Caxton FX Currency Blog

Richard Driver, Analyst The weekend ushered in some more negative eurozone headlines, to take some of the edge off what was still a very strong weak for the euro. German finance minister Schauble reminded us of the constant lack of political consensus in Europe, by rejecting the notion of an expanded European Stability Mechanism (permanent bailout fund). There are also signs that Greek negotiations are failing to progress. The focus for sterling this week is Wednesday’s UK GDP figure but the market will have to look outside of data releases for inspiration today, with very little scheduled. Rumours out of the Greek negotiations will dominate traders’ thinking.
STERLING/EURO: Sterling is trading a cent higher as the euro’s rally runs out of steam; Greece still threatening to upset confidence. UK retail sales grew by 0.6% in December, which was in line with expectations. External events are driving sterling to a greater extent that domestic data though, and Greek concerns are weighing on the euro at present. Private sector bondholders are reported to have submitted their “maximum” offer in terms of the write-downs they are willing to accept. With negotiations seemingly on a knife-edge, the market will be nervous today. Sterling is trading at €1.20 this morning and we are waiting for this pair to post fresh multi-month highs above €1.2150.	FORECAST
STERLING/US DOLLAR: Tracking EUR/USD’s gains, sterling had an excellent week against the US dollar, but further upside may be limited. This pair has climbed well of its lows below $1.53, though we are not giving up on expectations of a move much lower further down the line. Sterling looks hard-pushed to gain much further ground above $1.56 with so many risk factors remaining on the table, both in the eurozone and here in the UK. On Wednesday we should gain a better idea of whether the BoE will increase its QE programme. This issue has not weighed on sterling hugely in recent months but could peg it back a little. Sterling is trading at $1.55 this morning and should meet plenty of resistance at these levels, especially with the Greek situation so fragile.	FORECAST
EURO/US DOLLAR: This pair did superbly last week as short-covering took effect; short-term direction will be dictated by Greek news. The dollar had a tough time of it last week, as the market took the approach of “sell the rumour, buy the fact.” Investors sold the euro on the previous Friday amid the rumours of a French debt downgrade from Standard & Poor’s, then throughout last week the euro was bought regardless, particularly as the downgrades moves were broadly expected (and apparently priced in). The euro is trading up towards $1.2950 this morning and it would be a surprise to see this pair make significant inroads into the $1.30’s.	FORECAST
STERLING/AUSTRALIAN DOLLAR: The aussie dollar is back on the front foot this morning, despite easing producer price pressures. The case for another Reserve Bank of Australia interest rate cut was strengthened again last night, with data showing declining produced prices. Regardless of this downside factor for the Australian dollar, it is still trading very strongly. In fact, the aussie is trading close to a three-month high against its sixteen major counterparts. Sterling is trading down below 1.48 again this morning, though sterling may find some favour if Greek news is negative today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling continues to trade poorly against the kiwi dollar, ahead of Thursday’s Reserve Bank of New Zealand interest rate decision.   The improved growth stories in the US and China are helping the kiwi dollar at present. Final quarter US GDP is due out on Friday, so there could well be further good news for the kiwi in the short-term. However, it remains vulnerable to news from Greece, though admittedly not as much as in the past. Sterling is trading at 1.92 and is looking slightly vulnerable against riskier currencies at present.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling is trading a little higher against the loonie as Canadian inflation eases significantly. Canadian inflation eased aggressively in December, which of course weighs on the outlook for a Canadian interest rate rise. Still driving appetite for the Canadian dollar is the upturn in US growth and this is likely to benefit the loonie moving forward. Sterling is trading at 1.57 this morning and risk appetite really depends on Greek negotiations today.	FORECAST
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