Caxton FX Currency Blog

Morning Report

2012-01-27T09:30:00.002Z

Richard Driver, Analyst Amid a rare shortage of market-moving headlines, yesterday was a session of plenty of range-bound trading. Today’s session brings a crucial US and indeed global economic indicator; the advance American GDP figure for the fourth quarter of 2011. The US economy is expected to have grown at an annualised pace of 3.0%, which when compared to the UK’s 0.2% contraction, goes some way to explaining our preference of the US dollar to sterling this year. This afternoon also brings some words from ECB President Draghi and no doubt some speculation about a Greek deal, as another week threatens to have passed with no progress.
STERLING/EURO: Data from the UK economy has started 2012 poorly, but this pair remains supported at the €1.19 level. In addition to the disappointing UK GDP figure on Wednesday, we saw the worst showing on the monthly CBI realized sales gauge in almost three years. The pressure will remain on sterling next week, with January’s monthly instalment of growth figures due from the UK construction, manufacturing and services sectors. There has been talk in recent sessions of a Greek deal by the end of the week, but it seems likely that we will be disappointed. All the while, concerns are building around Portugal. This pair is trading up towards €1.20 this morning.	FORECAST
STERLING/US DOLLAR: The dollar remains under pressure from Wednesday night’s dovish news from the Federal Reserve. Sterling maintained the front foot against the US dollar, as appetite for risky assets continued on their upward trend and weakened the greenback. Durable goods data was good yesterday and US GDP is likely to be strong today as well. The US housing sector remains in trouble and obviously unemployment is still a top priority, but generally speaking the US economy is starting to enjoy a fairly broad-based recovery. Sterling continues to trade up at an impressive $1.57 level and we are still betting that this pair could decline (fairly sharply) at some point soon.	FORECAST
EURO/US DOLLAR: This pair climbed to a six-week high, five cents off mid-January’s lows, despite ongoing Greek worries. There has been plenty of talk in the headlines about Greece’s need to get this deal done and the need to avoid a chaotic default in March. This is capping this euro rally to some extent. Also capping the euro’s gain were rising Portuguese bond yields, the market is beginning to realise that even if the Greek situation does resolve itself, Portugal is likely to take a similar path and beyond this, possibly Italy and Spain. This is why we bet on a weaker euro this year. Nonetheless, this pair is trading at a relatively impressive $1.31 this morning and we could see further upside here for the time being.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling remains close to record lows against the aussie dollar, with Russia looking at investing in the Antipodean currency. Russia has expressed an interest in the Australian dollar, as it attempts to diversify away from GBP, EUR and USD. Australian growth, while it will slow down in line with China, remains ahead of most developed global economies. Importantly, Australia has maintained its AAA credit rating. They key downside risks to the aussie dollar are interest rate cuts and rhetoric from the Reserve Bank of Australia against the strength of its currency. Accordingly, this pair is trading down below 1.48 and sterling is likely to remain under pressure today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling continued on its downtrend against the kiwi dollar, which was helped by some strong NZ trade balance data. The kiwi dollar benefitted from an unexpected trade surplus in December, its first in five months. The kiwi dollar has proven increasingly resistant to alarm bells from the eurozone of late, which removes a lot of the downside risks to NZ currency. This pair is trading below 1.91 and should remain under plenty of pressure if the US GDp figure comes in strong as expected.	FORECAST
STERLING/CANADIAN DOLLAR: Weaker US stocks weighed on the Canadian dollar yesterday and sterling was able to recoup a modicum of ground. The US economy’s two weak points were highlighted yesterday, with weekly unemployment claims rising unexpectedly and US home sales dropping unexpectedly. Still, the big news this week that Fed rates will remain at record lows until late 2014, combined with what is likely to be a strong US GDP figure this afternoon, should keep the loonie strong against sterling. Sterling is trading around the 1.57 mark and we expect the loonie to regain the initiative today.	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.

Morning Report

2012-01-26T09:21:00.001Z

Richard Driver, Analyst Data yesterday revealed that the UK economy shrank in the final quarter of 2011 (by 0.2%). Sterling didn’t suffer as a result though, the market clearly feared an even worse figure. The MPC minutes, whilst showing some differences of opinion, added to expectations that the Bank of England will step up its quantitative easing programme next month. Elsewhere, the US dollar weakened off as the Fed committed to keeping its interest rates at record lows until late 2014, well beyond the initially promised mid-2013. The markets are likely to continue to mull over last night’s news from the Fed.
STERLING/EURO: Sterling once again came under pressure, though not necessarily due to the poor UK GDP figure. Data yesterday revealed that the UK economy made its first step towards a technical recession last quarter (two consecutive quarters of negative growth are required to be officially in recession). The -0.2% figure was slightly worse than median forecasts, though clearly better than many had feared going into the release. The UK services sector just about avoided contraction, but the same cannot be said of the construction and manufacturing sectors. We are still waiting on deal from Greece on the debt swap, hopes have been raised that we will see an agreement by the end of this week but we are more than likely to be disappointed. Sterling benefits from some decent support at the current levels of €1.1950, so risks are to the upside here.	FORECAST
STERLING/US DOLLAR: Sterling makes some more impressive gains as a result of a dovish US Federal Reserve statement and press conference. The news that US interest rates will stay at their current record lows until the end of 2014, a year and a half longer than indicated last year, had the logical impact of weakening the US dollar yesterday. Hopes for more quantitative easing will have been stoked by last night’s dovish performance from Fed Chairman Ben Bernanke, though it is doubtful that this will be utilised whilst US figures continue on their current uptrend. As far as the MPC minutes were concerned, there was no unanimity on the need for further QE next month, though there was enough evidence of support for a February move. Sterling is trading at $1.57 this morning, which again represents a strong level in the context of the past two months. We may see a pullback today though.	FORECAST
EURO/US DOLLAR: This pair received another welcome boost as focus moved from eurozone concerns to the Fed’s dovish interest rate outlook. Eurozone debt concerns have been put on the backburner somewhat in the past day, as the market zeroed in on US Federal Reserve monetary policy. Bernanke reminded the markets that the US economy is not out of the woods yet; it certainly had a strong fourth quarter but remains vulnerable to volatile events in the eurozone. This pair is trading at a strong $1.31 this morning, which represents a six week high. We are still betting that this pair will return to levels below the $1.30 benchmark before too long.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Despite a slightly more dovish Reserve Bank of New Zealand interest rate outlook, the kiwi gained more ground on the Fed news. Investors commonly pursue the carry trade; this is where they borrow at low interest rates close to zero (as we are seeing with the dollar in the US), and park those funds in a higher yielding currency such as the Australian dollar (which currently offers a 4.25% interest rate). It is little surprise that the Fed’s announcement of “low rates for longer” gave a boost to risky assets. Accordingly, sterling stooped to new record lows against the aussie dollar down near 1.4750 and this pair is likely to remain under pressure.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Further gains in Asian stocks and sterling weakness this morning has seen this pair lose ground. The RBNZ kept interest rates on hold at 2.50% last night as expected. However, the rhetoric changed from “on hold for now” to “on hold,” suggesting that the RBNZ is happy with the current rate and not looking to hike any time soon. Governor Bollard noted that the stronger NZ dollar is hurting kiwi exports, which could well deter the market from sending the dollar too much higher. This pair is trading at 1.9150 this morning and a test of the 1.90 benchmark seems likely before long.	FORECAST
STERLING/CANADIAN DOLLAR: This pair was range-bound despite some stronger than expected Canadian retail sales data. The loonie benefitted from hefty gains in US stocks yesterday, as risky assets boomed in response the news from the Fed. Durable goods data is likely to be strong today, which will reflect well on the Canadian economy. This pair remains in range despite the news from the Fed. A move lower here still looks a good bet.	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.

UK GDP points to recession and MPC minutes point to part of the solution

2012-01-25T12:54:00.003Z

UK GDP figure disappointing

This morning was a big one for the UK economy and sterling. The UK GDP figure for the final quarter of 2011 came in at -0.2%, whilst the minutes from the MPC's meeting a fortnight ago indicated the BoE's QE programme will be expanded next month.

This morning’s UK GDP figure is certainly disappointing, but with sterling gaining after the release it is quite obvious the market was positioning itself for an even worse showing.

The UK's services sector has just about kept its head above water, but manufacturing and construction has been a letdown and the labour market is still in the doldrums. Yesterday’s IMF downgrade of UK growth prospects this year has certainly been vindicated.

The data clearly strengthens the argument that the UK economy is heading into tougher times. With the eurozone debt crisis likely to weigh on European and domestic growth for many more months to come, the UK looks likely to enter a technical recession.

So how can UK growth be boosted?

Well, the Bank of England is already trying to do so through its 275B quantitative easing programme. Today's MPC minutes reveal that the nine-member committee is ready to step it up again next month.

Adam Posen will be feeling particularly smug right now - he has staked his reputation on the UK economy's need for more QE and his colleagues in the MPC have had to come round to his way of thinking.

It was no surprise to see all nine policymakers voting to leave the current QE programme on hold. February has long been earmarked as the month to step up asset-purchases. High inflation looks as if it will no longer be an issue in 2012 (UK inflation dropped from 4.8% to 4.2% in December alone); the UK economy needs more from the Bank of England printing presses.

However, it does not look as if a decision to expand QE next month will be unanimous, the minutes include comments such as- "the risks to inflation were more finely balanced and it was less clear that inflation would fall below the target in the medium term." The risks of UK inflation undershooting the BoE's 2.0% target are a key motivation for QE. Nonetheless, this morning’s poor GDP figure highlights the UK economy's dire need for help and we still bet this will come in February. .

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Morning Report

2012-01-25T09:49:00.001Z

Richard Driver, Analyst Greece was asked to provide a written commitment to enact the reforms that are required for the country to be granted its second bailout (which, it is hoped, will avoid any u-turn as a result of upcoming Greek elections). It is quite clear that stronger eurozone states are losing their patience with Greece; specifically its reforms have been insufficient. Today’s session brings the all-important UK GDP figure for the final quarter of 2011; a 0.1 - 0.2% contraction is expected – sterling’s fate in the short-term really depends on where the figure comes in with respect to this expectation.
STERLING/EURO: This pair continued to trade within a fairly narrow range, with levels just above €1.19 providing some decent support. We saw some better than anticipated public borrowing figures out of the UK yesterday, though sterling failed to capitalise given that the headlines focused on the fact that UK public debt has now hit one trillion pounds. A poor UK GDP figure has been priced in by the market by now, but an undershoot will surely weigh on sterling as investors fear recession. The MPC minutes are also released this morning and given Mervyn King’s speech last night, which alluded to the likelihood of further QE, we can expect further dovish language from today’s MPC release. More QE in February has been expected for a while now, so this should not weigh on sterling too badly. For now, this pair trades at €1.1950.	FORECAST
STERLING/US DOLLAR: Sterling ticked higher against the US dollar, but faces plenty of downside risks this morning. The case for safe-haven currencies in the longer-term was bolstered yesterday by an understandably negative assessment of the global economic outlook from the International Monetary Fund. The IMF cut its outlook for global growth in 2012 from 4.0% to 3.3%. Ominously, the IMF cut its UK forecasts for this year from 1.6% to 0.6%. This evening brings the all-important US Federal Reserve statement and press conference. Bernanke will be revealing the projections of a Fed rate hikes by the Fed policymakers, which could cause some interesting moves as investors revise their positions. As far as rate hikes in the US are concerned, we are looking beyond mid-2012. This pair is trading at a comfortable $1.56 this morning, further upside again looks limited.	FORECAST
EURO/US DOLLAR: The euro continues to trade above the $1.30 level despite a sell-off in European stocks, helped by another positive Spanish debt auction. Spain enjoyed another successful debt auction yesterday and the euro could well benefit from a positive German business climate survey this morning. Germany’s economy is showing signs that it may avoid a recession after all, which of course brightens the picture in the eurozone as a whole, though it looks as if the region will fall back in to recession regardless. The euro is trading marginally above $1.30 this morning and may find further support if the Fed reveals that interest rates will remain at record lows for even longer than expected.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Australian inflation data provided the aussie dollar with another push in the right direction. Whilst Australian CPI was unchanged from the fourth quarter of 2011, core Australian inflation came in above expectation to trigger some positivity to the aussie dollar. The Reserve Bank of Australia is nonetheless expected to cut rates to 4.0% next month, not least because the strength of the currency will be hurting the Australian economy. Sterling is trading back down at the familiar 1.48 level and risks look to be skewed to the downside for today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Further gains in Asian stocks and sterling weakness this morning has seen this pair lose ground. The Nikkei share index gained by another percent last night, evidence of further regional risk appetite. There was some decent NZ manufacturing data last night and credit card spending also ticked up. Moves in the kiwi dollar are likely to be dictated by tonight’s Fed statement and press conference, but the Reserve Bank of New Zealand’s rate statement will still be important beyond the very short-term. The central bank is expected to leave rates on hold at 2.5%. This pair trades at 1.92 for now.	FORECAST
STERLING/CANADIAN DOLLAR: This pair was range-bound despite some stronger than expected Canadian retail sales data. Canadian retail sales data came in higher than anticipated but this was all just a prelude to tonight’s crucial US Federal Reserve meeting. Expectations for a low UK GDP figure are hurting the pound this morning, but it can just as easily rebound if the data provides an upside surprise. Sterling continues to trade in the 1.57-58 area, as it has done all week. All eyes are on the Fed for major moves in this pair.	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.

Euro still rallying but for how long?

2012-01-24T12:35:00.001Z

Euro recovers from S&P with a major bounce

The euro has responded impressively to Standard & Poor’s blanket downgrade of nine eurozone credit ratings (which wouldn’t have been the case had Germany been axed). The market is extremely short of euros and what we are seeing is those short positions being covered, particularly as hopes are raised for a Greek deal on private sector creditors. Whether or not a deal emerges remains to be seen, 60-70% haircuts have been rumoured but until there is an official announcement, the market remains completely in the dark. Unsurprisingly, a deal was not reached on Monday as was hoped and it looks like we may have to wait another few weeks for progress.

The euro has benefited from some remarkably positive eurozone bond auctions of late; the impact of the ECB’s cheap loan offering in evidence once again. Spain in particular saw terrific demand and yields also eased. On the data front, there was a staggeringly strong German economic sentiment survey which contributed to the euro’s best week in months. The IMF joined the party on Wednesday, with reports suggesting that it would be making a further $1 trillion available to the eurozone. This, predictably, was later revised down to “several billion dollars.”
So, there have been some genuine developments for the euro in the past week or so - S&P’s downgrade aside - but beyond the short-term, not enough to sustain further gains or even maintain current levels from our point of view.
Sterling struggling ahead of UK GDP and MPC minutes

Wednesday’s session is an important one as far as sterling is concerned. We will see the preliminary UK GDP figure for the final quarter of 2011, which is expected to show a marginal (0.1%) contraction. The minutes from the MPC’s last meeting a fortnight ago will also be watched closely for clues as to whether the Bank of England’s quantitative easing programme will be stepped up again in early February. Our bet is that it will but downside risks for sterling should be fairly limited on this front, with the market having priced it in to a large extent. The UK GDP figure could well have a material impact on the sterling exchange rates if it undershoots already pessimistic expectations.

UK unemployment numbers reached fresh highs last week and UK inflation declined aggressively, neither of which are positives for the pound. On a brighter note, UK retail sales picked up a little in December, which was to be expected in light of November’s appalling showing.

The euro is trading strongly this morning on the back of some positive manufacturing and services PMI data. There have also been some positive political developments this week; Germany has stated it is open to increasing the firepower of the eurozone bailout fund and there has been progress on details relating to the permanent bailout fund – the European Stability Mechanism (to be introduced later this year). The euro should be able to hang onto most of its recent gains, though further climbs look a push. With GBP/USD at $1.56 and EUR/USD at $1.3050, the dollar looks ripe for a recovery soon. At the end of the week, we are likely to learn the US economy grew impressively in the last quarter of 2011, which should improve the prospects for the US dollar regardless of any boost to risk appetite that it may trigger.

End of week forecast

GBP / EUR 1.20
GBP / USD 1.55
EUR / USD 1.2950
GBP / AUD 1.49

Richard Driver
Analyst – Caxton FX

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

2012-01-24T10:18:00.000Z

Richard Driver, Analyst Eurozone finance ministers rejected the private bondholders’ offer yesterday and asked them to consider a sub-4% yield on new bonds. There was no euro sell-off though, as there was reason for hope thanks to a statement from Germany indicating that it is now open to boosting the firepower of the eurozone’s rescue funds. We have seen a raft of eurozone PMI data this morning, which has actually been broadly positive. Today’s session has brought some positive public sector net borrowing data from the UK but pairings are no doubt going to be driven by headlines from Europe.
STERLING/EURO: A deal regarding the deployment of the permanent bailout fund was reached yesterday, which offered the euro a little support. There was positive news for the euro that the European Stability Mechanism will be able to provide emergency loans, provided they have the backing of 85% of eurozone government under qualified majority voting. There was a slightly more concerning headline that investors fear Portugal will require a second bailout at some point. Sterling is trading at a weak looking €1.1920 this morning, with the euro having been helped by some positive German and eurozone-wide manufacturing and services data.	FORECAST
STERLING/US DOLLAR: This pair traded within a very tight range yesterday, having been rejected at the $1.56 level. Sterling has climbed by almost three cents in the past week or so but is meeting some fairly stiff resistance at these levels. These are strong levels at which to sell sterling and buy USD, particularly given the uncertain outlook in the eurozone and UK economies, as opposed to the upturn we are seeing in the US. Sterling is trading at $1.5550 and it would be no surprise to see some further sideways trading as investors hold off ahead of tomorrow night’s Fed statement.	FORECAST
EURO/US DOLLAR: Strong data and optimism surrounding future emergency funds in the eurozone outweighed the absence of Greek PSI deal. The German services sector ticked up impressively last month and its construction sector bounced out of negative territory as well. The services sector of the eurozone as a whole followed suit and also moved back into positive growth, though its manufacturing sector contracted marginally. The figures have understandably been taken as a positive, particularly amid all the talk of a eurozone recession. There is a sense that eurozone finance ministers are getting somewhere in dealing with the debt crisis moving forward (via the ESM), and the possibility that Germany will allow the fund to be expanded is a real positive. This pair is thus trading up at $1.3050.	FORECAST
STERLING/AUSTRALIAN DOLLAR: The aussie dollar is weakening ahead of what is likely to be some weak Australian inflation data. Australian inflation data is likely to reveal slowing price pressures for the fourth consecutive month. If the data this evening is weak, the arguments for another Reserve Bank of Australia rate cut will be strengthened once again. Asian stocks also spent their fourth day in the green out of five, which boosted demand for the aussie. Sterling is trading at 1.4850 this morning and it looks as if we may see a bit of a bounce in this pair today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling is trading a little higher today, with European markets responding cautiously to the overnight Greek news. We have not seen data from New Zealand yet this week, but we have some credit card spending, manufacturing and trade balance data to look forward to in the coming week. Also important for the kiwi dollar this week will be news from the US economy; the Fed is meeting over the next two days and will be giving a statement tomorrow night, and the US GDP figure comes on Friday. There is plenty of potential positivity as far as risk is concerned here. Nonetheless, sterling is finding some favour this morning amid a decline in European stocks, as investors search for safety.	FORECAST
STERLING/CANADIAN DOLLAR: Canadian data and US stocks were positive yesterday afternoon, though Canadian retail sales figures may be weaker today. This pair traded sideways yesterday, as the markets lay in wait for news regarding Greece’s PSI negotiations. It is certainly a disappointment that nothing concrete emerged last night and it has been indicated that a deal can be expected before Feb 13^th, though we don’t have to remind you how many times we have been left wanting before. US stocks have benefited from an impressive recovery in recent sessions, which is really fuelling the loonie. This pair is trading at the low level of 1.57 this morning.	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.

