Morning Report

Richard Driver, Analyst The euro extended its gains yesterday, despite an initial sell-off when the US came on-line, as the IMF announced it is seeking to almost double its war-chest by raising $600 billion to help protect the global economy against a worsening European debt crisis. European stocks are up this morning despite threats of a roadblock by the US and other countries. Today sees bond auctions from Spain and France (the first since its AAA downgrade by Standard & Poor). Direction will be dictated on the results of these, but with debt-sales so far going without too much of a problem since the sweeping AAA downgrades, investors will be reluctant to bet against them.
STERLING/EURO: The single currency continues to extend its gains this morning, with developments in Greece and French and Spanish bond auctions eyed. The euro has had a positive week thus far, with news yesterday bolstering support for the euro as the IMF said it is prepared to double its war chest to help contain the debt crisis. This could be de-railed however, as the US declared its position that Europe has the capacity to solve its own problems, and should put up more of its own money. Investors will eye today’s bond auctions as a signal of confidence in the euro-zone, and if the previous bond auctions are anything to go by, we could see a positive turn out, with the euro benefitting.	FORECAST
STERLING/US DOLLAR: Sterling rose against the US dollar yesterday, gaining almost a cent as risk appetite improved. The US dollar came under selling pressure yesterday as stronger risk appetite undermined the dollar’s safe haven appeal. Sterling gained ground as optimism about Greek debt talks and the International Monetary Fund’s intention to increase its lending capacity boosted risk appetite.Sterling remains well supported against the US dollar this morning as signs that the US economy is improving are continuing to bolster risk appetite. Further indications of the health of the US economy could be revealed this afternoon, when US unemployment, housing and manufacturing figures are released in the States.	FORECAST
EURO/US DOLLAR: The euro continues to hold steady above the 1.2850 mark as investors target bond auction results. Global risk appetite has returned somewhat, with the IMF announcement and expectations that Greece will reach a deal with its bondholders. Investors will be reluctant to sell the euro further before the results of French and Spanish bond auctions results are announced, so we should see this pair holding firm before the announcement later on today. Direction will also be determined on noises coming out of Greek talks. Any breakdown in talks, or talk of a default will harm the euro and see investors once again clambering for the safe-haven dollar.	FORECAST
STERLING/AUSTRALIAN DOLLAR: The Australian dollar weakened for the first time in three days after a government report showed employers unexpectedly reduced payrolls.   Australian employment suffered a surprise fall for the second straight month of decline, after data showed that employment fell by 29,300 in December, against market expectations for a rise of 10,000. This caused the aussie to weaken against all of its 16 major counterparts and it is now trading at 1.4840. Labour market weakness could shore up expectations for a third rate cut at the Reserve Bank of Australia’s Feb 7th Policy meeting.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The Kiwi dollar fell from an 11-week high after a government report showed consumer prices declined. New Zealand’s annual inflation unexpectedly fell last month as food prices dropped 2.2 percent, providing the central bank with room to keep interest rates at a record low to combat the global issues that threaten to stop the recovery of New Zealand’s economy. The consumer price index data released last night showed CPI fell 0.3 percent in the three months after a forecasted rise of 0.4 percent; this was the first decline in two years. This pairing is trading at 1.9270 this morning.	FORECAST
STERLING/CANADIAN DOLLAR: With the return of global risk appetite and a strong US economy the Loonie is holding up well against the pound. Canadian manufacturing data this afternoon will be eyed in an otherwise quiet day in terms of economic announcements. The Loonie will likely keep its gains today in what has turned out to be a poor week for sterling.	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.