Morning Report 04.01.2012

With positive manufacturing data out of the US and the UK, confidence levels continued to rebound, as evidenced by major gains in global stocks. There was good news out of Germany too, with unemployment levels dropping to a staggering twenty-year low. UK construction data came in above expectations this morning, showing some pretty reasonable growth. However, the market is unlikely to respond until tomorrow’s key UK services sector growth figure is announced.
STERLING/EURO: Sterling continues to trade close to the €1.20 level despite alarming warning from the Greek government.   The Guardian have reported that the Greek government have warned that without a new bailout within three months, the troubled state will be forced to leave the single currency. The euro has avoided a sell off so far, in line with a decent level of risk appetite to kick off the year, however the risks of a Greek euro-exit are increasing with every month of inaction from EU leaders. Sterling failed to benefit from a better than expected UK manufacturing growth figure. The data still reveals the sector spent a third consecutive month in contraction, albeit only marginally last month. No major movements are expected today.	FORECAST
STERLING/US DOLLAR: The US dollar continued to weaken off yesterday as strong US economic data spurred on riskier trades away. Impressive US manufacturing data saw investors exit the US dollar in search of higher-yielding currencies. With the figure climbing to an impressive 6-month high, it seems that the US economy is really recovering from mid-2011’s ‘soft patch.’ Hopes are high for this Friday’s key US non-farms figure. Last night’s US Federal Reserve meeting minutes revealed a predictably dovish tone, and failed to make too much impact on the rates. Sterling is trading just above $1.56 this morning, and a move up a cent higher in coming sessions is possible.	FORECAST
EURO/US DOLLAR: The euro benefited from further dollar-weakness and risk appetite, but the threat of S&P downgrades continue to loom. This pair often tracks movements in US stocks, and it was no surprise to see the euro make strides on a day where US stock indices were gaining by 1.50%. Impressive German employment data also helped the euro but data out of Spain was not so encouraging, showing a fifth monthly increase in unemployment. After stronger figures from China and the US, the dominant theme in the market at present is of renewed optimism about the prospects for global economic growth. However, rating agency Standard and Poor’s is still due to make its voice heard, and risk appetite is bound to take a hit. For now, the euro is trading up at $1.3050 and it could find further traction today.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Despite risk-positive news from the US, support levels close to 1.50 kicked in for this pair. The aussie dollar failed to march on yesterday, despite major gains in regional and indeed global stocks. This pair has dipped to these levels close to 1.50 twice before in recent months, and an upward correction ten cents higher is still very much on the cards. The aussie dollar remains very vulnerable to bad news out of the eurozone and to further monetary easing (interest rate cuts) from the Reserve Bank of Australia. Sterling is trading at 1.51 this morning and despite the cautious return of a market confidence, sterling should begin to bounce soon.	FORECAST
STERLING/NEW ZEALAND DOLLAR: This pair remains at a two-month low but with so much uncertainty still remaining, these levels look due an upward correction. Much like the aussie dollar, the New Zealand currency looks vulnerable to a pullback in coming weeks. The confidence we have seen of late is related to the improved global growth picture. News from the eurozone debt situation has gone quiet, but when headlines begin to flow again, sterling will be well-placed to climb back above the 2.00 level against the kiwi dollar. This pair is currently trading at 1.98 and sterling should be able to guard against a further downside move.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling benefited from some decent support levels yesterday, stopping the Canadian dollar from capitalising on such a strong US manufacturing figure. Regardless of what the exchange rates did yesterday, the improved economic picture in the US is a crucial development for the Canadian economy. Without US growth, Canada is in deep trouble, such is the closeness of their trading relationship. Oil prices also continued to climb yesterday, with Brent reaching $112 per barrel. Sterling nonetheless is trading half a cent higher at 1.5850, though a good US non-farm payrolls figure on Friday could see sterling give back these gains.	FORECAST
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