2012-01-23T11:12:00.002Z

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
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.

Morning Report

2012-01-20T10:27:00.000Z

Richard Driver, Analyst It has been a remarkably good week for the euro, which has benefited from solid bond auctions in the eurozone and some potentially positive developments such as increased IMF funding. Hopes of a deal between Greece and private bondholders are continuing to build, which again is supporting the euro. Today’s calendar brings the monthly UK retail sector growth figure, which is expected to bounce back after last month’s disappointing contraction. Elsewhere, data is extremely thin and the markets will look to rumours on a Greek deal.
STERLING/EURO:Sterling lost further ground against the euro, but our longer-term euro-negative outlook remains unchanged. The euro’s strong week can be put down to short-covering, which isn’t too surprising given its sharp decline of late. Positive results at bond auctions in Spain and France fuelled the euro’s rally. With such decent demand for eurozone debt this week, it appears that the market has not taken too much notice of S&P’s recent blanket credit downgrade. The Greek private sector involvement (PSI) negotiations are the prime focus of the market now. Rumours have emerged that they are closing in on a short-term deal, which would almost certainly see this euro rally built upon. However, as always with EU politicians, there remains a very significant chance of a collapse in negotiations, which would drag the euro down with it. This pair trades at €1.1950 for now.	FORECAST
STERLING/US DOLLAR:Sterling is tracking the euro’s gains against the US dollar, helped by some rare poor US economic data. US data disappointed yesterday, which is a rare occurrence based on the last few weeks. The Philly Fed manufacturing index failed to meet expectations of another monthly expansion, though this will do little change the optimism surrounding the world’s largest economy and its manufacturing recovery. Sterling has climbed by two cents against the US dollar this week and is currently trading at $1.55, which represents a good rate to buy dollars as far as we are concerned. UK retail sales data is the focus for sterling today.	FORECAST
EURO/US DOLLAR:The euro is set for its strongest weekly gain since October and there could be some further upside in the short-term. The euro has bounced impressively from its seventeen month low of $1.2625. This short-covering rally still has some more legs in it, but we should see this pair test lower levels further down the line. Much onus is being placed on the Greek negotiations at the moment but success on this issue will not by itself save Greece; its debt will remain unsustainably high. This pair is trading at $1.2950 and it would be no surprise see this pair jump up above the $1.30 level in the short-term.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling has bounced up off its record lows against the aussie dollar, with the Chinese manufacturing sector remaining in contraction. Chinese manufacturing growth was flat last month, which does little to change the slightly negative outlook for Chinese growth. China looks like it may be able to pull off a ‘soft landing’ for its declining growth, but it still means demand for aussie exports will be lower moving forward. Australian PM Gillard stated yesterday that there is room for the Reserve Bank of Australia to cut its 4.25% interest rate, particularly in light of poor aussie employment figures on Thursday morning. This pair is trading up towards 1.49.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling is building on its recent recovery against the kiwi dollar, aided by weak NZ inflation data. Wednesday night’s kiwi inflation data has hurt the New Zealand dollar and seen it erase some of its recent gains. With inflation actually dipping into negative territory for the first time in nine months, bets on an RBNZ rate hike will have been pushed back considerably, possibly to next year. The kiwi has done well amid euro-weakness of late, so it is understandable that will the euro strengthening some of these kiwi gains have been reversed. This pair is trading up above 1.93.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling is recovering against the loonie, with Canadian inflation likely to weigh on the loonie today. US manufacturing data was poor yesterday, though US stocks spent their third consecutive session in the green. Still, the domestic picture could weigh on the Canadian dollar today with inflation likely to ease and push a Bank of Canada interest rate hike even further into the future. This pair is trading back up at 1.57 and sterling should be able to continue climbing against the loonie today, though it remains at the very bottom of its long-term trading range.	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.

Morning Report

2012-01-19T10:27:00.000Z

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 7^th 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.

UK unemployment data poor, improvements are badly needed

2012-01-18T16:30:00.002Z

Data today revealed that the UK unemployment rate has risen to 8.4%. Fewer jobless claimants emerged than expected, with only 1,200 claiming as opposed to the 9,100 expected. This is scant consolation however, UK unemployment is at its worst level in seventeen years. So, what can the UK government do about it?

There are many measures than can and should be taken to address the UK’s chronic unemployment situation. Most obviously, the Bank of England should ramp up its quantitative easing programme, particularly with inflation likely to ease this year. This should hopefully increase bank lending and enable the private sector, specifically SME’s to pick up the slack that the public spending cuts are leaving in the job market.

We need to make the UK a more hospitable environment for employers, which means lowering and simplifying taxation and cutting out over-regulation, though the government’s hands are tied to large extent by EU law.

For the longer-term, youth unemployment needs to be looked at, which means improving the UK’s education system. It is widely accepted that we need to equip young people with the skills, training and experience that will make them essential to UK businesses moving forward.

Investment in infrastructure is another major opportunity, whether this is funded by cheap UK borrowing in the debt markets or preferably by attracting foreign investment; relations with China are building in particular. There could be huge job creation if projects in sectors such as energy and transport (e.g. high speed rail) could be initiated. House building was the driver of job-creation in the recovery from the Great Depression in the 1930's and this could be replicated; housing in London in particular is a real problem.

Unfortunately, the fate of the UK’s unemployed could well be out of domestic hands – so much depends on events in the eurozone. The risks of a financial collapse and European recession are growing every month. No amount of bold and creative measures to boost UK employment will be successful if the worst case scenario comes to fruition in the eurozone.

Richard Driver
Analyst – Caxton FX
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Morning report

2012-01-18T11:36:00.002Z

Richard Driver, Analyst Tuesday was another more positive day for the euro in light of a far better than expected German sentiment survey and a positive Spanish bond auction. Portugal will be hoping for the same level of success in its bond sale today, though it may be found wanting. Today’s session brings the monthly update from the UK labour market; some mild improvements are expected but the situation remains distinctly gloomy. Elsewhere, nerves over Greece continue to ramp up.
STERLING/EURO: The euro found some favour after a staggering German sentiment survey, but Greek fears limited gains. A gauge of German economic sentiment improved at a record pace, which is astonishing given the diminishing confidence levels in the eurozone as a result of the debt crisis. A solid Spanish bond auction added to the improved sentiment. Portugal will be hoping the improved liquidity helped by the ECB’s cheap loan scheme will boost demand and keep yields down at an auction today. UK headline inflation came down sharply yesterday from 4.8% to 4.2%, the Bank of England has been forecasting a decline this year and this appears to be coming to fruition. Temporary factors such as VAT and high oil prices will drop out of the equation soon, which should bring UK inflation back down to the official 2.0% target. Consumers will be grateful but the pound does not stand to benefit, further QE becomes even more nailed on amid easing price pressures. This pair trades at €1.20.	FORECAST
STERLING/US DOLLAR: This pair traded sideways despite some very positive US manufacturing data, sterling gains look capped at $1.54. The Empire State manufacturing index climbed to a nine-month high yesterday, and we are expecting further strong data in the form of some industrial production data. Sterling is finding it tricky to bounce against the US dollar as the spectre of further quantitative easing looms next month. Sterling is trading at $1.5350 this morning, and we could see it test lower levels today.	FORECAST
EURO/US DOLLAR: This pair has made a couple of attempts at $1.28 but has failed to breach this resistance level, increasing Greece talks may weigh on the euro. Fitch’s Ratings has chimed in with comments to the effect that Greece will default in late March. This fear will be a major driver over the next two months and should put the euro under a great deal of pressure. It is no secret that Greek bond restructuring talks are stalling badly. This pair has come well off its highs to settle around the $1.2750 this morning, we are looking for levels in both the shorter and longer-term.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling stooped to a 27-year low against the Australian dollar as UK QE expectations increase. The two Reserve Bank of Australia interest rate cuts seem to have had a positive impact at consumer level, with a gauge of sentiment bouncing back from contraction last month. Low inflation firmed the view that the BoE will pump more money in to the UK economy, which is nearly always a negative for a currency. This pair is at record-low levels against the aussie dollar, but has at least bounced off lows towards 1.47, trading almost a cent higher this morning. This evening brings some important aussie inflation data, which could help determine the likelihood of another RBA rate cut.	FORECAST
STERLING/NEW ZEALAND DOLLAR: This pair continued its downtrend towards 1.90, but the risks off a pullback in the kiwi dollar are rising all the time. The kiwi dollar remains very much in favour, taking its lead from strong gains in Asian stocks for the past two sessions. Much depends on the ongoing Greek talks, hopes appear to be growing that a deal will emerge very soon, but we have been disappointed too many times to have much confidence in this. The kiwi dollar is looking pretty overextended and a retracement looks likely before long. In the short-term, eyes will be on Portugal’s bond sale today. It could well struggle to curry the same favour as Spain did yesterday.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling traded sideways against the Canadian dollar yesterday, despite gains in US stocks and strong US growth data. The Bank of Canada met expectations yesterday by holding interest rates at 1.00% for the eleventh consecutive month. Global uncertainties are only going one way at the moment, so there was no chance of a rate hike. The Bank of Canada estimated that Canada’s economy grew by 2.4% last year, which is very healthy in the current environment. US data followed the positive trend yesterday, but the loonie will meet increasing resistance at these very strong levels against sterling. For now, this pair trades close to 1.56.	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.

2012-01-17T12:28:00.000Z

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
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.

Morning Report

2012-01-16T09:55:00.000Z

Richard Driver, Analyst After rumours of a French credit downgrade sent the euro tumbling on Friday, Standard& Poor’s dealt nine eurozone states the blow it has been warning of for weeks. The news undermined the positivity that had emerged as a result of ECB President Draghi’s surprisingly upbeat press conference on Thursday. The markets will continue to mull over Friday’s events, particularly European traders who have not yet responded. There is a dearth of scheduled announcements today, though Draghi will be speaking this evening.
STERLING/EURO: Eurozone downgrades give sterling a cent and a half push in the right direction. France and Austria lost its AAA credit rating from S&P on Friday (which represented a one notch cut), whilst other eurozone states including Spain, Italy and Portugal were dealt a two-notch blow. The move was expected by many, though it did catch the market a little off guard by coming sooner than expected, and the euro weakened as you would anticipate. Sterling is trading up at a healthy €1.21 level this morning and we are betting on further euro-weakness this week. With eurozone data consistently weak, the euro is unlikely to get much respite in the coming sessions.	FORECAST
STERLING/US DOLLAR: Sterling continues to trade at multi-month lows against the safe-haven dollar as the floodgates of eurozone headlines reopen. US consumer sentiment data was impressive on Friday, hitting an eleven-month high and pointing to further gains in US economic improvement. Today is Martin Luther King Day in America, so we will have to wait until tomorrow for some further US economic indicators. Global stocks inevitably finished in the red on Friday, with the US dollar a key beneficiary. Still though, UK gilts remain a safe-haven and sterling sees investment by association, so there was no major side for this pair, which is trading at $1.53.	FORECAST
EURO/US DOLLAR: Eurozone debt downgrades trigger a two-cent collapse for this pair and confidence is likely to be scarce this week. The euro resumed its downtrend against the US dollar on Friday. Reports merged that Greek negotiations on private sector involvement (haircuts) have stalled, but the blanket downgrade in the eurozone naturally stole the headlines. Bond yields are likely to feel the heat this week as a result, regardless of the ECB’s liquidity operations. The euro is trading below $1.27 this morning and there is a chance of a brief relief rally today, but beyond this we are betting on further euro losses as the picture worsens once again.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Even the negative eurozone headlines can’t seem to drive sterling higher against commodity currencies like the aussie dollar. Australian jobs data was poor again last night, contracting for the fifth month out of six. Home loans data was better, possibly helped by the recent Reserve Bank of Australia’s interest rate cuts. The labour market issue in Australia is a real concern though, and we may see it push the RBA to cut rates again soon. This evening’s Asian session brings a key Chinese figure – final quarter 2011 GDP. The aussie will be driven by this data release. This pair is trading just above 1.48, and only a stronger than expected Chinese figure is likely to drive sterling lower.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The kiwi dollar proved remarkably resistant to the eurozone debt downgrade headlines. The kiwi dollar is at all-time highs against the euro, suggesting it is a key beneficiary of the eurozone’s current woes. Certainly, we have been expecting the kiwi dollar to weaken off in line with reduced risk appetite. Tonight’s session brings some kiwi business confidence data but this pair looks likely to test lows down at 1.90 at some point this month. If a blanket downgrade in the eurozone doesn’t hurt the kiwi dollar, it’s hard to see what will at the moment.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling remains weak against the Canadian dollar, which continues to benefit from improvements in the US economy. Friday’s excellent US consumer sentiment data bodes well for the Canadian economy and its currency. There was more good domestic news as a result of a monthly trade surplus, though US trade balance data was the poorest we have seen in five months. Oil prices also dipped three cents to $111 per barrel, but sterling remains weak against the loonie. Sterling is trading at 1.56, and support levels need to kick in today if another slide is to be avoided.	FORECAST
This email 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.

Morning Report

2012-01-13T09:34:00.002Z

Richard Driver, Analyst It was an action packed session yesterday, with the Bank of England and the European Central Bank giving their monthly interest rate decisions, as well as a subsequent press conference with ECB President Trichet. Elsewhere, UK manufacturing and industrial production data disappointed, we saw some rare poor US figures and a remarkably positive Spanish bond auction. There is a shortage of major data releases today, so traders will continue to reflect on yesterday’s events, though this afternoon does bring some US trade balance and consumer confidence figures.
STERLING/EURO: BoE and ECB keep interest rates on hold, but a fairly upbeat Draghi and strong Spanish bond auction give the euro a boost. As expected, the Bank of England kept interest rates at 0.50%, as they will do for at least the rest of this year. They also kept the asset purchase programme at £275bn, which is not expected to be stepped up until next month. UK manufacturing production was poor yesterday, revealing a contraction and lowering expectations for fourth quarter UK GDP. The ECB kept the eurozone interest rate on hold at the record low of 1.00%, though another cut is expected to come in the coming months. Draghi asserted that the cheap ECB loans issued last month are having a positive impact and by the result of yesterday’s Spanish bond auction, he may be correct. Spanish yields came down and they saw huge demand, the same may be true today of another Italian bond sale. Sterling is trading at €1.1950 and may remain under pressure today, though better levels should be revisited next week.	FORECAST
STERLING/US DOLLAR: The EUR/USD pairing dragged this pair up off its multi-month lows, with retail sales figures revealing the US is not out of the woods yet. US core retail sales data revealed the first monthly contraction since June 2010. Weekly US unemployment was also weaker than expected, so the market was given a reality check on the uncertainties that remain for the US recovery. Nonetheless, US consumer sentiment is expected to tick up for the fourth consecutive month. Sterling is trading up towards $1.54 this morning, benefitting from a period of dollar weakness. US stocks were on the up yesterday ensured a poor session for the greenback. Sterling may be able to maintain these levels for the time being, but we continue to bet on a stronger dollar.	FORECAST
EURO/US DOLLAR: The market was very short of euros leading up to yesterday’s events, and we saw the single currency benefit from some short-covering. ECB President Draghi gave a fairly upbeat (or perhaps balanced) assessment of conditions in the eurozone. We were expecting to see an understandably pessimistic press conference, but Draghi was positive on the impact of cheap ECB loans on bond yields and easing credit lines. This pair is trading at $1.2850 this morning, well off its lows more than a cent and a half lower. We still see EUR/USD resuming its downwards trend in the coming weeks though, particularly with S&P likely to take downgrading action soon.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling halted its decline against the aussie dollar as long-term support levels kicked in, but declining bond yields improved market sentiment. Positive bond auctions in Spain and Italy yesterday kept risk appetite broadly on the front foot. We remain sceptical that the aussie dollar can appreciate much more, given the risks that continue to hang over the eurozone and the global economy. Sterling has bounced off a rate of 1.48 and is trading half a cent higher. We are likely to see the 1.48 level retested today but we may see it hold firm.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling benefited from a welcome bounce against the kiwi dollar, but these remain very weak levels. Asian stocks climbed yesterday; the Nikkei index rose by almost a percent and a half. However, the kiwi came off marginally, showing signs of being overbought and overextended. Poor US data may have adverse impact on appetite for the kiwi dollar as well. This pair is trading at 1.9350 this morning, having reached lows towards 1.92 yesterday. Sterling will surely see higher levels against the kiwi dollar as soon as eurozone downgrade and Greek default headlines spring up once again.	FORECAST
STERLING/CANADIAN DOLLAR: Poor US retail sales data ensured that sterling found some support against the Canadian dollar. Contracting US retail sales naturally weighed on sentiment towards the Canadian dollar. Oil prices also fell off sharply yesterday, with Brent crude dropping from close to $115 per barrel to below $111, although it is trading a cent higher today. The Canadian dollar will respond to this afternoon’s US trade and consumer sentiment data, and whilst the former is expected to be poor, the loonie may find some support from the latter. For now, this pair trades just above 1.56.	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.

