Caxton FX Currency Blog

Richard Driver, Analyst The currency markets were relatively calm yesterday, despite Standard & Poor’s downgrade to the European Financial Stability Fund by one notch. Focus was directed at last night’s Chinese GDP figure, which turned out to be positive and gave market confidence a much-needed kick. Today’s session brings the monthly UK inflation update, which is expected to show a sharp easing in price pressures. Whilst consumers will be relieved, this won’t be particularly positive for sterling.
STERLING/EURO: The euro benefited from a minor bounce overnight, regardless of downgraded bailout fund. Given that it is no longer backed by AAA-rated member-states (by S&P at least), it is little surprise to see S&P remove the bailout fund’s top rating. From the eurozone, we have a very important German economic sentiment survey, which is expected to be poor and could well weigh on the euro this morning. Later on this week there are further bond auctions from Spain and France, which should reveal what impact the recent debt downgrades will have on the eurozone’s struggling countries. For now this pair is trading at 1.2050.	FORECAST
STERLING/US DOLLAR: A bounce in the euro/dollar pair gave sterling a little upside against the greenback. Yesterday was a weaker session for the US dollar but this does nothing to change our bright outlook for the US dollar. The good news from China gave risk appetite a nudge in the right direction but it seems highly likely that Standard & Poor’s actions will have a lasting effect on confidence, which should see the dollar remain in favour. This pair is trading at $1.5370, but a move much higher is unlikely with the next negative headline seemingly just around the corner.	FORECAST
EURO/US DOLLAR: The euro brushed off another debt downgrade on Monday, as traders tried to put the weekend’s news behind them. These small retracements of the euro’s losses will not worry those betting on further dollar-gains; this pair’s downtrend remains very much intact. We will see what eurozone inflation has done in the last month later this morning, no change is actually expected but risks are towards a lower figure which might make ECB quantitative easing a more palatable idea to the Germans. Today’s session brings some manufacturing data from the US, which is expected to show a further uptick and could benefit the US dollar today. For now, this pair trades a little higher at $1.2750.	FORECAST
STERLING/AUSTRALIAN DOLLAR: A surprisingly strong Chinese GDP figure saw the aussie dollar push on even further. This pair has declined by more than eight cents in the past month, and the latest boost was given by a Chinese GDP figure that beat expectations to the upside. After last quarter’s figure of 9.1%, a showing of 8.7% was anticipated, but the market was relieved to see 8.9% growth. Chinese growth for 2011 stands at an impressive 9.2%. Good news for China is good news for Australia. This pair has broken down through support levels at 1.48 this morning, and there is scope for further sterling losses towards 1.47 today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The kiwi dollar is making hefty gains this morning in response to the good news from China. Sterling has already declined by a cent and a half since last night, purely as a result of the news that China grew at a faster pace than expected last quarter. There has been growing speculation of a sharp decline in Chinese growth of late, but figures such as these and the good industrial production figures that accompanied last night’s GDP figure, point to a “soft landing” from the booming growth of last year. This pair is trading down at 1.9150 this morning, and a further decline looks a good bet today. The kiwi dollar is performing excellently at present.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling lost further ground against the Canadian dollar, ahead of Bank of Canada interest rate meeting. The good news from China filtered into demand for the loonie as well, and this pair saw further downside. Today’s session brings an important US manufacturing indicator, which should benefit the Canadian currency. The main event today is the Bank of Canada’s monthly rate-setting meeting. The central bank is expected to leave rates on hold at 1.0%, but the assessments made within the BoC’s statement will be watched closely. This pair is trading at 1.5550 today and could lose further ground.	FORECAST
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