Morning Report

Richard Driver, Analyst The markets are lacking much stimulation at present and we are seeing plenty of range-bound trading. Rumours suggest that investors may have to accept a 60% write-down (haircut) on their Greek bondholdings, up from the 50% originally agreed towards the end of last year. Today’s session is another quiet one in terms of scheduled releases. We may have to wait until events tomorrow to kick the market into action; the ECB’s press conference should throw up some volatility.
STERLING/EURO: Sterling traded within a pretty tight range yesterday, but continues to look well supported at these multi-month highs. The markets will keep an eye on demand at a German bond sale today. Compared to the rest of the eurozone, German bond auctions are nowhere near as alarming. However, even the slightest deterioration in demand for the paymaster’s debt causes market nerves. Fitch’s ratings gave the market a bit of a scare yesterday by stating publically that there is a “significant chance” of a downgrade to Italian debt. This is hardly a surprise but will weigh on sentiment nonetheless. Sterling is trading up above €1.21 this morning, and there no major moves are expected today.	FORECAST
STERLING/US DOLLAR: Trading for this pair has been particularly flat this week but the bleak outlook for the EUR/USD pairing should see GBP lose out to the dollar. We have now heard several US Federal Reserve policymakers this week and the doves certainly appear to be shouting louder than the hawks, as you would expect in such an uncertain global economic environment. Interestingly though, there appears to be good support for additional monetary easing, though not through QE3, rather through mortgage backed securities. Sterling is trading at $1.5450 and is a avoiding a downside move for the time being. UK trade balance data may give sterling an issue today, with the deficit expected to widen.	FORECAST
EURO/US DOLLAR: This pair is also struggling for direction, but reports that hedge funds may resist a Greek restructuring plan will concern the market. A 100bn euro plan to restructure Greece’s pile of debt is rumoured to be unsatisfactory to many private investors, which will only drag these negotiations out further. The eurozone’s final GDP for the final quarter of last year is expected to come in at 0.2%, a pretty weak figure that will already priced into the euro. Euro/US dollar is trading just below $1.28 this morning and there is room for further sideways movement today. Market players may well hold off and wait for tomorrow’s ECB events.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling continued to trade positively yesterday in the wake of the positive Chinese trade balance headline. Chinese inflation data will be released this morning and is expected to ease for the sixth consecutive month, which is a positive for Chinese economic growth and therefore demand for aussie exports. Sterling is desperately trying to keep its head above the 1.50 mark against the aussie dollar, and whilst in the longer-term we believe it will, it may see some further downside today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling’s brief bounce against the kiwi dollar was short-lived, and it is on the defensive once again. Concerns over an Italian debt downgrade from Fitch’s ratings ensured the rally in risk was interrupted yesterday. This pair has declined by ten cents in the past month, which is more a case of kiwi dollar strength than sterling weakness. This pair is trading at 1.9450 this morning, there is plenty of opportunity for risk appetite to dry up this week, particularly ahead of bond auctions in Italy and Spain tomorrow.	FORECAST
STERLING/CANADIAN DOLLAR: The Canadian dollar continued to rally against the pound, probably trading off Chinese positivity. The recent strong Chinese trade data is not just positive for the antipodean currencies, other commodity currencies such as the Canadian dollar also stand to benefit. There was also some very positive housing data out of the Canadian economy yesterday. Risk appetite was positive in North America yesterday too, with the S&P 500 index gaining by a percent. Sterling has posted fresh three and a half month lows against the loonie but we are still sticking to our bet on a bounce for this pair soon.	FORECAST
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