Morning Report

2012-01-12T10:29:00.002Z

Richard Driver, Analyst The euro suffered another slide yesterday, which took EUR/USD to new lows and dragged GBP/USD with it. Today’s session sees the European Central Bank make their monthly interest rate decision, and whilst there is a chance of a rate cut, a rate hold at the current 1.00% level looks more likely. Also today are bond auctions by Italy and Spain, which is bound to keep the market very much on edge. From the UK, we have some UK manufacturing and industrial production data to look forward to.
STERLING/EURO: Sterling actually lost a little ground against the euro (which remains weak itself), ahead of today’s key ECB meeting. After having cut rates at his first two meeting’s as President of the ECB, Draghi is expected to leave interest rates on hold at 1.00%. As far as quantitative easing is concerned, the market is likely to be disappointed. QE is seen as one of the tools with which the EU can really address its issues, but Germany remains in opposition, particular with inflation still high (though easing). The Bank of England will also be meeting today, but there are few expectations of anything other than an unchanged policy towards the 0.50% interest rate and 275B asset purchase facility (QE). Next month will be a different story though. This pair is trading just above 1.20 and may even dip below this level today.	FORECAST
STERLING/US DOLLAR: Dollar strength has taken this pair to its lowest level in a year and a half, with a key Fed policymaker even indicating an interest rate rise (though a long way away). US Federal Reserve policymaker Plosser has stated that the economic conditions may dictate that the US central bank may need to raise interest rates before mid-2013, as previously pledged. This would be highly supportive of the dollar. Data today is likely to show that US retail sales have grown further in recent weeks. Today’s eurozone bond auctions provide plenty of scope for further dollar safe-haven flows. This pair has now broken its trading range to the downside, as expected, and we are anticipating further moves down towards $1.50 in the coming weeks and months.	FORECAST
EURO/US DOLLAR: Rumours of a French ratings downgrade triggered some euro to dollar flows, and this pair is looking vulnerable. Rumours floated about yesterday that France will incur a debt downgrade from Standard & Poor’s. The extent of the downgrade could be critical, one notch may be already priced into the market at present, but a two-notch downgrade could hit the euro hard. This pair remains at very low levels close to $1.27 and we continue to look for further declines. It is difficult to see the euro bouncing back against the USD at present, with so many risks hanging over the single currency.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling continues its downtrend against the aussie dollar, despite some higher than expected Chinese inflation data. Expectations of monetary stimulus in China have built in recent weeks, but higher than expect Chinese inflation data (4.1% y/y) reduces the scope for this. As such the outlook for Chinese growth is marginally affected. Nonetheless, the Chinese inflation still eased and the aussie dollar marched on. The aussie dollar looks very overbought at these levels and must surely suffer from some profit-taking soon. It is also susceptible to a drying up of risk appetite as a result of events in the eurozone today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The kiwi dollar continues to outperform sterling, though eurozone bond auctions will test this. The kiwi dollar has been the top performing major currency so far this year. Kiwi commodity prices declined for the seventh consecutive month in December, but the NZD continues to make gains regardless. This pair is now trading at 1.92, but poor eurozone bond auctions have a habit of hitting risk appetite hard, which may help sterling bounce back against the commodity currencies today.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling has had a poor few sessions of late, having lost three cents against the Canadian dollar. This pair has fallen sharply from October’s highs above 1.63 and now looks to be targeting another visit to September’s lows below 1.55. The upturn in the US economy is primarily responsible for this, as well as evidence of ‘soft landing’ in China (a controlled decline in a still solid growth rate rather than a crash). This pair is currently trading below 1.56 and we think today’s session could finally see this pair bounce a little.	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.

Morning Report

2012-01-11T09:59:00.000Z

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
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.

Weekly Analysis: Euro still looking vulnerable

2012-01-10T13:21:00.002Z

Early year optimism disappears very quickly

There were signs of a rally in confidence and risk appetite in the session or so of 2012 but sentiment quickly deteriorated due to all the familiar eurozone-related concerns. Poor demand at eurozone bond auctions (including that of Germany, much to the market’s concern) and widening yield spreads saw the euro resume its downtrend almost across the board. Linked to this are ongoing concerns of blanket downgrades throughout the eurozone when Standard & Poor’s decides to take action. There are plenty of bond auctions this week to keep the euro under pressure; Greece will look to the market on Tuesday, while Italy and Spain will do so on Thursday.

Also in the headlines in recent sessions has been the worsening economic picture in the eurozone. EU leaders finally appear to be willing to address the issue of eurozone growth. The debt crisis is having such as impact on confidence that the region is spiralling into recession and EU leaders have earmarked the Jan 30th meeting as an opportunity to look at eurozone growth and the region’s soaring unemployment levels (10.3% for the eurozone).

Figures last week revealed a eurozone services sector contraction, as well as negative monthly growth in both German and eurozone retail sales. Forward looking data such as German factory and eurozone industrial orders also undershot expectations last week. It seems businesses on the continent are preparing for the worst and sitting on their capital. With the lack of leadership we have seen on the debt issue, it is difficult to question why.

Merkel and Sarkozy’s meeting produced little of real note; they remain committed to the progress made on introducing greater budgetary discipline in the eurozone and continue to urge Greece to reach an agreement with private bondholders on haircuts before the country is given its 2nd bailout.

The ECB will have its monthly meeting and press conference on Thursday, which will surely overshadow the BoE’s Monetary Policy Committee meeting. We think there is a greater chance of another ECB rate cut than the market is currently appreciating. Eurozone data is only going one way and with inflation also beginning to ease, Draghi could well pull the trigger for the third consecutive month. That said, we are still betting that the ECB will keep its powder dry for this month, though another cut in Q1 is almost a dead cert.

UK growth takes a more positive turn, but for how long?

Last week’s monthly set of UK growth data take a turn for the better, with each of the services, manufacturing and construction sector figures beating expectations. The services sector was particularly impressive in December.

The outlook for the UK recovery remains highly uncertain and risks are firmly fixed to the downside. Sterling should benefit nonetheless, with hopes being raised that the Bank of England may be convinced that further quantitative easing may not be necessary after all. High demand for UK debt continues to support the pound; gilts were the top performing government bond for 2011 and are starting 2012 where they spent the last.

Sterling is trading up at a sixteen month high of 1.21 against the euro and the outlook is looking very strong for GBP/EUR. Less so against the dollar, the US recovery is gathering pace at an impressive rate, which is only adding to the safe-haven appeal of the greenback. GBP/USD is trading just above a four month low of $1.54.

End of week forecast:

GBP / EUR 1.2150
GBP / USD 1.54
EUR / USD 1.27
GBP / AUD 1.51

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Morning Report

2012-01-10T11:37:00.002Z

Richard Driver, Analyst Major headlines from yesterday’s session surrounded Merkel and Sarkzoy’s meeting, which indicated further commitment to last month’s pact on greater budgetary responsibility rules. Elsewhere, the scandal surrounding the private currency trading by the wife of the head of the Swiss National Bank has seen the central banker step down, though policy towards swiss franc pegging will remain unaffected. Today’s session is a very quiet one in terms scheduled data releases. This week’s next main event to which the market will begin casting their eye is Thursday’s ECB meeting.
STERLING/EURO: This pair saw range-bound trading, regardless of Merkel and Sarkzoy’s show of unity. Merkel and Sarkozy demonstrated a united front yesterday; they were committed to following through with December’s agreement on tighter fiscal union and urged Greece to make quick progress on reaching an agreement with private bondholders on haircuts, so that the country can receive its second bailout. The longer these negotiations drag on, the more pressing concerns of a Greek default and euro-exit become. There was a bit more positive news from the UK economy last night, a gauge of retail sales showed the best growth in eight months and house price data was better than expected. This pair is trading just above €1.21 this morning, and we may see further sideways trading for now.	FORECAST
STERLING/US DOLLAR: Sterling benefited from a minor bounce yesterday as support levels kicked in, but a move south will surely come. Support levels at multi-month lows near $1.54 gave this pair some welcome support, and sterling proceeded to creep half a cent higher on a fairly flat trading day in general. It shouldn’t be long until the $1.54 level is re-tested however. The outlook for the USD is much-improved from this time last year. Further QE looks more unlikely to come in the context of the last few weeks data and if the recent trend of positive data strengthening the greenback continues (when in the past strong US data has increased risk appetite away from the safety of the dollar), then it could be one of the top performing currencies this year.	FORECAST
EURO/US DOLLAR: The euro enjoyed a little rebound but it will be nothing to concern those betting on downside for this pair. This pair was trading at $1.42 in late October and is currently trading fourteen cents lower, so yesterday’s half-cent short-covering will not alarm investors with bets on the euro weakening. The downtrend remains intact and clearly the market saw little to get excited about with regards to Merkel and Sarkozy’s press conference yesterday. Asian sovereign buyers will be crucial if the euro is to slow its downtrend. The intensifying crisis of confidence in the euro is likely to reduce diversification away from the USD, but EU leaders still have the power to reinstall some faith in the single currency.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Commodity currencies did well yesterday and this pair stooped to more than a five month low. Sterling is trading a cent lower this morning; the aussie dollar benefited from demand for Australian government bonds but Chinese trade balance data was the key driver of this pair’s weakness. The Chinese trade surplus showed an impressive uptick, and obviously reflects positively on Australia’s exports and economy. Aussie building approvals data was also strong. Support levels at 1.50 really need to kick in today if sterling is to avoid making a move out of its current range to the downside. We still see sterling bouncing back, though the risks that it will fail are significant.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The encouraging news from China also benefited the kiwi dollar, which sent this pair to almost a four month low. The kiwi dollar is making even more impressive gains than its aussie neighbour at present. This is largely due to the fact that the RBA is far more likely to cut interest rates in the coming months than the RBNZ. Building consents data from NZ was pretty poor last night, but the kiwi dollar still marched on. This pair is trading at a very low 1.95 this morning; eurozone fears need to heighten if sterling is going to return to levels above 2.00.	FORECAST
STERLING/CANADIAN DOLLAR: The Canadian dollar traded very positively yesterday and looks likely to re-test support levels down at 1.5750. The negativity surrounding Canada’s domestic economy dissipated yesterday (for how long though, remains to be seen) as US stocks saw some upside. Markets are a little calmer this week compared to last, which is a positive for the loonie. The US economic growth story looks likely to support the Canadian dollar this year, and this should outweigh and probably even reverse weakness in the Canadian economy. Negative eurozone headlines remain the biggest risk to the loonie and we still believe the pressure will return to its detriment. For now though, this pair trades just below 1.5750.	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.

Caxton FX January Outlook: GBP/EUR/USD

2012-01-09T11:04:00.002Z

December was an awful month for the single currency; the crucial EU Summit failed to satisfy market expectations and the euro was punished accordingly. Preceding the Summit, hopes for a holistic, assertive and credible plan to deal with the region’s debt profile were elevated higher than ever. Unfortunately the fiscal compact on budgetary discipline and various other commitments that were made did little to convince the market that EU leaders are on the right track. The region’s debt dynamics are finally taking their toll on the euro in a very material way.

Sentiment towards the UK economy has been at a particularly low ebb in recent weeks; growth figures have been disappointing and sights have been set very low for 2012 growth. Nonetheless, with the UK government remaining committed to its deficit reduction plan, there continues to be strong (and sterling-supportive) demand for UK gilts and there remains minimal scope for Bank of England intervention.

The focal points for this month are inevitably eurozone-related. Investors will be looking to the EU Summit on 30th of January with hopes for major decisions to deal with the debt situation. Growth will also be discussed and this has up until now remained a largely unaddressed problem. The eurozone looks likely to head back into a technical recession this year, and it goes without saying that the region cannot solve this crisis without economic growth.

Sterling/Euro

Slow progress and poor leadership are hurting the euro almost across the board at present. Sterling has climbed to a sixteen-month high of €1.2150 against the euro, which says far more about waning confidence levels towards the single currency than it does about the UK’s economic growth prospects.
Out of last month’s EU Summit came an agreement to top up the eurozone’s bailout resources by €200bn in IMF loans. Typically, and almost symbolic of EU leaders’ inability to take action, this figure was later revised down to €150bn. Agreements to bring forward the introduction of the European Stability Mechanism (the permanent bailout fund) by a year to the middle of 2012 and to enforce stricter budget discipline are valuable long-term developments, but they do little to deal with the region’s very pressing short-term issues. The market is short-termist by nature; investors are far less concerned with avoiding future crises, they are preoccupied with the threat that the current crisis poses to the very existence of the euro.

Rating agency action (or the threat of it) is worrying the market at present. The bodies responded to the latest EU Summit inaction by downgrading the ratings of eurozone states such as Belgium and put several key nations such as Spain and Italy on ‘negative watch.’ Fitch’s even came to the damning conclusion that a comprehensive solution to the debt problem is “technically and politically beyond reach.” Standard & Poor’s are yet to wield their axe but are likely to do so in coming weeks, and this represents a major threat to the euro and risk appetite more generally.

Bond auctions in the eurozone are also in sharp contrast. Debt sales have been attracting diminishing demand and, alarmingly, this even applies to the core countries of France and Germany. Bond spreads are widening throughout the eurozone (Germany excepted) and further bond auctions this month will keep the pressure on the euro.

Greece remains the first head on the chopping block and its government has already stated this week that they will be forced to exit the euro in the event that they do not receive a second bailout by March. We can expect nerves to build steadily ahead of this deadline.

The prospects for the UK economy, despite a couple of encouraging growth figures from the UK services and construction sectors this week, are distinctly gloomy. Flat to minimal (around 0.5%) growth seems likely this year, and the risks of a recession are very significant. However in truth, developments in the eurozone will have a greater say over the UK’s recovery prospects than domestic policy.

Risks for this pair are quite clearly to the upside from our standpoint; the uptrend may be stalled by bouts of profit-taking on sterling’s rallies, but we see this pair climbing a further cent towards €1.22.

Sterling/US dollar

Sterling has been trading within a three cent range of $1.54 - $1.57 since late November and although this pair has threatened a move to the downside several times, sterling has managed to maintain sufficient support.
The US recovery is finding some real transaction at present, we haven’t seen such consistently positive economic data flow in almost a year. US manufacturing, consumer confidence and employment gauges are all on the up. The labour market, which remains both the US government and the US Federal Reserve’s number one concern, in particular appears to be making some progress, with January’s key monthly employment change figure hitting an eight month high.

In comparison to slowdowns in economies such as the UK, the eurozone, China and many others, the upturn in the US is attracting plenty of investment besides safe-haven flows. Often strong US data will weaken the dollar but at present, the opposite is true. In addition, the upturn in the US is diminishing the case for further quantitative easing from the Fed, which again is a positive for the US dollar.

Safe-haven flows are still the number one driver of the greenback’s strength however. The eurozone situation continues to peg back risk appetite and we are confident it will do so for many months to come. With fears of central bank intervention hanging over the yen and particularly the swiss franc, demand for the US dollar is high.

With market confidence on a noticeable downtrend, we see this pair breaking its current range to the downside in coming weeks. A move towards $1.53 is our bet.

Caxton FX one month forecast:
GBP / EUR 1.22
GBP / USD 1.53
EUR / USD 1.26

Richard Driver
Senior Analyst – Caxton FX

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Morning Report

2012-01-09T09:31:00.003Z

Richard Driver, Analyst Last week finished with yet more positive US data, with the unemployment rate dipping to its lowest level since March 2009 and probably more significantly, 200k jobs were added to the payrolls. There was further poor eurozone data to ensure that the euro/US dollar pair headed yet lower. Today’s session will see Merkel and Sarkozy meet to iron out further details on the fiscal compact on budget discipline that was agreed at last month’s EU Summit. A press conference will also follow and will no doubt dominate the headlines.
STERLING/EURO: Having climbed by over a cent last week, this pair continues to edge higher as the eurozone’s weak growth outlook heightens concerns. Despite some better than expected UK services and construction figures last week, sterling is not making the current gains over the euro down to a change in sentiment towards the domestic economy. It is intensifying concerns surrounding the eurozone’s growth and debt that is the key driver here. Further data releases and bond auctions this week provides further scope for euro losses. Sterling is trading at €1.2050 this morning and the outlook remains pretty bright for this pair. It is a sparser week in terms of UK data, which means the focus will be on the eurozone more than ever, which judging by last week isn’t a positive thing for the single currency.	FORECAST
STERLING/US DOLLAR: Sterling found it tough going against the USD last week, but is benefiting from support at these multi-month lows. Current levels close to $1.54 broadly represent the bottom of a trading range that has been in place for several months. UK gilts were the top performing government bonds in 2011 and this has given sterling plenty of support, even against the stronger US dollar. However, not even this factor was able to guard against a two cent weekly decline for this pair. The US recovery is really picking up some pace now. The greenback is the pick of the currencies at present, and with the US economy outperforming the UK, we may see this pair break its trading range to the downside.	FORECAST
EURO/US DOLLAR: Further lows are being posted by the pair, with strong US data triggering a rally in the greenback. The euro’s sharp downtrend against the US dollar remains in place and there are no signs of it bottoming out just yet. US employment data was excellent on Friday and the non-farm payrolls data revealed exactly double as many extra jobs than initially expected. The positive US news did not weaken the USD as was the case throughout 2011, rather it strengthened it considerably. This pair is now trading at $1.2750; performance today depends on comments made by Merkel and Sarkozy today. Investor confidence and German industrial production may put the euro on the defensive early on.	FORECAST
STERLING/AUSTRALIAN DOLLAR: This pair remains fairly range-bound; though a poor Australian retail sales figure may see sterling make some gains today. For the first time in five months, the Australian retail sector failed to grow in December. This is exactly the sort of data that will convince the Reserve Bank of Australia to cut its interest rate once again (in addition to the two 0.25% cuts at the end of 2011). Eurozone nerves remain elevated and are doing a good job of suppressing risk appetite, regardless of Friday’s strong US jobs figures. Sterling is trading at 1.51 this morning and risks are still to the upside this week. Eurozone bond auctions throughout this week should trigger some safe-haven sterling gains.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling is struggling rather more against the New Zealand dollar, despite losses in Asian stocks. Unlike the aussie dollar, the kiwi dollar is outperforming the pound at present, probably because the market is less fearful of a Reserve Bank of New Zealand rate cut than from the RBA. This pair is trading at a ten-week low under 1.97 now, but we are sticking to our position that sterling will bounce against the kiwi dollar before long.	FORECAST
STERLING/CANADIAN DOLLAR: Remarkably, the Canadian dollar failed to kick on after the excellent US jobs figure, not helped by a poorer domestic figure. Data revealed that the US economic picture is going from strength to strength and Brent crude prices are still elevated towards $114 per barrel, but sterling actually made gains over the Canadian dollar on Friday. The domestic Canadian economic picture is far less impressive, with the unemployment rate rising to 7.5% and fewer jobs being added to the payrolls in December than expected. Sterling is trading at 1.5875 this morning, and we are still looking for further upside for this pair. Eurozone concerns are likely to intensify further this week and the loonie may feel the pressure as a result.	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.

