counterparts, the greenback dropped versus the euro as ECB President Trichet’s commentary suggested little chance of a rate cut in the near-term, while the British Pound trailed behind. Conversely, the US dollar picked up against the New Zealand and the Canadian dollar, while the Australian dollar inched up to hold near the 0.9200 level.

Bank of England to Cut Rates?

Although there was no UK economic data released yesterday, the market now believes that the Bank of England is on track to cut interest rates next month. In a testimony before legislators, King admitted that given current market conditions, the central bank is more predisposed to cutting interest rates even though they are in no hurry to follow in the footsteps of the Federal Reserve who has taken historic measures in an attempt to stabilize the credit markets. Bank of England member Sentence also reminded the markets about the difficult times ahead for the UK economy. He argues that although concerns for a recession are overstated, consumer spending should continue to weaken.

Traders still buying Euros

The British pound has extended its gains against the US dollar but it continues to underperform the Euro.

Speculative property development in the UK has seized up amid rapidly worsening credit conditions,

Speculative property development in the UK has seized up amid rapidly worsening credit conditions, according to industry insiders.
The launch next week by Assetz, the property investment group, of a fund to bail out builders struggling to raise debt finance is being seen as the latest sign of deteriorating conditions, which have worsened even in the past fortnight
The fund will aim to close the gap - normally between 10 to 15 per cent - between the developer's fixed level of equity and the diminishing level of bank finance. It will come at a price - in this case, between 50 and 65 per cent of the profit from the development, in addition to 15 per cent annual interest on the initial loan. But Stuart Law, chief executive of Assetz, said: "This is not greedy. I've not had a developer bat an eyelid yet."
The appetite for cash even at this level of premium underlines just how desperate the situation has become for many developers. The health of the debt markets is key to the property sector, both commercial and residential, since developers and investors both rely on high levels of borrowing.
Certain companies are halting speculative development in the commercial sector, while the residential market is also being affected, particularly in the unlisted sector.
A finance director of a large unlisted commercial property developer, who asked not to be named, told the Financial Times that he had been trying, but failing, to secure debt to carry out the next phase of a scheme in London.
A leading real estate banker added: "There is no market at all for speculative development funding. You need a letting, a track record and your own equity, otherwise you might as well not bother."
Further testament to the sector's difficulties - and the speed with which conditions have deteriorated - came from a developer of high-end London residential buildings. In the past fortnight alone, he said, the market for development finance had frozen up as banks retreat from further bad news, which meant they did not wish to risk further exposure to residential property.
Assetz is not the only fund seeking to take advantage of the situation. Jones Lang LaSalle Corporate Finance, for example, is working on a scheme that would buy residential development land from distressed house builders to move it off their balance sheets.
"I've seen the market tighten over the past three months to the point that development finance has all but dried up," said Tony Edgley, international director for Jones Lang LaSalle Corporate Finance, who added that basic construction finance was still available but from a limited number of banks and at reduced levels.
Up to last summer, gearing of above 80 per cent was common but now borrowers for both development and investment say the average loan-to-value ratio has been tightened for smaller deals and withdrawn completely for larger ones.
The problems are mostly in the unlisted sector, as quoted companies tend to have large undrawn debt facilities. But the Financial Times understands that listed developers, too, are in the market for finance to build large commercial schemes. The difference is that they are not broadcasting the fact.
"The majority of listed companies have got pretty good balance sheets this time," said John Burns, chief executive of Derwent London, who pointed to its own £370m of undrawn bank facilities. "But its 100 per cent correct to say that if facilities aren't in place then loans for speculative development won't be available."