Caxton FX Currency Blog

Richard Driver, Analyst The early optimism that characterised Tuesday’s session has already run out of steam, and the euro is once again feeling the heat as you would expect. There was no major catalyst for the euro’s poor day, but mediocre demand at a German bond auction was unlikely to help. Accordingly, there will be nerves ahead of today’s French bond auction. UK gilts continue to benefit the pound but this morning’s growth figure from the UK services sector has the capacity weigh on sterling. This afternoon brings some key US services and unemployment data, but the market will probably hold off until after tomorrow’s US non-farm payrolls.
STERLING/EURO: Sterling is now trading at sixteen month high against the euro as familiar eurozone concerns take their toll. A UK gilt auction found plenty of demand yesterday, which helped to force this pair higher. By contrast, a German bund auction was rather less successful yesterday, which the market may have taken as a prelude to a poor French auction today. There are plenty of risk factors on the horizon, Spain and Italy will be auctioning their debt next week, so bond yields will remain in focus. Standard & Poor’s has still not passed judgement on the credit rating of various eurozone states, again highlighting euro risks. Sterling is trading at 1.2070 this morning, and risks are skewed to the upside ahead of today’s French debt sale, regardless of what could well be a poor UK services figure.	FORECAST
STERLING/US DOLLAR: This pair is edging lower ahead of December’s UK services figure; safe-haven trades should also boost the US dollar.   Today’s session brings some further data from the US. US services growth is expected to tick up and unemployment figures are also likely to be encouraging today. Still, eurozone concerns returned to the fore yesterday and are likely to outweigh positivity relating to the building growth momentum we are clearly seeing in the US. We continue to favour the US dollar in the current environment. This pair is trading at $1.56, having lost half a cent yesterday, sterling could come under further pressure.	FORECAST
EURO/US DOLLAR: The euro suffered a major slide yesterday, not helped by concerns over a Spanish request for emergency loans. The euro is suffering from speculation that Spain will be applying for emergency loans soon. There were also comments from Italy’s largest bank which indicated the region’s funding crisis is worsening. German retail sales data was poor this morning, revealing a monthly contraction of 0.9%. December’s data for the eurozone services sector also revealed another contraction. With the US recovery gaining pace and the plethora of issues facing the eurozone, the US dollar is the clear outperformer here and another downside move seems a matter of time.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling is edging up against the aussie dollar this morning, helped by poor Australian trade balance data. Australia’s trade balance came in well below expectations to show its fourth consecutive monthly narrowing. Exports are the foundation of Australia’s economy and evidence such as this gives investors good reason to get out of a currency that looks overextended at the moment. Data also showed Australia’s services sector has contracted again in December. Sterling bounced up off support levels close to 1.50 as expected, and has since climbed up above 1.5150. Further sterling gains are possible.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling is on the climb against the kiwi dollar, with the market nervy ahead of today’s French bond auction. The New Zealand dollar is feeling the squeeze in risk off trading, now that eurozone bond auctions are back dominating the headlines. Asian stocks declined by a percent last night, which is demonstrative of the regional investment tone. The likelihood is that today’s French bond auction will also disappoint and risk aversion will intensify. This pair is trading up towards 1.99, and we shouldn’t have to wait too much longer for a return up above 2.00.	FORECAST
STERLING/CANADIAN DOLLAR: This pair saw some fairly range-bound trading as some strong US factory orders data offset heightened eurozone concerns.   US factory orders were at their highest in four months in December, which was a positive for Canadian export demand prospects. Positive US services sector data is likely to provide some further support to the loonie today. Still, eurozone worries are likely to see sterling avoid any losses today. Sterling is trading just above 1.58 and further range-bound trading seems likely today, though we should not have to wait too long for an upwards move.	FORECAST
This post is prepared by Caxton FX Ltd for information purposes only and may contain personal views that are not the opinion of the company. This is not an offer to purchase or sell any security or an investment advertisement. Caxton FX Ltd is authorised and regulated by the Financial Services Authority, although foreign exchange transactions with Caxton FX are regulated by HM Revenue and Customs. This email does not constitute advice for any foreign exchange transaction, nor is it intended as a solicitation for funds or recommendation to trade.