Morning Report

2012-01-06T10:17:00.002Z

The euro came under further selling pressure yesterday and posted fresh lows against several currencies. For us, it is quite clear that the euro is going to depreciate, fundamentals have been pointing this way for some time now and market sentiment is worsening every month. The key obstacle to further euro downside is profit-taking, but this is only short-term by nature. Today’s session bring the all-important non-farm payroll data from the US, which could have a considerable impact on the mood in the market. The US growth story is the only real positive headline out there at the moment.
STERLING/EURO: Sterling climbed higher still against the euro, perhaps helped by some better than expected UK services data. The key instalment of monthly UK growth data, the Services Purchasing Managers’ Index, came in well above expectations yesterday to reveal the strongest figure in five months. The market will not get overexcited about this week’s stronger than expected manufacturing, construction and services sector figures, but it does provide a little hope that 2012 could be slightly less gloomy than anticipated. This will also strengthen arguments that further QE can wait, which is a positive for sterling. Sterling is trading up above €1.21 this morning and after strong gains this week, there is scope for profit-taking to take the wind out of this pair’s sails. Nonetheless, the outlook remains positive here.	FORECAST
STERLING/US DOLLAR: Sterling came under further pressure against the safe-haven US dollar, amid some more positive US jobs data. Yesterday was one of those rare occasions where positive US data (a monthly jobs indicator) actually benefited the US dollar. Expectations will be elevated for a good result from this afternoon’s non-farm payrolls figures, which could very well mean the market will be disappointed. Amid strong euro-dollar flows, this pair headed a cent lower to its current level of $1.55. Further dollar strength looks likely.	FORECAST
EURO/US DOLLAR: The euro is suffering further declines ahead of some important eurozone confidence data and a meeting between Sarkozy and Monti. There are plenty more downside risks for the euro today. The EU commission will publish some consumer confidence data this afternoon and French President Sarkozy and Italian PM Mario Monti will meet today and provide a statement. Eurozone retail sales data is also likely to reveal a monthly contraction. Judging by yesterday’s response to positive US employment data, the US dollar could benefit whatever the result from today’s US non-farm payrolls figure. For now though, this pair is trading down at $1.28.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling failed to kick on after some early gains, but remains off its lows against the aussie dollar. Deteriorating eurozone confidence will surely send this pair higher eventually, but gains were limited yesterday. France and Germany have sold bonds this week, to limited success. Next week brings further bond sales from Germany, Greece, Spain and Italy, so market nerves are likely to continue to strangle risk appetite. Sterling is trading at 1.5125 against the AUD. We continue to prefer sterling to the riskier commodity currencies.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Despite strong UK services data and weak Asian stocks, sterling failed to hang on to yesterday morning’s early gains. It is not clear whether a positive number from this afternoon’s US non-farm payrolls figure will give a boost to risk appetite and help the kiwi dollar, or whether the market will see fit to invest in the US dollar in line with their improving economic fundamentals. Our bet is on the latter after yesterday’s trading pattern. Sterling continues to trade at a fairly uninspiring 1.9850, but we should see better levels to buy the kiwi dollar at soon.	FORECAST
STERLING/CANADIAN DOLLAR: A third consecutive day in the green for US stocks was sufficient to keep the Canadian dollar in demand. US services sector growth ticked upwards last month, and jobs data was positive. In addition, Canada’s domestic economic picture was bright, with a monthly growth indicator hitting a seven-month high. Clearly America’s economic upturn is filtering into its northern neighbour. This pair is trading down below 1.58 today, and could test its multi-month lows again today, with both US and Canadian jobs data likely to be positive.	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.

2012-01-05T09:38:00.002Z

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.

Morning Report 04.01.2012

2012-01-04T10:46:00.000Z

With positive manufacturing data out of the US and the UK, confidence levels continued to rebound, as evidenced by major gains in global stocks. There was good news out of Germany too, with unemployment levels dropping to a staggering twenty-year low. UK construction data came in above expectations this morning, showing some pretty reasonable growth. However, the market is unlikely to respond until tomorrow’s key UK services sector growth figure is announced.
STERLING/EURO: Sterling continues to trade close to the €1.20 level despite alarming warning from the Greek government. The Guardian have reported that the Greek government have warned that without a new bailout within three months, the troubled state will be forced to leave the single currency. The euro has avoided a sell off so far, in line with a decent level of risk appetite to kick off the year, however the risks of a Greek euro-exit are increasing with every month of inaction from EU leaders. Sterling failed to benefit from a better than expected UK manufacturing growth figure. The data still reveals the sector spent a third consecutive month in contraction, albeit only marginally last month. No major movements are expected today.	FORECAST
STERLING/US DOLLAR: The US dollar continued to weaken off yesterday as strong US economic data spurred on riskier trades away. Impressive US manufacturing data saw investors exit the US dollar in search of higher-yielding currencies. With the figure climbing to an impressive 6-month high, it seems that the US economy is really recovering from mid-2011’s ‘soft patch.’ Hopes are high for this Friday’s key US non-farms figure. Last night’s US Federal Reserve meeting minutes revealed a predictably dovish tone, and failed to make too much impact on the rates. Sterling is trading just above $1.56 this morning, and a move up a cent higher in coming sessions is possible.	FORECAST
EURO/US DOLLAR: The euro benefited from further dollar-weakness and risk appetite, but the threat of S&P downgrades continue to loom. This pair often tracks movements in US stocks, and it was no surprise to see the euro make strides on a day where US stock indices were gaining by 1.50%. Impressive German employment data also helped the euro but data out of Spain was not so encouraging, showing a fifth monthly increase in unemployment. After stronger figures from China and the US, the dominant theme in the market at present is of renewed optimism about the prospects for global economic growth. However, rating agency Standard and Poor’s is still due to make its voice heard, and risk appetite is bound to take a hit. For now, the euro is trading up at $1.3050 and it could find further traction today.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Despite risk-positive news from the US, support levels close to 1.50 kicked in for this pair. The aussie dollar failed to march on yesterday, despite major gains in regional and indeed global stocks. This pair has dipped to these levels close to 1.50 twice before in recent months, and an upward correction ten cents higher is still very much on the cards. The aussie dollar remains very vulnerable to bad news out of the eurozone and to further monetary easing (interest rate cuts) from the Reserve Bank of Australia. Sterling is trading at 1.51 this morning and despite the cautious return of a market confidence, sterling should begin to bounce soon.	FORECAST
STERLING/NEW ZEALAND DOLLAR: This pair remains at a two-month low but with so much uncertainty still remaining, these levels look due an upward correction. Much like the aussie dollar, the New Zealand currency looks vulnerable to a pullback in coming weeks. The confidence we have seen of late is related to the improved global growth picture. News from the eurozone debt situation has gone quiet, but when headlines begin to flow again, sterling will be well-placed to climb back above the 2.00 level against the kiwi dollar. This pair is currently trading at 1.98 and sterling should be able to guard against a further downside move.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling benefited from some decent support levels yesterday, stopping the Canadian dollar from capitalising on such a strong US manufacturing figure. Regardless of what the exchange rates did yesterday, the improved economic picture in the US is a crucial development for the Canadian economy. Without US growth, Canada is in deep trouble, such is the closeness of their trading relationship. Oil prices also continued to climb yesterday, with Brent reaching $112 per barrel. Sterling nonetheless is trading half a cent higher at 1.5850, though a good US non-farm payrolls figure on Friday could see sterling give back these gains.	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.

2012-01-03T11:28:00.002Z

Richard Driver, Analyst Happy New Year! The team here at Caxton FX would like to wish you the very best of luck for 2012, we hope the exchange rates go your way! The outlook for early 2012 remains unchanged as far as we are concerned, we continue to favour safer currencies in anticipation of further alarm bells from the eurozone. The week ahead brings the monthly growth updates from the UK construction and services sectors, in addition to this morning’s improved UK manufacturing figure. Expectations are not high, but sterling has been fairly resistant to poor data in recent weeks.
STERLING/EURO: Sterling continues to trade at the lofty heights of €1.20, as investors turn the heads towards a tough start to the year for the euro. Key events this month are a Jan 9th meeting between Mekrel and Sarkozy which is likely to focus on budget discipline rules, and an EU Summit on Jan 23rd. The threat of wide scale debt downgrades throughout the eurozone will continue to weigh on appetite for the single currency until major progress is reached. UK debt has found favour in recent months, as investors look for alternatives to risky European bonds. However, if UK growth continues to deteriorate, it could lose its AAA credit rating and this pillar of sterling-support will be removed. It is crucial that the UK maintains its AAA credit rating. How likely this is depends on growth figures like this morning’s monthly manufacturing update. Sterling actually benefited from a welcome upside surprise, though the sector still remains marginally in contraction.	FORECAST
STERLING/US DOLLAR: The dollar has made a poor start to the week as some positive news emerged out of the global growth story. Chinese manufacturing improved significantly last month, and data this afternoon is expected to show that US growth did the same. US figures have been on a clear uptrend in recent weeks, but other giants such as China will have to follow suit if market confidence in the global recovery is going to make a truly sustained resurgence. Sterling is trading at $1.5550, a weak level that reflects the ongoing demand for the safe-haven US dollar.	FORECAST
EURO/US DOLLAR: The euro is trading at a 12-month low against the US dollar and we are betting on further declines. The eurozone’s high debt and low growth dynamics should see the US dollar make further gains over a vulnerable-looking euro. For today though, the euro may benefit from gains in European stocks. The FTSE 100 is already up by over 1.0%, and with US manufacturing growth expected to tick up this afternoon, euro losses may be avoided for today. Eurozone bond yields are still being watched carefully, Italy remains close to the dreaded 7.0% mark, though the pressure on Spanish debt has eased somewhat for the time being. The euro is trading at $1.30 this morning.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling is posting losses against the aussie dollar amid strong gains in Asian stocks. The improved Chinese manufacturing growth headline is complimenting an already upbeat mood in Asia, from which the aussie dollar is naturally benefitting. There is some early positivity in the market at present, but this is likely to be short-lived. Sterling is trading at 1.51, and there is some further downside potential until some key support levels kick in at 1.50. Beyond this, we could well see sterling head significantly higher.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling is suffering a downward correction against the kiwi dollar, but a return to levels well above 2.00 should come this month. The positivity surrounding the Chinese manufacturing figure has fed into demand for the kiwi dollar as well. However, nerves over the eurozone debt situation will surely come back to haunt riskier currencies, and will continue to do so for at least the first half of this year. With this in mind, we see sterling heading back up above the 2.00 mark before long. For today though, sterling is trading down at 1.98 and this rally in risk could have some more legs by the look of European equities this morning.	FORECAST
STERLING/CANADIAN DOLLAR: This pair is still under pressure as sentiment towards the US economy continues to warm up to the benefit of the loonie. A good start to the year for risk appetite sees the Canadian dollar on the front foot against safer currencies like the pound. If US manufacturing data shows the improvements that are expected, we should see the loonie make further advances. Sterling is trading down at 1.58 this morning, which is not too far off a three month low. Oil prices are also making hefty gains, brent is up at $110 per barrel. This pair may head lower today.	FORECAST

2011-12-23T10:47:00.001Z

Richard Driver, Analyst With many traders off on their Christmas holidays already, markets are very thin indeed now. US GDP was surprisingly revised downwards for Q3 of this year, revealing growth at an annualised rate of 1.8%. Still the market was not too bothered, comforted by the pick-up in US growth we have seen in the final quarter of the year and the improved outlook for 2012. Today’s session brings plenty of US data but if yesterday’s GDP figure failed to leave an impact, today’s releases will also go unnoticed. From all the team at Caxton FX, have a great Christmas.
STERLING/EURO: Sterling’s safe haven bid continues to provide support against the single currency, helped by improved UK GDP figure. UK GDP hit 0.6% in the third quarter of 2011, which was slightly better than expected. The market will be all too aware that the outlook for the UK economy leaves little to get excited about, but the GDP figure was still a nice surprise. Less positive was news that the UK’s current account deficit widened to its worst level in almost a year and a half. The safe-haven attraction of UK gilts, and sterling by association, has taken sterling up above €1.20, its highest point since early January 2011. Further gains are likely to come, but perhaps not today.	FORECAST
STERLING/US DOLLAR: This pair remains range bound as data fails to leave its mark and as the flow of headlines dries up. US GDP was revised downwards to 1.8% (annualised) for Q3 2011. This 0.2% downward revision is actually pretty disappointing but the markets didn’t respond. The Wall Street Journal has reported that the US Federal Reserve could leave interest rates at their current record lows of 0.25% until 2014 and beyond. This is dollar-negative in the long-term but will not worry the markets in the short and medium term. Sterling is trading at $1.57, which represents a stronger finish to the year than we expected. Despite a warning from Moody’s about the UK’s treasured triple-A rating, sterling has done traded very well in the past fortnight or so.	FORECAST
EURO/US DOLLAR: The euro continues to hover above the psychological $1.30 mark but we are still anticipating another push lower. ECB policymaker Smaghi has called for quantitative easing to boost the eurozone economy if deflation risks emerge moving forward. With QE consistently ruled out by the ECB, this is an interesting development and will certainly have caught the market’s eye. Unfortunately for the market, which would welcome eurozone QE strongly, Smaghi’s tenure at the ECB ends very soon so hopefully he will persuade some of his colleagues before doing so. The euro is trading at $1.3075 this morning, European stocks have opened strongly, so a push below $1.30 may have to wait until after Christmas and perhaps the New Year.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Aussie trading positively, helped by demand for Australian government bonds. Australia has also managed to maintain its AAA credit rating, and demand for its government bonds is giving the aussie dollar some decent support. This club of top-rated government debt will continue to shrink and for those nations that hang on to it, the associated currencies will reap the rewards. Sterling is trading at 1.5450 this morning, and no major movements seem likely.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling edged lower against the kiwi dollar despite the worrying news of another earthquake in Christchurch. Christchurch is still bouncing back from the destructive earthquake we saw in the city earlier on in the year. Another quake will strengthen the case for another interest rate cut from the Reserve Bank of New Zealand. The kiwi dollar still managed to strengthen against sterling however, helped by some positive weekly jobs data. Despite losses in Asian stocks last night, this pair is trading down at 2.0250, and we may see a session of range-bound trading.	FORECAST
STERLING/CANADIAN DOLLAR: The loonie continued to make gains over sterling yesterday, helped by a decent bounce in the US stock market. Positive US risk sentiment drove the Canadian dollar forward yesterday, traders turned a blind eye to the downward revision of the US GDP figure and focused on some improvements in the US labour market. US unemployment continues to be the number one concern in the US economy. This pair is trading at 1.60 this morning. We have a monthly Canadian GDP figure later today, which expected to show growth of just 0.1%, but as ever US GDP will probably overshadow.	FORECAST

Financial recovery stalls in 2011 but will next year be any better?

2011-12-23T10:19:00.000Z

An article from James Hickman, MD of Caxton FX, reviewing the past year and what we can expect in 2012.

What a year 2011 has been: the uprisings in the Arab world, earthquakes in Japan and New Zealand and not to mention the deaths of three dictators, the Royal Wedding and the London riots.

In terms of the financial environment, if we look back to the end of 2010 we were still waiting for conditions to improve for the global economic recovery and as we approach the end of 2011, we still cannot see the wood for the trees.

2011 was meant to be a year where we took bigger steps towards the goal of economic improvement but in my mind, there have been two key factors which have prevented this from happening.

Firstly, there has been a top-down liquidity squeeze which has had a significant impact on everyone from countries and large banks right down to individuals and small businesses.

In short, no-one can easily borrow money and as we all know, accessing affordable loans is key to a vibrant and growing economy, whether you are the government or a small shop keeper.

What this has resulted in at the top end – which is the really worrying part – is that some countries have been unable to repay existing loans and debts. Consequently, some loans have been written off causing share values to plummet and the very real situation of some of those countries staring default in the face.

The second key factor in the global economic recovery, or lack of it, has been the financial mess within the eurozone.

The European Central Bank (ECB), working alongside the central banks of the 17-member states of the eurozone, have been too slow to react to the debt crisis over 2011 and have constantly been playing catch-up, despite several crucial summits over the year.

This has seen the markets respond negatively towards this inertia and subsequent bailouts have required strict austerity measures, which as we have seen in the UK, are not looked on in a favourable light by the local populous, as well as being hard to implement.

The knock-on effect of this has seen the euro, which has been pretty strong since 2007, depreciate against most major currencies since the summer. While a cheaper currency is a good thing for exporters, importers looking to bring in goods from economies linked to stronger performing currencies, such as the USA and UK, will find it tough to buy goods and services when the dollar and sterling are performing so well.

So what’s in store for 2012? Unfortunately doom and gloom still holds centre court and we predict that the issues that we have talked about so far will continue to rear their ugly heads well into 2012.

There is a strong possibility that the euro will continue to weaken well into Q1 and Q2 and we might also see some of the periphery eurozone states start to drop out of the single currency.

If I were a betting man, Greece would be a good shout for being the first to drop out of the single currency as they will find it hard to stick to the ECB’s fiscal measures which are proving deeply unpopular at home.

Greece’s departure could also cause a domino effect with other weak eurozone states also dropping out of the single currency.

But I think it’s incredibly important to note that we don’t see the euro completely collapsing any time soon – so there’s no need to panic. There appears to be the political will to keep the single currency project alive and with weaker countries dropping out, the remaining countries will see a reverse in fortunes and could actually see the euro strengthen again.

Closer to home, we see sterling maintaining its current position as being one of the stronger currencies. While a strong pound is an advantage for importers, taking advantage of being able to bring in cheaper goods, it will be expensive to export British goods - especially to the eurozone – which raises further concerns about the UK’s trade deficit.

Considering our high debt levels and the fact that everyone wants to see a weaker pound, we might see further Bank of England (BoE) intervention to try and weaken sterling, as well keeping interest rates at a record low of 0.5%.

Another question at the front of peoples’ minds is whether we will experience a recession in 2012. While the markets have responded warmly to the Government’s austerity measures and growth is flat rather than negative, all of this will be blown out of the water if there is a recession in the eurozone, an event which is more than likely.

The eurozone is our most important trading partner and if there is recession on the continent, this will interrupt trade flows and hinder the amount of business UK companies can carry out.

Nonetheless, if we do see the weaker eurozone nations drop out, the consequences will be only felt by the UK in the short-term and we will eventually see a balancing act where the eurozone will regain its strength.

In terms of currency and considering that our outlook for both the global economy and the eurozone debt crisis is negative, as a final thought, we see the euro losing ground against both the dollar and sterling in 2012. Additionally, the dollar should outperform the pound in risk averse circumstances next year and maintain its position as a safe-haven currency.

Produced by Steven Fifer, Caxton FX

2011-12-22T11:41:00.000Z

Richard Driver, Analyst There was huge demand for the ECB’s cheap three-year loans to European banks -the almost €500bn figure was double what was widely anticipated. The euro rallied briefly, until the market came to its sense and concluded a greater need to take loans is hardly confidence-inspiring. The euro subsequently came under a great deal of pressure. Today’s session brings some UK current account data, the final quarterly GDP figures from the UK and the US, which are not expected to be revised. These figures are unlikely to trigger much volatility, and safe-haven currencies will probably be preferred.
STERLING/EURO: Sterling made the move above the psychological €1.20 level yesterday as market fails to see bright side of ECB lending. The ECB’s €489bn tender to Europe’s banks has failed to trigger a euro rally. There is scepticism as to whether European banks will use the additional funds to purchase Italian and Spanish bonds. They seem more likely to sit on the extra capital and protect themselves. Yesterday’s MPC minutes revealed there is plenty of support for further QE in February, but this is to be expected. The growth outlook for the UK economy is flat in the first two quarters of next year, though there are hopes for a pick-up in the second half of 2012. Today’s finalised third quarter UK GDP figure was revised up to 0.6% from 0.5%, this pair is trading at €1.20 and there is scope for another upward move.	FORECAST
STERLING/US DOLLAR: US stocks are trying to recover at present, which is taking funds away from the US dollar. The S&P stock index gained by 3.0% yesterday, funded to a large extent by US dollar. US data again ticked up in the form of improved existing home sales (though not by as much as hoped). Finalised US third quarter GDP is expected to remain at an annualised rate of 2.0% this afternoon. Sterling is trading up above $1.57 this morning despite rating agency Moody’s hinting that the UK’s AAA credit rating is vulnerable to downgrade. If this were to come to fruition, sterling would surely take a hit, but for now the market has turned a blind eye.	FORECAST
EURO/US DOLLAR: A volatile day’s trading saw this pair climb to $1.32 before dipping almost two cents lower, as market concerns over eurozone bond yields persist. How eurozone bond yields are going to be brought down in the short-term was neglected at the EU Summit earlier this month, and yesterday’s ECB loan tender may have been an attempt to fill this void. European banks need to increase their capital ratios by the middle of next year in line with the Basel III criteria, so there is a good chance that yesterday’s high demand will be used for this, rather than to bring eurozone bond yields down. The euro is trading up at $1.31 thanks to a positive start for European stocks. This level looks a little high and could be corrected lower.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling lost considerable ground against the aussie dollar in risk-positive trading conditions. Asian stock indices rallied last night by 1.5-2.0%, and took the aussie dollar with it. The aussie dollar rocketed back up through parity against the US dollar as a result. The ECB loan story is the key factor driving this improvement in global investor confidence and this relief rally looks to have some more legs in it yet. Sterling is trading down at 1.5450 against the aussie dollar, and we are likely to see the pound remain under pressure today as well.	FORECAST
STERLING/NEW ZEALAND DOLLAR: A volatile session saw this pair edge higher as regional market confidence dried up, though kiwi GDP data was impressive. Appetite for the kiwi was weaker yesterday, but the third quarter New Zealand growth figure beat expectations to the upside, ticking up to 0.8% from Q2’s 0.1%. The strong showing can be put down to this autumn’s Rugby World Cup, but underlying growth was actually less impressive so the kiwi failed to rally. Sterling is trading at 2.03 this morning and although this pair has been losing ground this morning, risks are to the upside.	FORECAST
STERLING/CANADIAN DOLLAR: Strong Canadian retail sales helped the loonie trade positively against the pound. Canadian retail sales came in well above expectations, climbing to an eight month high. Oil prices also continuing to climb, as are US stocks, which all played into the hands of the loonie yesterday. Taking a longer-term view of the Canadian dollar’s performance in 2011, it has actually been one of the worst performers, largely down to a US economic slowdown and worsening eurozone crisis. Sterling has lost ground to risky currencies in early trading but we should see a rebound as the session progresses.	FORECAST

2011-12-21T10:30:00.000Z

Richard Driver, Analyst Markets turned remarkably positive yesterday in light of a positive German business climate data and a successful Spanish debt auction. Global stocks rallied and dragged riskier currencies with them, leaving the dollar on the back foot in mid-week trading. The MPC minutes have been released this morning, revealing a unanimous vote in favour of holding the UK interest rate at 0.5% and leaving the Bank of England’s asset-purchasing programme (QE) unchanged at 275bn. The door was unsurprisingly left open to further QE.
STERLING/EURO: Sterling continues to creep higher against the single currency, but ECB loan offer could help the euro in the short-term. The ECB today will be offering three-year loans to struggling European banks in a bid to ease the liquidity squeeze that is building as a result of the debt crisis. Demand is expected to be high for the ECB’s loans and market tensions surrounding an impending credit crunch have lifted considerably in the past session. This morning’s MPC minutes revealed UK policymakers are firmly in wait and see mode. The Bank of England’s Broadbent yesterday reminded investors that the UK economy is in a painful period of transition, but cautiously asserted that our banks are better equipped to cope with financial shockwaves than before the financial crisis. Sterling is approaching the €1.20 mark this morning but the euro may have a stronger day in light of positivity surrounding the ECB’s liquidity commitments.	FORECAST
STERLING/US DOLLAR: The US dollar is weakening off fairly aggressively in risk-positive conditions, but our preference for the greenback remains unchanged. Sterling has climbed by almost two and a half cents from Monday’s closing price, which is a reflection of the considerable injection of risk appetite we saw yesterday. US housing data added to the positive sentiment on display yesterday, and more is likely to come this afternoon. We may see risk assets continue to recover today, after many sessions under pressure, which is likely to keep the US dollar on the back foot. Still, even with the ECB’s three-year loan offer, we favour the US dollar as the prime safe-haven in an uncertain start to 2012. Nonetheless, sterling is trading up towards $1.5750 this morning, which represents a one-month high and a good rate to buy the dollar.	FORECAST
EURO/US DOLLAR: The euro is trading a cent and a half higher against the US dollar as Spain enjoys a positive bond auction. Yesterday’s Spanish bond auction drew solid demand and the ECB’s loan offer is only likely to help bond yields in the eurozone, with banks more willing to buy peripheral debt. Yesterday’s strong German business climate survey also helped the euro, and a German consumer climate was also better than expected, all suggesting that the German economy could bounce back from here. Global equities rallied and the euro predictably tracked these gains, climbing to a much more comfortable level of 1.3150 against the US dollar. Further gains seem fairly likely as sentiment continues to improve.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling lost considerable ground against the aussie dollar in risk-positive trading conditions. Asian stock indices rallied last night by 1.5-2.0%, and took the aussie dollar with it. The aussie dollar rocketed back up through parity against the US dollar as a result. The ECB loan story is the key factor driving this improvement in global investor confidence and this relief rally looks to have some more legs in it yet. Sterling is trading down at 1.5450 against the aussie dollar, and we are likely to see the pound remain under pressure today as well.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The kiwi dollar made some hefty gains despite a widened NZ current account deficit. Data last night revealed that New Zealand’s current account deficit worsened to its worst level in a year. However, as usual international developments proved far more important and the kiwi dollar joined in on the rally in riskier assets that we saw yesterday. Sterling is trading down below 2.03 this morning, and a bounce back may have to wait for today and perhaps even this week, but sterling should return to higher levels before long, with major concerns over the eurozone likely to resurface.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling erased some early gains against the loonie as US stocks rallied on positive headlines from the eurozone and the US economy. The Canadian dollar recouped some ground as the eurozone’s short-term situation improved. Further positive signs from the US economy, this time in the form of the housing market, also added to the improved outlook for demand for Canadian exports. Still, this is a less volatile pair than GBP/AUD or GBP/NZD, and sterling’s losses were capped. Sterling continues to trade close to 1.61.	FORECAST

Investors finally punishing the euro

2011-12-20T14:43:00.001Z

Euro suffers heavy losses

The euro suffered heavy losses last week as the markets set about pricing in a lack of any real or satisfactory progress at the Dec 9th EU Summit, and the near certainty that 2012 will be another very rocky year for the single unit. Eurozone downgrades are currently the number one driver of market fears at present. Moody’s has cut Belgium’s rating, Fitch has asserted that a comprehensive solution to the debt problem is “technically and politically beyond reach” and has proceeded to place major eurozone nations such as Italy and Spain on a negative watch. Action from Standard &Poor’s seems highly likely before long and it could well be France’s triple-A rating in the firing line.

The euro is trading at an eleven-month low against the pound and the US dollar. Eurozone bond yields remain under pressure, the markets are clearly frustrated and it is quite clear that the rating agencies are too. In this environment, we see the euro making a difficult start to 2012.

Eurozone finance ministers agreed yesterday to bolster the IMF’s resources by €150bn. The market will always welcome greater commitment to support the eurozone’s struggling nations by increasing available aid, but with the decisions contingent upon the parliamentary approval of individual member states, the euro has failed to gain as a result. Besides in reality, €150bn does little to change the complexion of the eurozone crisis.

UK data disappoint further, but sterling unperturbed

Last week’s UK growth figures added to an already gloomy economic picture. UK unemployment is now at a fresh 17-year high and retail sales contracted by 0.4% in November. Still, sterling was largely unaffected by these figures.

Rating agency action n the UK’s triple-A status is the key risk as far as sterling is concerned. The market has come to terms with low growth and high debt in the UK, but if these two factors worsen sufficiently to prompt rating agencies to downgrade UK debt, then sterling could well lose the quasi-haven status it has been benefiting from in the past few months. If UK gilts lose their appeal, then so too will sterling to a certain extent.

The MPC minutes are released this Wednesday, and expectations surrounding it are fairly muted. The MPC will remain in wait-and-see mode until it steps up it QE programme in February and there are not too many talking points besides the UK economy’s uncertain outlook.

Sterling is trading at €1.1950 and €1.20 before the year’s end is by no means out of reach. Against the US dollar, again sterling is looking decidedly more vulnerable but having climbed up towards $1.57 today, is actually holding up pretty well in what are distinctly risk averse trading conditions. The euro is desperately holding on to the $1.30 level but we continue to favour the safety of the US dollar, particularly with S&P liable to make their voice heard in coming sessions.

End of week forecast
GBP / EUR 1.1975
GBP / USD 1.56
EUR / USD 1.3025
GBP / AUD 1.57

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

2011-12-20T10:11:00.000Z

Richard Driver, Analyst No major moves were seen yesterday and it was broadly a Monday of range-bound trading. Many books will now be closed for the holidays but there is still scope for some movements, most likely in favour of safer currencies like the US dollar and the pound. The euro held up reasonably well despite uninspiring comments from ECB President Draghi to the effect that more aggressive bond purchases will not be adopted. Today’s session brings some CBI realized sales data, but aside from this the coming session if fairly data light.
STERLING/EURO: Sterling has enjoyed another push higher this morning, with ECB President Draghi disappointing the markets. The outlook for controlling eurozone bond yields was dealt a blow yesterday as ECB President reiterated his stance on refusing to step up bond purchases; he clearly believes it is not in the ECB’s mandate to do so. He also reminded investors that eurozone banks would have a tough 2012 and that growth would be slow to recover. On a mildly more positive note, eurozone finance ministers agreed to boost IMF capacity by €150bn in bilateral loans, though the UK abstained. The loans will still have to be approved by the relevant national parliament, which is by no means guaranteed. This explains why any market positivity has been suppressed. Sterling is trading up at a fresh multi-month high above €1.1950 this morning, as the march towards €1.20 continues.	FORECAST
STERLING/US DOLLAR: Sterling is even rallying against the US dollar this morning, perhaps by a better than expected UK consumer confidence figure. A consumer confidence gauge ticked up last night, perhaps easing a little of the poor sentiment towards the struggling UK economy. There may also have been a sterling-positive response to the UK’s refusal to get involved with yesterday’s addition to the IMF’s resources. On a positive note for the US dollar, Fed policymaker Lacker yesterday argued against the case for further monetary stimulus (QE) in the US. If the US economy can avoid further QE, then this removes one of the key long-term downside risk factors for the US dollar. Sterling is trading positively up above $1.5550.	FORECAST
EURO/US DOLLAR: The euro is perhaps surprisingly holding up around the $1.30 mark but a downside move is bound to come. News of a bolstered IMF fund failed to see the euro rally yesterday and we should hardly be surprised. We have heard these announcements before, only to see agreements fall apart or get rejected at national level. One thing is clear, yesterday’s IMF agreement is certainly not a game changer, as reflected in the flat trading in this EUR/USD pair. The euro is trading comfortably above $1.30 this morning, German consumer climate data provided a much needed upside surprise this morning, but euro gains may be short-lived.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling crept up against the aussie dollar but gains were capped in light of less dovish than expected RBA minutes. The minutes from the Reserve Bank of Australia’s recent meeting were less dovish than expected last night. Further rate cuts, in addition to the two recent 0.25% cuts we have seen in the past two months, were not indicated, which is supportive of the aussie dollar. However, the RBA’s policy will almost entirely be dictated by events in the eurozone, and if our fairly rocky outlook on the debt crisis plays out, their hands may be forced on further interest rate cuts. Sterling is trading up at 1.56 and if sterling can continue its current positive tone, then further gains may come today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: This pair saw some choppy trading, the market remains very nervous ahead of S&P’s almost inevitable downgrade action. Sterling ticked higher against the risky kiwi dollar despite a slight recovery in Asian stocks. Sentiment remains pretty weak at present, with investors nervous about S&P’s possible eurozone downgrades. The coming evening session brings some New Zealand current account data, but the kiwi dollar is likely to be pushed and pulled around by international headlines. This pair is trading at 2.0450 and further gains are possible.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling crept a little higher against the Canadian dollar, which was hurt by some pretty significant losses in US stocks. US stocks made a poor start to the week and the price of Brent crude fell as low as $1.02 per barrel yesterday, $8 lower than last week’s high. The loonie lost a little ground to sterling as a result, despite some positive Canadian growth data. It is tricky to see appetite for riskier currencies to really bounce back in the coming holiday period. Sterling is trading above 1.61 and this pair should remain well-supported if sterling can build on its strong start to today’s session.	FORECAST

Kim Jung-il's death hurths the South Korean won

2011-12-19T16:28:00.002Z

The South Korean won has fallen to a two-month low against the dollar and the pound as a result of the geopolitical uncertainty that Kim Jong-il’s death has left behind.

The won tracks the performance of local equities to a large extent, and the KOSPI is down by almost 3.5% today.

The approach that youngest son Kim Jong-un takes on foreign policy is the most immediate concern, because the truth is we know nothing about this character and how he will respond to his newfound power.

The truth is only time will tell on an issue like this, but in the short-term it only adds to the reasons to get out of the won and target safe-haven assets such as the US dollar.

The eurozone situation is showing few signs of progress and market frustrations have finally taken their toll on the single currency.

The won has been the second-worst performing currency after the Indian rupee since the summer. Global risk appetite is likely to remain hemmed in for a long time to come and this renewed regional uncertainly only adds to what was already a negative 2012 outlook for the won.

Richard Driver

Senior Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

2011-12-16T11:26:00.000Z

Richard Driver, Analyst The sell-off in the euro and other risky assets took a breather yesterday in light of a healthier Spanish bond auction and some improved growth data from both the eurozone and the US. UK retail sales were poorer than expected, but the high street enjoyed a good couple of months prior and could well bounce back in December. Today’s session is far quieter in terms of scheduled announcements. Sterling has come through this week’s UK data (unemployment and retail sales) unscathed and looks well set to continue its uptrend against the euro.
STERLING/EURO: The pressure came off the euro a little yesterday as Spain enjoyed a successful bond auction. UK retail sales came in worse than expected yesterday, contracting by 0.4% compared to October. On the upside, September and October’s figures were revised up and looking at the past three months as a whole, we’ve not seen such strong retail sales since August 2010. The market is convinced the UK is heading into a gloomy 2012, but sterling was largely unaffected. Spain managed to attract sufficient suitors at a bond auction yesterday to ease contagion fears somewhat, but this will be temporary. Eurozone growth, whilst remaining in contraction outside of the services sector, came in above expectations yesterday to help the ailing euro. Sterling continues to trade above €1.19.	FORECAST
STERLING/US DOLLAR: The dollar’s outperformance halted yesterday as news was a little more positive and stocks gained. US manufacturing data was excellent yesterday and triggered some gains in US stocks, taking funds away from the US dollar. US growth is pretty much the only positive story in the market at present and it was enough to lift the mood yesterday. We are still looking for a lower GBP/USD pair, particularly with threat of eurozone debt downgrades continuing to alarm investors. Sterling continues to trade at $1.55 this morning.	FORECAST
EURO/US DOLLAR: This pair continues to hover above eleven month lows, and a sustained move below $1.30 only looks to be a matter of time. Some of the Asian sovereign buyers that have propped up the euro all year are now turning into sellers, which is helping to pull the rug out from underneath the single currency. The euro is having its worst week in three months in the wake of last Friday’s disappointing EU Summit. This pair is trading at $1.30 this morning, the euro continues to look vulnerable and unable to sustain any real bounce.	FORECAST
STERLING/AUSTRALIAN DOLLAR: More positive headlines improved risk appetite yesterday, which helped the aussie recoup some ground. Sterling ceded a cent to the aussie dollar as market confidence enjoyed a moderate bounce yesterday in light of some strong US manufacturing figures and a successful Spanish bond auction. Another sell-off in risk can only be around the corner though, with sentiment so incredibly fragile at present. Sterling is trading above 1.55 and its hard to see risk appetite building further today, which should help sterling bounce back.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling lost two cents against the kiwi dollar thanks to an impressive Asian session. Asian equities enjoyed a rare session in the green last night, which boosted appetite for the kiwi dollar. The outlook for the kiwi remains pretty grim as far as we are concerned though, based on a fairly pessimistic view of eurozone debt crisis progress. Next week brings some important data from New Zealand, the highlight being the quarterly GDP figure on Wednesday night. For now though, this pair trades at 2.0450.	FORECAST
STERLING/CANADIAN DOLLAR: The loonie benefited from further good news from the US economy, but markets are still too nervy to see the loonie rally. US economic growth really is picking up as 2011 draws to a close. The pickup was anticipated but it has come later than expected. Canadian domestic data was also strong yesterday, which added to positive sentiment. Sterling is trading a little lower at 1.60 this morning and the outlook remains positive for sterling against riskier currencies.	FORECAST

UK unemployment data better than expected but hardly to be celebrated

2011-12-14T17:06:00.002Z

Today’s monthly UK employment figures for November were seemingly encouraging, revealing far fewer jobless claimants than expected, whilst the UK unemployment rate avoided a further rise and remained at 8.3%. The UK now has 2.64 million unemployed.

Only three thousand people were added to the jobless list, against expectations of a sixteen thousand increase. This is positive but figures such as these do little to change the overall picture of a gloomy economic outlook here in the UK.

On the face of it, the figures suggest that the labour market may not be as bad as anticipated moving forward. However, we still believe conditions in the labour market will continue to deteriorate looking ahead to 2012.

Government austerity measures are taking their toll on employment numbers and will continue to do so for many months to come. The private sector is failing to pick up the slack left by private sector cuts and the picture for UK youth employment is looking very poor indeed, with the figure alarmingly up at 20%. Wage growth is also down, which is no surprise, but at least consumer inflation is coming down (down to 4.8% in November).

The risks of another UK dip into recession are ever-increasing and today’s employment numbers do little to indicate otherwise. UK households will remain under pressure over the next year and circumstances are could well worsen before they improve.

Richard Driver
Analyst – Caxton FX
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Weekly Round-Up: Markets are punishing the euro

2011-12-13T15:34:00.002Z

EU Summit fails to satisfy the market

Movements in the exchange rates yesterday indicated a clear dissatisfaction with the decisions (or lack thereof) made at last Friday’s ‘crunch’ EU Summit. Various commitments were made, notably in the form of a new fiscal compact that will usher in tighter budget deficit rules. This will guard against future sovereign debt crises cropping up in the future, but it doesn’t do a great deal to solve, or ease concerns surrounding the current and worsening eurozone debt crisis. The European Stability Mechanism (the permanent bailout fund) will be activated a year early in mid-2012 – another longer-term measure. A further €200bn of aid will also be made available – positive but hardly the sort of ‘bazooka’ style measure that has been mooted of late.

The European Central Bank has refused to step up its bond-buying and Italian bond yields have risen as a result. This reveals what the market thinks of the decisions made at last week’s Summit. Moody’s has joined fellow ratings agency Standard & Poor’s in warning of possible eurozone debt downgrades. Moody’s cited “an absence of decisive policy measures.” Decisive is the operative word here and the adjective that continues to elude EU leaders. With all three of the major rating agencies posturing, further eurozone downgrades are looking likely - the euro appears more vulnerable than ever.

The euro guarded against losses in the immediate wake of the EU Summit, but it has made a terrible start to this week. The market has had to come to terms with, and is pricing in, the fact that this eurozone crisis is going to roll on for months to come. This should not come as too much of a surprise, but expectations of ground-breaking progress really had reached new levels in the past fortnight. Accordingly, GBP/EUR has posted new nine-and-half month highs up towards €1.1850, and the euro has crashed towards fresh lows towards 1.3150 against the US dollar. The euro has fallen and fallen hard, and our pessimistic view of EU political stalling is finally being reflected in the exchange rates. In addition to the headline fiscal issues plaguing the euro, data this week is likely to highlight the economic issues the eurozone is facing. Eurozone manufacturing and services data is likely to stoke prevailing fears of another eurozone recession on Thursday.

Sentiment towards the US economy improving

Away from the furore surrounding the EU Summit, US consumer sentiment data hit a six-month high on Friday, providing further indication that the slowdown we have seen across the Atlantic for much of this autumn may well just be temporary. Caution will persist however, particularly with US retail sales figures disappointing today.

The picture is gloomier here in the UK; employment (Wednesday) and retail sales data (Thursday) provides plenty of scope for some sterling negativity as the week progresses.

Sterling is trading impressively above €1.18, and the euro looks hard-pushed to rebound in the current low-confidence environment. Key options levels at $1.3250 on the EUR/USD pair have now given way and safer currencies such as sterling and the US dollar have made an excellent start to the week. We can expect there to be further volatility this week and it certainly won’t be one-way, but we do expect the current risk-off climate to favour safer currencies and punish the euro. Currently trading at $1.56, sterling has held up pretty well against the US dollar, but a heavy EUR/USD pair should limit any upward sterling moves.

End of week forecast:
GBP / EUR 1.1850
GBP / USD 1.5550
EUR / USD 1.3125
GBP / AUD 1.5450

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Caxton FX's Monthly Report: GBP/EUR, GBP/USD

2011-12-06T11:27:00.003Z

November was an extremely risk averse month as concerns intensified surrounding a global economic slowdown and in particular the worsening debt crisis in the eurozone. Former Greek PM Papandreou spooked the markets by calling a referendum on its latest bailout agreement (which he later cancelled and subsequently resigned from office). Berlusconi was also toppled; making way for a technocratic Italian government tasked with implementing the austerity measures and reforms necessary to bring their borrowing costs down from their current highs (a fresh euro-era record of almost 8% was set recently). Encouragingly, the new Italian PM has at least got the ball rolling with a €30bn austerity package, but the markets will reserve judgement until they see some results.

Bond yields throughout the eurozone (including German bunds, shockingly) have been on the rise and we have seen further debt downgrades as a result. These symptoms of debt contagion, taken in tandem with some ominous looking regional growth data, have seen risk appetite dry up and the euro has come under some intense pressure.

As far as sterling is concerned, an increasingly gloomy UK economic outlook and firm expectations of further quantitative easing are not weighing too badly. The strong safe haven appeal of UK gilts is triggering a steady inflow of investment into sterling, and the uncertain global outlook should see sterling well-supported against riskier currencies over coming weeks and months, though not against the safer US dollar.

Sterling/Euro

With sterling reaping the rewards of a quasi-haven status amid intensifying eurozone concerns, this pair has consolidated late October’s three cent spike up from €1.1350. Sterling reached an eight and a half month high against the euro in mid-November, and although the rate has dropped a little lower in the interim, we are still bullish on the prospects for this pair.

We saw further evidence of debt contagion in November, further downgrades, and fresh record high bond yields. Italy recently approached the 8.0% level on 10-year bond yields, a clear indicator that Germany needs to allow the ECB to be more active in the European bond market.

Growth data from the eurozone has been awful in recent weeks, and forward-looking data is pointing to what is likely to be a eurozone recession in coming months. Accordingly, we are likely to see another interest rate cut from the ECB on Thursday, which will bring the eurozone base rate down to 1.0% (probably euro-positive in the current environment). Further liquidity measures from the ECB are also likely as they seek to further ease the pressures being felt by European banks.

Progress has been made on the issue of the European Financial Stability Fund, which will be able to guarantee up to 30% of the bonds of struggling eurozone states but just how much its capacity will be expanded remains unknown. The International Monetary Fund’s involvement in addressing the region’s problems remains uncertain, recent news suggests that the IMF will lend to weaker nations through the ECB.

Eurozone finance ministers are targeting the EU summit this Friday (December 9th) to produce some sort of plan for ‘closer fiscal union.’ Merkel and Sarkozy have come up with a plan to enforce fiscal discipline in eurozone states, but whether this is accepted at the EU summit remains uncertain. The market has been repeatedly let down by these deadlines and we wouldn’t be surprised if EU leaders disappointed once again. The pressure on EU leaders to deliver has never been so great, particularly in light of Standard & Poor’s warning of a downgrade to fifteen eurozone states, including AAA rated France and Germany. This threat has seen risk appetite dry up somewhat and has put the euro on the back foot.

The UK economy is slowing down, unemployment is extremely high and growth figures are in decline. The Bank of England is likely to ramp up its quantitative easing programme in February next year as a result. However, sterling’s safe-haven status, via the appeal of the UK’s AAA-rated gilts, has come to the fore in recent weeks and we see this continuing to support sterling moving forward unless we do indeed head back into recession. For the next few weeks at least, UK government bonds should remain in demand.

It is very difficult to anticipate the ability of EU leaders to reach agreement on a long-term road to solving the debt crisis. Steps towards fiscal union does seem likely as the pressure heaps up, but eurozone finances will remain in trouble for a long time to come. On a very simplistic view, we continue to favour sterling over the euro based on the bet that progress on the debt problem will be slow and fears of economic meltdown will continue to impact on the single currency.

Sterling/US dollar

Sterling has found it tough going against the US dollar in the past month; falling stocks and rising eurozone bond yields have played into the hands of the safety of the greenback. EUR/USD fell ten cents from $1.42 in the four weeks since late October, and although we have seen a small bounce up to the current rate of $1.34, we remain bullish on the US dollar. This major downside move has therefore weighed on GBP/USD in recent weeks.

US debt came back into the headlines in November, with a Congressional ‘supercommittee’ unable to reach an agreement on how to reduce the government’s massive debt. This issue could very well come back to haunt the dollar next year, particularly if it results in further debt downgrades of US debt to follow Standard & Poor’s action in the summer. Still, for the next month this is unlikely to be a problem for the dollar and market focus is likely to remain on the eurozone.

US growth figures have picked up a little of late, and there have been one or two noises out of the Fed suggesting that the case for further quantitative easing may be weakening. Only time will tell here, Fed President Bernanke will not hesitate to add stimulus if the US economy takes another turn for the worse but again, the dollar looks safe for now and if anything, the outlook has improved a little.

Taking the shine off the dollar’s recent performance has been the positive news of coordinated liquidity measures from several global central banks. This has taken the pressure off Europe’s struggling banks. Judging by the rumours out of the eurozone and from Merkel and Sarkozy’s recent meeting, there are growing signs of progress but there will be no quick fix, regardless of what is announced at Friday’s EU Summit. As Standard & Poor’s recent threat of a blanket downgrade shows, there will be plenty more panic headlines to come. This should see the dollar remain on the front foot against sterling in the coming weeks and months.

End of month forecast:

GBP / EUR 1.1750
GBP / USD 1.5550
EUR / USD 1.32

Richard Driver
Analyst – Caxton FX

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

ECB rate cut could be positive for the euro

2011-12-05T17:21:00.002Z

There have been plenty of positive developments for the eurozone of late. The IMF looks increasingly likely to be a third line of defence and it has been agreed that the European Financial Stability Fund will be able to guarantee up to 30% of troubled eurozone state’s bonds.

Most importantly, six major central banks last week announced coordinated liquidity measures to take the pressure out of the global, and particularly the European banking system. The unified emergency response has given appetite for riskier assets such as the euro a real shot in the arm.

We have also seen some progress in Italy, with new PM Mario Monti announcing a fresh 30bn austerity package, which should serve to appease the markets for the time being.

All eyes now turn to the Thursday’s monthly interest rate decision from the European Central Bank. A higher interest rate is typically positive for a currency and a rate cut a distinct negative. However, circumstances in the eurozone are anything but normal and a second consecutive monthly rate cut to the ECB’s base rate (currently 1.25%) could well be taken as sign that EU officials understand the gravity of the region’s problems and are acting proactively and assertively. Other liquidity measures are also likely to be announced by ECB President Draghi.

Friday brings a key EU Summit which has been hyped as ‘make or break.’ This is a bit overdone but there are plenty of signs that we will see some decisions made on fiscal union amongst eurozone states. Headlines today reveal that Merkel and Sarkozy have reached an accord on eurozone budgets and potential sanctions. The markets have been disappointed before and whilst investors are likely to hope for the best while the positive headlines flow, but many will be preparing for the worst.

Conditions in the US improve but not so for the UK

US economic figures have broadly taken a turn for the better in the past fortnight, suggesting the US economy can have a stronger 2012 than has recently been indicated. This has added to the improved sentiment in the market in recent sessions.

UK data has been less impressive; November’s UK construction and manufacturing figures revealed a further slowdown and have done little for the prospects of final quarter growth. Services sector growth enjoyed a minor uptick but levels are well off what we were seeing earlier in the year.

George Osborne was very negative indeed about the prospects for the UK economy in his Autumn Statement. The Bank of England will be sitting on the sidelines until February as far as more quantitative easing is concerned, so we will just have to hope that activity picks up in the next few months.

Sterling is trading at €1.1650, off its recent highs above €1.17 in light of an upturn in global risk appetite. Against the US dollar, sterling is trading more robustly up at $1.57, having bounced of lows of $1.54 in late November. We don’t see any major moves in the GBP/EUR pair this week but we may see EUR/USD continue to head higher as equities recover. This should keep GBP/USD well-supported, regardless of the growing concerns surrounding the UK economy.

End of week forecast
GBP / EUR 1.16
GBP / USD 1.5750
EUR / USD 1.36
GBP / AUD 1.50

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Bank of England unanimous on holding off further QE...for now

2011-11-23T15:50:00.002Z

Today saw the Bank of England release minutes from the most recent Monetary Policy Committee (MPC) meeting, revealing a unanimous vote to leave the current programme of quantitative easing unchanged at €275bn.

This was largely expected; the minutes just confirmed that the MPC is happy to adopt a wait-and-see approach to the effects of October’s increase in quantitative easing (QE) on UK growth and inflation.
I wouldn’t have been surprised to see Adam Posen press for additional QE but on this occasion he was in line with his fellow MPC colleagues.

Nonetheless, the MPC noted that the risks of a major eurozone financial collapse is greater than ever, which clearly favours the introduction of further QE down the line.

While inflation dropped fairly sharply in October, Caxton FX expects that the MPC will want to see inflation continue to decline in the coming months before adding further stimulus.

October’s asset-purchases would have run their course by February 2012 but if we see UK inflation continue to drop - as the Bank of England expects it to - and UK growth continues to struggle, which is more than likely, then February seems a strong bet for the next round of QE.

If the Bank ramps up QE next year, thankfully sterling shouldn’t suffer too much when it does come as QE expectations have already made their mark on the pound.

The GBP/EUR rate is looking healthier today, not based on the MPC’s minutes however, but largely due to some awful industrial orders data out of the eurozone.

We feel it’s only a matter of time before the eurozone debt crisis and the imminent eurozone recession sends sterling up above €1.20.

Richard Driver
Senior Analyst – Caxton FX
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Weekly Round-Up and end of week forecast

2011-11-21T16:27:00.002Z

European bond yields in focus

Eurozone bond yields have very much come into focus in recent weeks. Italian 10-year debt climbed above the 7% mark, considered the level at which borrowing costs become unsustainable. Spanish debt is also coming under major pressure despite a strong election victory by the conservative Populist Party. There has been little good news to come out of the eurozone in recent weeks; a Greek referendum was avoided and Berlusconi’s resignation was finally tendered, but too much uncertainty surrounds the future of the eurozone for the single currency to truly benefit.

The eurozone economy is almost certainly headed for a recession, though the UK economy is also looking very vulnerable to contraction. The euro has sold off badly in recent weeks as a result, falling almost eight cents from the $1.42 level we saw in late October, and sterling has gained three cents from late October lows close to €1.13.

As well as soaring Italian and Spanish bond yields, and the alarming impact they are having on core eurozone bond yields such as France and Austria, the issue of what role the ECB is to play in a long-term plan to deal with debt crisis remains contentious. The Greek situation also remains unresolved, they still need to persuade IMF and EU chiefs to release their next instalment of aid under last year’s bailout agreement, and the second bailout agreement still needs approval. For these reasons and many more besides, the euro is struggling and we view the risks to be firmly skewed to the downside.

US debt concerns return to weigh on risk appetite further

After the panic we saw in the summer surrounding the raising of the US debt ceiling and the 11th hour agreement between the Republicans and the Democrats on cutting the America’s enormous pile of debt, the US fiscal story is back in the headlines. The ‘supercommittee’ given the task to come up with a plan on how to reduce US debt looks highly likely to announce a failure to agree later today.

At the moment, the nervousness caused by the US debt issue is benefiting the dollar significantly. However, if other credit rating agencies follow Standard & Poor’s August removal of America’s AAA credit rating, the dollar really should stand to face some pressure in the longer-term. Spending cuts will need to be agreed and implemented to appease the rating agencies and in turn the market.

Sterling remains fairly resilient to poor UK data

News from the UK economy was negative last week; domestic inflation weakened and unemployment soared in October and the Bank of England has slashed UK growth prospects for next year. It is now a case of “when” not “if” the MPC decide on further quantitative easing. Wednesday’s MPC minutes will be watched closely for this key issue, but early next year seems most likely. Nonetheless, this has been priced in to some extent.

After a very tough start to the week, sterling is trading down at 1.16 against the euro. We still hold the view that safe-haven UK gilt-buying will push the GBP/EUR pair higher towards €1.20 as we close out the year. Against the dollar we are less optimistic; a gloomy outlook for the debt situation in the US and the EU, as well as an ongoing slowdown in growth across the globe should see risk averse trades continue to benefit the US dollar.

End of week forecast:
GBP / EUR 1.17
GBP / USD 1.57
EUR / USD 1.34
GBP / AUD 1.60

Richard Driver
Senior Analyst – Caxton FX

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Positive UK retail sales provides little relief against a gloomy outlook

2011-11-17T15:24:00.001Z

Data this morning showed that UK retail sales rallied in October by 0.6%, despite a bleak overall picture of the UK economy. The result was a real surprise; market expectations were of a 0.2% contraction.

Today’s data is certainly a positive; retail sales are a very important economic indicator and 0.6% growth is a strong showing indeed. With consumer inflation up at 5.0% and a consumer confidence survey last night hitting new record lows, the market was certainly caught off guard. The figure can be attributed as the result of consumers trying to get ahead, utilising some unusually early Christmas promotions and discounts.

However, the market will remain sceptical. The figure doesn’t really change the overall picture of the UK economy. It probably says more about UK retailer’s desperation than it does about improvements in household balance sheets and spending power. The market will take a great deal more convincing that the UK economy is not heading for tougher times. The chances are we will see retail sales figures fall off later on in the quarter.

Sterling’s response has been pretty limited. Sterling tried to rally on the back of the retail sales figure, but gains were short-lived. The market has accepted that it is a matter of when, not if, we will see a further expansion of the Bank of England’s quantitative easing programme. In this context, where interest rate hikes are off the table, sterling looks hard-pushed to make significant gains off rogue growth figures. External factors in the eurozone are providing much more direction in the exchange rates than economic data at present. Data may not boost the pound but heightened global economic concerns will do.

So, whilst the UK economy is looking its weakest in a long-time, the prospects for the pound are looking their rosiest in a long-time. The pound’s quasi safe-haven appeal, due to the popularity of UK gilts, is pushing it higher against most currencies other than the yen and US dollar and looks likely to continue benefiting from the prevailing risk-off environment.

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Sterling finding it a little tougher amid poor UK data

2011-11-16T17:11:00.001Z

UK data is coming back to haunt the pound. The debt crisis has taken the edge off market responses to UK data in recent months and this week has been no different. Still, sterling has come off an eighth-month high against the euro and a nine-week high against the US dollar.

Today’s UK labour market figures revealed that the domestic unemployment rate rose to a 15-year high last month. The Quarterly Inflation Report from the Bank of England has also cut UK growth prospects, indicating that there will be little to no expansion in the first half of 2012. Further quantitative easing looks likely then, which represents a downside risk to sterling.

Tomorrow’s session could also be a tricky one for sterling, with UK retail sales for October likely to show negative growth. The UK economy is in dire straits, there is no doubt about it. Without economic growth we will struggle to maintain the market’s, and the rating agencies’ faith that we have a handle on our debt situation. Then the UK will come under pressure just as core economies such as France and Austria have this week.

Nonetheless, there is no growth in the eurozone and little in the US. The debt situation is weighing on sentiment and activity across the globe, so the UK isn’t alone in its predicament and at least we are borrowing cheaply, for now.

We see sterling struggling against the US dollar, based on continuing appetite for safe-haven assets. Likewise we should see sterling push for fresh multi-month highs against the euro before long, but his may have to wait until next week.

Richard Driver
Senior Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Greek indecision will surely weigh on the euro through November

2011-11-03T15:49:00.002Z

With hopes raised for a long-term strategy to deal with the eurozone debt crisis, October saw the euro rebound strongly from its late summer decline. Merkel and Sarkozy pledged action and to some extent delivered at last week’s EU Summit. Three major issues were addressed; the European banking sector is to be firmed up with a €110bn recapitalisation, the eurozone bailout fund (the EFSF) is to be expanded by almost five times to around €1trn, and it was agreed that there would be a 50% haircut on Greek bond holdings. The euphoria surrounding the progress has come down with a crash, with Greek Prime Minister Papandreou announcing a referendum on Greece’s recent bailout deal. There is a constant flurry of headlines out of Greece at present, and the latest suggest that the referendum may now be avoided. Regardless, with so much uncertainty surrounding Greece’s government, a messy Greek default remains a distinct possibility and has been reflected in a euro decline.

Heightened uncertainty has seen safe haven assets such as the US dollar come back into favour. We have seen the euro bounce back from much lower levels than the ones we are seeing at present, but the probable delay to progress caused by Greek politics may well see risk appetite hemmed in for at least this month. Sterling and the dollar have plenty of factors weighing on them, but in the current climate of financial market turbulence and global economic slowdown, the current task of the market is to find the ‘least unattractive’ options.

Sterling/Euro

Third quarter UK growth came in at 0.5% on Tuesday; an encouraging showing on the surface but the market was more concerned with an awful UK manufacturing figure for October (the lowest since July 2009). With the UK services sector also slowing down alarmingly in October, the UK economy looks highly likely to suffer a slowdown in the final quarter of this year and a dip back into recession looks to be very much on the cards. This is likely to see the Monetary Policy Committee step up its quantitative easing programme, which was only recently increased in October. We are currently looking for yet more QE early in 2012, which will no doubt dampen sterling’s appeal in the longer-term should it come to fruition.

However, the euro is facing even graver issues. Just when market confidence had returned following some major decisions at the last EU summit, the Greek issue has returned to jeopardise all the progress that was made. The prospect of waiting several weeks for a Greek election or a referendum (as yet it’s unclear which one, if either), which could conceivably produce the outcome of a Greek euro-area exit and disorderly default, has seen risky assets such as the euro plummet once again. It is a dangerous game to base exchange rate predictions upon knife-edge political votes. Fortunately this won’t be necessary just yet as any vote, be it an election or a referendum, will not come this month.

This pair has made another attempt at the €1.17 mark this week but was rejected. Any foray too far away from the €1.15 level is proving to be fairly fleeting, and we are now trading a cent lower. The euro has also come under some selling pressure as a result of a 0.25% ECB interest rate cut, which reduced the euro’s return differential. However, once the dust settles on this surprise move, it may be seen as a wise and assertive move to help deal with the eurozone’s economic problems.

Assuming risk appetite remains hemmed in this month as a result of the ongoing Greek tragedy and safe-haven demand for UK gilts remains elevated, the euro looks hard-pushed to sustain much of a rebound. Headlines and developments out of Greece will be crucial but the weeks ahead should see the GBP/EUR rate trade predominantly in the €1.15-1.17 range, with a chance of a climb even higher.

Sterling/US Dollar

Last month’s dollar rally proved something of a false dawn. The dollar was unable to sustain its move down to the low $1.50s due to some positive headlines out of last week’s EU Summit and the resulting recovery in global stock indices. Still, the prospects for the dollar look positive for the coming month, in light of the huge uncertainties surrounding Greece’s political and fiscal situation, as well as ongoing declines in global economic data.

US Federal Reserve Chairman Ben Bernanke has asserted that overall growth strengthened in the US over the third quarter, but as usual he emphasised the “downside risks” moving forward and downgraded his growth forecasts. In particular, he was bearish on the outlook for the US labour market over the next two years. It is looking less a case of if, but when the Fed pulls the trigger on QE3. Nonetheless, we are probably looking at Q1 2012 at the earliest, which should not impact too much on the dollar’s performance this month.

The EUR/USD pairing will as ever provide much of this pair’s direction. Our bet is that the dollar will outperform the euro this month, which is likely to prevent GBP/USD making any sustained moves north of the $1.60 mark.

Caxton FX one month forecast:

GBP / EUR 1.17

GBP / USD 1.58

EUR / USD 1.35

Richard Driver
Senior Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Euro Panic: Greek default back on the table

2011-11-01T15:33:00.003Z

EU Summit made progress but Greece drops a bombshell

The European debt crisis has dominated market sentiment over the past few weeks but last week saw some progress made. The EFSF (bailout fund) is to be leveraged and expanded by almost five times (to €1trn).There is to be a €110bn recapitalisation of Europe’s banks, and there is to be a 50% haircut on Greek bond holdings. The market received the plan positively but confidence has since waned and the euro’s gains have been reversed. There remain major question marks, such as how the fund will be leveraged, and how EU leaders intend to get eurozone growth back on track.

But most alarmingly, the Greek situation has hit the headlines once again, with Greek PM George Papandreou allowing a referendum on last week’s €130bn bailout package. This is a real revelation and the prospect of a messy Greek default is very much back on the table now. The euro has given away over five cents to the dollar this week already, mirroring sharp losses in global stock markets. In addition, Italian bond yields are consistently hitting fresh euro-era highs.

The market awaits clues as to central bank monetary policy

Also in focus this week are monetary policy decisions from the US Federal Reserve and the European Central Bank. The Fed looks unlikely to announce QE3 at its meeting this Wednesday. Particularly on the back of last week’s stronger than expected GDP figure, which showed the US economy grew at an annualised rate of 2.50% in Q3 2011. Forward looking US data is nonetheless pointing towards a slowdown, and the market remains hopeful for another round of QE from the Fed. First quarter 2012 remains a decent bet, which is likely to weigh on the US dollar in the long-term.

The European Central Bank will meet on Thursday, which will be Mario Draghi’s first as President of the central bank. There is a chance of an interest rate cut but our bet is that with inflation at 3.0%, we may have to wait at least a month for the ECB to loosen monetary policy. The real driver of the euro is likely to be how the Greek crisis progresses from its latest negative turn.

Q3 UK GDP impresses but the market wasn’t fooled

Estimated UK growth data for the third quarter was 0.5%, above expectations and well above Q2’s 0.1% figure. Sterling has failed to rally however, as the simultaneous release of October’s manufacturing PMI growth pointed to a very gloomy Q4 performance. The figure was the worst in over two years and triggered major concerns about another UK recession and further QE from the MPC.

Sterling is trading just above €1.1650 today, which is close to a three-month high. This week looks set to be a tough one for the single currency, and although there are downside risks posed by this week’s UK services and construction growth figures, GBP/EUR may continue to trade strongly this week. In line with renewed Greek concerns and plummeting global stocks, we are likely to see the safe-haven dollar outperform both the euro and the pound in coming sessions. Friday’s US Non-Farm payroll figure could well reveal further fault lines in the US recovery and intensify risk averse trades. Major headlines out of the eurozone, as ever, will trump fundamental data, but these are proving more unpredictable than ever.

As ever, views are very welcome!

Richard Driver

Analyst – Caxton FX

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

EU leaders sidestep eurozone growth issue

2011-10-28T16:58:00.002+01:00

So the euro has made some monster gains this month, first as a result of hopes and speculation of major action on some key eurozone debt issues, which were then built upon when EU leaders finally delivered the goods. Bailout fund enlargement, recapitalisation, Greek haircuts – some major decisions were made (though a whole world of detail remains yet to be negotiated). But what about another key issue that was cited as a priority in the build up to the EU Summit- eurozone growth.

Weak growth is plaguing the eurozone periphery; the austerity programmes in countries like Greece, Spain, and the ones that will soon be implemented in Italy are strangling any sort of economic expansion. Perhaps even more alarmingly, growth in the core nations of France and Germany has also slowed down considerably, leaving a dip back into a full eurozone recession a strong possibility.

Without plans for economic growth, the peripheral states will be unable to meet their austerity targets, and again they will come under heightened pressure in the bond markets. One way EU officials can help eurozone growth is through cutting interest rates. The ECB has been looking to hike throughout 2011, the eurozone base rate has risen from 1.00% to 1.50% to curb rising inflation. This has triggered gains in the strength of the single currency which has hurt the periphery further.

Incoming ECB President Mario Draghi will be chairing his first meeting next week, with Trichet having finished his tenure this month. It is not beyond the realms of possibility that he will respond to the downturn in regional growth by cutting interest rates and relieving some pressure. With inflation up at 3.0%, the ECB may be wary, and recent data actually showed that money supply growth accelerated in September. The markets are anticipating a 0.25% rate cut by the end of the year. Perhaps the periphery will have to wait until December for some respite.

The growth issue will come up again and again in coming months and years. It was clearly sidestepped at Wednesday’s EU summit, but the markets will force EU leaders to revisit it.

Richard Driver
Analyst – Caxton FX

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

EU deal sends the euro soaring

2011-10-27T16:46:00.001+01:00

The euro is going from strength to strength today in the aftermath of yesterday’s EU Summit package. Have EU leaders solved the problem? No, not by a long way but they exceeded expectations and the market has welcomed it with open arms. US and European equities are booming (the FTSE is over 2.5% up), as are riskier currencies such as the aussie dollar and the euro.

Decisions have been made on all three of the key issues of contention -bank recapitalisation, Greece’s debt burden, and the eurozone bailout fund. European banks will benefit from around €100bn worth of recapitalisation, in order to deal with losses stemming from Greece. On the Greek debt issue, a 50% haircut has been agreed. With regard to the bailout fund (the EFSF); it is to be expanded by almost five times next month (to around €1trn).

There were rumours of a lack of progress and delayed decisions throughout yesterday, so these plans have triggered a wave of positive trading throughout the financial markets. Concerns surrounding the various holes in the plans (How will the EFSF be leveraged? Are the haircuts really voluntary? What about eurozone growth?) have been put on the backburner for now but will undoubtedly resurface. There is plenty of negotiation ahead, which means plenty more disagreement and plenty more alarm bells. Italy remains very vulnerable in the debt markets and it still remains to be seen whether the decision to write down Greece’s debt will succeed in putting the country on a sustainable footing.

If the euro is to kick on further from here, the trigger is likely to come from outside. One method of expanding the EFSF is through external investment from countries like China or Brazil. It is no secret that Asian sovereigns are eager to diversify away from the dollar and into the euro, so such investment would make sense. It is not beyond EU leaders to fail to implement this plan, or for the deal to collapse altogether. The risk is there, but you have to say the recent deal certainly brightens the prospects of the euro in the longer-term.

Richard Driver
Analyst – Caxton FX

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So how will the market respond to today’s eurozone plans?

2011-10-26T09:29:00.002+01:00

Today’s EU Summit will be covering a range of issues, top of the list are the recapitalisation of Europe’s banks, the expansion of the EFSF (bailout fund) and the haircuts to be imposed on Greek debt. The meeting has been the sole focus of the market for the past fortnight.

There was already disappointing news yesterday that a meeting between EU finance ministers scheduled today has been cancelled due to a lack of agreement, though the main meeting between EU leaders is set to go ahead. Expectations for progress have been heightened; market confidence in EU leadership remains palpably lifted it seems. Though all the tell-tale signs of delay and disagreement point to the strong possibility of a fudged and inadequate compromise being delivered today.

It would be surprising if the EU Summit failed to deliver something that represented a decent attempt at “comprehensive package.” Many will be betting that the euro stands to benefit from any signs of genuine progress on the eurozone’s severe economic and fiscal woes. However, we are betting that the euro will suffer a slide. First, there is a strong chance that the package could fail to meet market expectations. Second, the package could be impressive, but the market may well take “buy the rumour, sell the fact” approach and choose to take profit on the euro’s gains this month.

We know one thing for sure, today’s EU Summit will leave plenty of details to be ironed out, plenty of obstacles to be overcome, and plenty of issues unresolved. These are factors that could see the euro sell-off in the immediate aftermath of tomorrow’s Summit, or alternatively once the dust settles. Either way, the euro looks a little strong at €1.15 and $1.39 and we are looking for a downward correction for the euro.

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

MPC Minutes show unanimous vote for quantitative easing

2011-10-19T15:26:00.001+01:00

This morning’s release of the minutes from the MPC’s meeting in early October reveals that all nine policymakers voted in favour of further quantitative easing. The MPC settled on £75bn extra asset-purchases, bringing the programme up to £275bn.
Quantitative easing involves printing money and pumping it into the economy. This increases the supply of a currency and historically weakens its demand.

There is a positive to have surfaced from the today’s MPC minutes. The market will value the fact that the MPC is showing a united front on the issue of QE; the policymakers appear clear that QE is absolutely necessary in order to safeguard the UK economy.

The minutes show that fears for the UK’s economic outlook have risen significantly in recent months. Data out of the UK this month has not actually been too bad; the manufacturing and services sector growth figures for September were significantly better than expected. However, concerns that forward-looking data suggests a further slowdown are prevailing. There are signs that concrete progress on the eurozone debt crisis will be made this weekend, but there will be no magic wand solution and the UK remains vulnerable to financial tensions in Europe. These are the two key concerns for the MPC.

Amid the context of weak growth and global financial turmoil, the QE call from the MPC was the right one. The fact that £100bn worth of asset-purchases was debated at the last MPC meeting suggests that there is plenty of scope for yet more quantitative easing here in the UK. The BoE’s last quarterly inflation report gave a glowing assessment of the boost the last round of QE gave to UK GDP, so more asset-purchases early next year would not be a surprise. The minutes clearly show that the MPC will be constantly reviewing the size of the asset-purchase programme in line with developments at both home and abroad.

One major issue is that of soaring UK inflation, which quantitative easing could well exacerbate. Data this week showed that UK headline inflation hit 5.2% in September, which represents a three year high. The BoE is convinced the figure will come back down to 2.0% next year due to weaker growth. However, if inflation persists at these sorts of levels, the MPC may delay its decision to introduce yet more asset-purchases. Such high inflation combined with such weak growth also highlights the threat of stagflation in the UK.

Sterling suffered a knee-jerk slide on the news that the MPC voted unanimously for QE, but losses were quickly recouped against both the euro and the dollar. The minutes really just confirmed the market’s strong suspicions that the MPC acted assertively on QE and is happy to do so again if conditions dictate. Sterling is likely to struggle to gain any real favour until economic growth picks up. External factors, particularly events in the eurozone, are likely to determine whether sterling can climb.

Richard Driver

Currency Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Weekly Round-up: Hopes high for a final solution but market may be overexcited

2011-10-17T15:56:00.001+01:00

The eurozone picture continues to brighten

Risk appetite returned with a vengeance last week. Global stocks rallied, and much of the dollar strength we have seen in recent weeks has been unwound. The key driver behind this is the heightened optimism surrounding the eurozone situation.

First, Merkel and Sarkozy promised to deliver a comprehensive plan to deal with the various fiscal and economic problems that have surfaced in the region. The weekend’s G20 meeting has produced a one week deadline to provide the package, which will deal with key issues such bank recapitalisation in Europe, Greece’s debt situation, eurozone growth and the region’s rescue fund. The market has been waiting for months for such an attempt at a long-term solution to the debt crisis, and sentiment has turned quite sharply positive in anticipation.

Greece’s second bailout deal, struck in July, allowed for a 21% haircut on the troubled nation’s debt. Germany’s finance minister has recently recommended that greater write downs be implemented, in order for Greece to be set upon a sustainable recovery. The haircuts could well head towards 50%, which demonstrates that there is still plenty of scope for sentiment to weaken in the near-term. Such a large-scale plan is highly unlikely to please everyone, the content and the extent to which it satisfies market players remains to be seen.

The German finance minister has today taken the edge off the euro’s climb, warning that this weekend’s summit would not come up with a “definitive solution” to the region’s crisis. Merkel’s spokesman has added that dreams of some sort of final solution are “unrealistic.” The commitment to decisive action has taken the euro a long way in the past fortnight, but these comments serve as a reminder that market optimism may be slightly overdone.

The week ahead brings some important German and eurozone economic sentiment figures, but as this morning has shown, really the focus is more likely to be upon unscheduled comments from EU officials.

The pound and dollar on the back foot

The dollar has come way off its highs in the past fortnight. Stronger US stocks invariably weaken the dollar and this has held true. The S&P 500 climbed by almost 6.0% last week. Some improved US retail sales figures have also contributed to improved confidence levels. Any major figure which suggests the world’s largest economy may avoid another recession will see funds redirected from the greenback.

Sterling’s status as a ‘safer’ currency, though far from a safe-haven, has seen it struggle in recent sessions. Concerns surrounding further UK quantitative easing have also weighed, but the pound’s decline has more to do with greater global risk appetite. The one positive for the pound though is that the extreme dollar to euro flows have seen GBP/USD climb almost five cents off its early-October lows.

Sterling is trading at €1.1450 today, and at 1.5750 against the US dollar. The euro/dollar pairing has retreated from this morning’s $1.39 high to trade a cent and a half lower. Another attempt at $1.40 looks likely to be made this week however, which should drag GBP/USD higher, and weigh on the GBP/EUR pairing.

End of week forecast
GBP / EUR 1.1375
GBP / USD 1.58
EUR / USD 1.3975
GBP / AUD 1.5250

Richard Driver
Senior Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Monthly Swedish Krona Report: Risk appetite returns

2011-10-13T16:59:00.001+01:00

September was another month of low market confidence and risk averse trading. The worsening state of the European banking system, as a result of a continued lack of progress on the eurozone debt crisis, saw investors flooding out of higher-yielding currencies into safe-haven currencies. Concerns over global growth have also been very prominent in recent weeks, with increased speculation of a plunge back into recession for the eurozone, the US and the UK.

However, there have in recent sessions been some signs of progress in the eurozone however, which has been positive for risk appetite. Merkel and Sarkozy have ‘committed’ to providing a comprehensive plan to deal with the Greek issue, the recapitalisation of Europe’s banks, and poor growth in the eurozone. At present this just represents rhetoric and yet another promise, but it has been received enthusiastically by the market. The two EU leaders have set themselves a deadline of November 3rd. In addition, the eurozone bailout reform looks almost certain to be fully ratified by Slovakia, the last member state to accept the fund’s expanded powers.

The performance of the Swedish Krona is being dictated more than ever by international developments than by domestic issues. Accordingly, improved market confidence has helped the krona to recoup some decent ground in the past week or so, after spending September very much on the back foot.

EUR/SEK
The euro benefited from the ECB’s decision not to cut its 1.50% base rate in early October. Speculation was rife that the ECB would lend the ailing periphery a hand, particularly in light of an economic slowdown in the eurozone’s core nations, so the interest rate hold represented a relief. The Riksbank also decided to hold interest rates at 2.0%, which was in line with expectations. Growth has slowed down significantly in Sweden and inflationary pressures are subsiding; the Riksbank has recently confirmed that “the financial crisis has probably lowered the growth rate of potential GDP.”

In line with the Swedish krona’s riskier profile, this pair posted fresh 2011 highs up above 9.35 in late September as fears grew of a messy Greek default and a Lehman’s style fallout. These krona losses have since been corrected and this pair is actually trading flat on the month. Optimism surrounding the chances of some genuine and concrete action in Europe is prevailing at present and it certainly brightens the krona’s prospects.

In addition and importantly, the Troika (the ECB, IMF and EU) has indicated that Greece will receive its next emergency loan in November. Granting further aid to what many believe is a ‘lost cause’ may sound like madness, but the market is inherently concerned with the short-term. This next Greek aid tranche allows EU officials the time to avoid a near-term Greek default and to work on a credible long-term solution.

The market has certainly enjoyed some positive stories of late and risk appetite has clearly returned to favour the krona, but there will undoubtedly be some stumbling blocks to come with regard to eurozone progress (as demonstrated by Slovakia’s recent ‘no’ vote on the bailout fund reforms). Positive sentiment has taken this pair down to 9.16 and the coming weeks look likely to help the krona maintain these levels, though 9.10 will probably provide some fairly stiff support on the downside.

USD/SEK
The dollar performed excellently in September, benefitting from plummeting global stocks and the associated heightened demand for safe-haven assets. The dollar found even more favour because of ongoing issues surrounding the two other haven currencies; the swiss franc is suffering from currency intervention by the Swiss National Bank and threat of similar action surrounds the yen.

However, market confidence is on the up at present and the dollar strength that characterised September has been largely unwound. Still, the greenback will be the key beneficiary of any alarm bells that do emerge out of the eurozone.

The US dollar remains vulnerable to domestic events. At its meeting last month, the US Federal Reserve decided against introducing a third programme of quantitative easing (QE3). Instead, it introduced Operation Twist, in which it sells short-term bonds and buys long-term bonds. The market was noticeably unimpressed but hopes for QE3 remain very much on the table. Should the Fed decide to add further stimulus to the US economy, global stocks would spike and the dollar would suffer a further downward correction on top of what we have seen in recent sessions. We are betting that the QE3 measure will be saved by the Fed for the worst case scenario (another US recession). Consequently, we don’t see this downside risk event occurring in coming weeks, but it is still likely to weigh on investors’ minds.

The USD/SEK rate hit a 9-month high of almost 7.00 in early October, but this climb has been erased and the rate is back down below 6.70. Continued improvements in investor confidence levels may see the rate head down towards 6.50, but dollar losses beyond this look to be a bridge too far.

GBP/SEK
Sterling has suffered as a result of the Bank of England deciding to introduce additional quantitative easing. The MPC voted to increase asset-purchases by £75bn and predictably, sterling has come under severe pressure. Economic data from the UK has been poor of late; indeed the revised second quarterly figure for UK GDP was halved to a paltry 0.1%. It is an equally gloomy outlook for the third and fourth quarter GDP figures, combined with downside risks to inflation and an increasingly dovish-sounding MPC, which makes yet more quantitative easing a real possibility.

Again, the performance of this pair in the coming weeks is very much dependent on how risk appetite pans out. The current rate stands at 10.50, but the recent good news stories of action and commitment in the eurozone should see the krona hang on to its impressive recent gains. That said, sterling’s slide looks a little overdone and further downside too far below 10.50 should be capped.

NOK/SEK
This pair has remained range-bound between 1.16 and 1.19 levels for the past four months or so now, excluding a brief spike to 1.20 in early September as a result of panic related to the Swiss National Bank’s intervention. On a fundamental economic basis, the Norwegian krone shades its Swedish counterpart but there really is very little to choose between these two currencies at present.

The Norges Bank Iooks highly likely to leave interest rates on hold at 2.25% until the middle of next year and the Riksbank will be unwilling to resume hiking until the financial uncertainty in the eurozone has subsided. One major factor limiting the NOK’s upside is that he Norges Bank has made it quite clear that it will not allow the currency to strengthen significantly and is willing to cut interest rates to buffer against this.

This pair is currently trading around the 1.18 mark and it is highly likely that we will see it continue to fluctuate within the 1.16-1.19 range for the next few months.

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Merkozy to the rescue...euro enjoys strong start to the week

2011-10-10T16:19:00.002+01:00

Bank of England introduce QE3
The Bank of England decided to introduce further quantitative easing last Thursday. Another £75 billion of asset-purchases were announced in order to boost the UK’s struggling economy and safeguard it from potential shockwaves that may come as a result of financial stresses in the eurozone. Sterling dropped sharply across the board but losses were soon reversed. The market was confident that the measure would be adopted in coming months so there were no great surprises, though the size of the programme was slightly above consensus. The noises out of the MPC suggest that there is scope for further monetary stimulus in the UK, given the long-term downside risks to UK growth and inflation.

The recent sector-by-sector growth figures were actually reasonably encouraging; contrary to expectations of a slowdown, we saw expansion in the manufacturing and key services sectors accelerate, though the construction sector now only teeters above negative territory. In truth, it is going to be events outside the UK that determines sterling’s performance in coming months.

Merkel and Sarkozy ‘commit’ to action in three weeks
The euro has started this week very strongly, gaining two and a half cents against the dollar and over a cent against the pound. Merkel and Sarkozy have announced that they are going to take action to recapitalise Europe’s banks, settle the Greek issue and improve economic growth in the eurozone. There was no reiteration of the “Greece cannot fail” pledge of a fortnight ago, which perhaps shows that EU leaders have come to accept the need for Greek debt to be restructured (which will involve significant haircuts). Certainly the recapitalisation of Europe’s bank looks to be a prelude to a write down of Greek debt.

The news has been taken positively, with ‘Merkozy’ setting a November 3rd deadline at which they intend to deliver a comprehensive plan. The market has been disappointed time and again by missed deadlines, but the euro has rallied regardless. The single currency was also given a boost by the absence of a cut to the eurozone interest rate at last week’s ECB meeting.

With regards to the approval of changes to the bailout fund, only two countries are yet to ratify; Slovakia and Malta. There is a significant risk of a disappointment from the former nation, where the vote is finely balanced.

US non-farms help to boost risk appetite
Last week’s monthly US non-farm payroll figure posted twice as many new jobs than expected. This, combined with optimism with regard to the eurozone debt situation, has improved market confidence and boosted riskier assets. Accordingly, safe-haven assets such as the US dollar have weakened. The euro has reversed some significant losses to the dollar and the GBP/USD rate has bounced with it.

Sterling is trading below €1.15 this afternoon, whilst it is back up towards 1.57 against the US dollar. The EUR/USD pairing looks hard-pushed to make significant gains beyond its current $1.3650 level, which is likely to cap further gains for GBP/USD. Sterling looks oversold at 1.1460 against the euro, but with the optimism surrounding the euro today, we may have to look beyond this week for a bounce.

End of week forecast
GBP / EUR 1.1450
GBP / USD 1.57
EUR / USD 1.37
GBP / AUD 1.55

Senior Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Monthly Report: US dollar goes from strength to strength

2011-10-06T13:53:00.001+01:00

September failed to bring the bounce in global investor confidence and risk appetite that we were anticipating. We have a revised our longer-term forecast for euro strength and dollar weakness due to a sharp deterioration of the global financial environment. Market fears have gone from bad to worse in recent weeks; faith in eurozone officials’ ability to make any real progress on the debt issue is waning and economic data is pointing evermore towards a global economic slowdown. As a result, the equity markets have consolidated early August’s sharp sell-off and the dollar has strengthened significantly. The outlook has probably not looked this gloomy since the last global recession, which favours safe-haven assets considerably.

Perpetual weakness in the US economy, Standard & Poor’s downgrade of US debt and the certainty of ultra-loose Fed monetary policy for the foreseeable future has failed to hold the US dollar back. More pressing global matters have ensured major dollar gains. Added to this, the Swiss National Bank has intervened in the strength of the swiss franc, and the Bank of Japan has been posturing for a similar move, leaving the greenback as the safe haven currency of choice. Sterling is suffering against the dollar accordingly, but has made gains against riskier currencies such as the euro and the commodity currencies.

The euro has really suffered a downward correction over the past five weeks. A Greek default looks inevitable, the European banking system looks vulnerable to a major crisis and a concrete plan to ensure Italy and Spain are not sucked into the eurozone’s bailout cycle remains elusive. On top of this, eurozone growth has slowed to such an extent that a rate cut from the ECB looks is looking increasingly likely at coming meetings.

GBP/EUR

On its own merits, sterling remains an unappealing currency. This is unlikely to change any time soon; economic growth is only teetering above negative territory, which has caused investors to scale back Bank of England interest rate bets to 2013. Indeed, far from tightening monetary policy, the Monetary Policy Committee has pulled the trigger on further quantitative easing (QE2). £75bn in extra asset purchases has been announced in order to boost the UK economy and safeguard it from heightened volatility in the financial markets.

Nonetheless, the eurozone is suffering a comparable slowdown to that of the UK and although the ECB held interest rates at 1.50% this month, there is still a very significant risk of a rate cut in 2011. The debt crisis is clearly impacting activity in the region, as shown by two consecutive months of contraction in the eurozone’s services sector.

Importantly, the UK has maintained its AAA credit rating and is being seen to be ‘doing the right thing’ with regard to reducing its debt. Debt concerns have surrounded the euro all year, with Portugal, Ireland and Greece (for the second time) all seeking aid. However, concerns have reached such heights that the euro has finally borne the brunt of the market’s frustration. There is now a near certainty of some form of Greek default and growing speculation that private investors are going to have to accept a substantial hair cut on their Greek holdings. This has seen the EUR/USD pair decline by over twelve cents from late August’s rate of $1.45.

A key factor weighing on the euro is the inability of EU officials to convince the market that they have any genuine handle on the debt crisis consuming other, larger eurozone states such as Spain and Italy. There is quite clearly lack of any real consensus on any long-term solution, which has brought about the realisation that progress is likely to take months, not weeks. Crucially, Asian sovereign funds seem to be losing their appetite for the euro and have reduced their previously reliable support for the single currency.

Sterling has made some decent gains over the euro in recent weeks then, climbing from a low of €1.13 to trade at its current level two cents higher. We foresee little progress on the debt issue in the near-term, giving the GBP/EUR rate further upside potential. Indeed, the muted market responses to what were anticipated to be significant relief stories, such as the recent German ‘yes’ vote for the expansion of the bailout fund, suggest market sentiment is going to require a really major development to bounce back. Sterling could well edge up by one or two cents from its current trading level of €1.15 in the month ahead.

GBP/USD

The dollar has gone from strength to strength over the past month or so. Safe haven flows have increased as a result of the worsening global economic picture and in addition, the dollar has taken the lion’s share of these safe-haven flows due to the deteriorating appeal of the alternatives (the yen and the swiss franc).

The Fed decided against introducing a QE3 programme last month, instead opting for ‘Operation Twist,’ where by it sells short-term debt and buys long-term debt. The market was unimpressed and thus the dollar remained strong. Still, QE3 remains a possibility in coming months, though it is unlikely that Bernanke will pull the trigger just yet given the slight upturn in the growth data coming out of the US of late. If and when there is further quantitative easing in the US, expect the dollar to weaken off considerably. For this month at least, this looks unlikely.

Sterling has broken out of its long-term trading range against the dollar to the downside. In late August this pair was trading at $1.65, it is now trading at a thirteen month low of $1.53. Sterling has fallen a long way very fast against the dollar, but it is looking vulnerable to a further decline. The pound will continue to struggle against the dollar as long as funds continue to be redirected from the euro to the greenback, which is exactly what we foresee in the coming weeks.

Caxton FX one month forecast:
GBP / EUR: 1.17
GBP / USD: 1.51
EUR / USD: 1.29

Richard Driver
Senior Analyst – Caxton FX

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Caxton FX Weekly Round-Up: Dollar likey to remain strong

2011-09-26T17:20:00.001+01:00

Yet more talk but little action on debt issue

Little has come out of the recent EcoFin and IMF meetings, which is really testing the market’s patience. There have been rumours of a bolstered bailout fund but nothing concrete has emerged. Talk of substantial haricuts to Greek debt has also dogged the single currency. There is quite clearly recognition amongst officials both in and outside the eurozone that a failure to act decisively could have a catastrophic impact on the global economy. However, there remains a distinct lack of consensus on the path to be taken to resolve the debt crisis.

The eurozone economy has certainly been affected by the crisis, last week’s PMI data suggests that the region as a whole is on the brink of recession. In line with this slowdown and downside risks to eurozone inflation, speculation is increasing that that the ECB will be cutting its 1.50% interest rate. There have been contrasting comments from policymakers on the issue, but next week’s ECB meeting should provide some clarity on the matter. With investors still lured by the higher yield, a rate cut would doubtless hurt the euro.

Sterling still vulnerable to QE

Sterling has stabilised against the dollar for the time being, having dropped by over ten cents in the past month. The outlook remains fairly bleak against the greenback, however, which will continue to benefit from safe-haven investment in the current environment. Only a credible plan of action is likely to alleviate debt fears (the market has been repeatedly disappointed on this issue), global growth only appears to be going one way (down), and the associated declines in global stocks is always going to benefit the safer dollar.

In terms of domestic UK currency issues, further quantitative easing is the key issue, and looks very likely to weigh on the pound moving forward. The measure could be introduced as soon as next week’s Bank of England meeting. Noises out of the MPC have been more dovish than ever and the minutes of September’s meeting smacked of a precursor to monetary easing.

Against the euro, sterling’s prospects look a little brighter regardless of the threat of QE. Market confidence in EU officials is really ebbing and perhaps just as important are the potential stumbling blocks over which they have no control. The second Greek bailout needs to be ratified by eurozone parliaments and the Greek parliament needs to ratify a fresh round of Greek austerity measures.

This week brings relatively little by way of scheduled data releases. Market focus will remain on the debt situation in the eurozone then, and this is likely to throw up some significant volatility. Nonetheless, we are betting on further ‘risk off’ trading and net dollar gains.

Sterling is trading at €1.15 today and while major gains seem unlikely ahead of the Bank of England’s meeting next week, there is still some upside potential. Against the dollar, sterling is likely to remain under pressure and we cannot envisage any substantial sterling bounce in the current environment. With the gravity of the debt crisis increasing almost by the day, we are betting that the market will have to wait longer for any relief headline that may eventually come.

End of week forecast
GBP / EUR 1.1575
GBP / USD 1.55
EUR / USD 1.34
GBP / AUD 1.6050

Dollar strength: Is it here to stay?

2011-09-22T16:53:00.001+01:00

The pound has tumbled to a one year low against the dollar today. The pounds slide has been pretty staggering; we have seen GBP/USD fall from $1.65 to the current rate of $1.5350. Why?

The collapse is a result of several factors. First, sterling is fundamentally an immensely unappealing currency. The MPC last month voted in its entirety for a hold to the record low Bank of England interest rate of 0.5%, meaning the two remaining hawks had abandoned their quest for an interest rate hike. With inflation expected to fall fairly rapidly next year, and with UK growth clearly on a downtrend, the market has given any hopes of a higher UK interest rate. The recent MPC minutes reveal that they are very close indeed to pulling the trigger on introducing further quantitative easing.

Second, the euro/dollar pairing has collapsed. The GBP/USD rate to a large extent tracks the EUR/USD pairing, which has suffered a ten cent collapse in the past month. Concerns surrounding the eurozone debt crisis have finally taken their toll on the single currency with Greece seemingly certain to default at some point and with no long-term solution in sight. The UK’s proximity and exposure to a eurozone debt and a potential Lehman’s-style collapse in the European banking system, has also weighed on sterling and triggered huge euro-dollar flows.

Third, concerns over US and wider global growth have contributed to a hugely ‘risk off’ trading environment. Riskier currencies such as the Canadian, kiwi and Australian dollars are selling off as investors flee to the safety of the dollar. The huge losses in global equities that we are seeing will always benefit safe-havens such as the dollar. The fact that the US economy is in such a fragile state makes little difference, in fact the extent to which the world’s largest economy is struggling only intensifies the safe-haven flows which are benefiting the dollar.

Finally, the dollar is enjoying a greater share of the safe-haven pie. This is because the former safe-haven of choice, the swiss franc, has lost its appeal. The Swiss National Bank has intervened in the currency markets to curb the excessive strength of the swissie, so the market has been scared off. Though it has been unsuccessful in its interventions of late, the Bank of Japan nevertheless looks likely to take similar action to weaken the yen. USD/JPY is at record lows near 76.00, so the Bank of Japan’s patience is certainly being tested.

Do we see sterling making further losses to the dollar? Yes we do. There seems to be little on the horizon to fuel much of a sterling rebound. Contrastingly, fears over global growth look likely to persist. Likewise, the other major concern- the eurozone debt situation, looks unlikely see any significant progress in the near future. The outlook is very positive for the US dollar then, albeit the opposite is true for the US economy.

Richard Driver
Analyst – Caxton FX

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

MPC minutes reveal increased chance of UK QE.

2011-09-21T17:01:00.000+01:00

This morning’s MPC minutes have weighed heavily on the pound today. The Bank of England’s rate-setting committee revealed that growth in the second half of this year is likely to be “materially weaker than forecast in August.” The minutes also indicated that a move towards additional UK quantitative easing “was finely balanced for most MPC members” and that “it was increasingly likely that [it] would be warranted at some point.”

Significantly, leading MPC dove Adam Posen was not joined by any of his colleagues in his call for an additional £50bn worth of asset purchases. However, the comments above really do look to be the precursor to further easing and the market has taken its cue to hurt the pound. Today’s news doesn’t come as too much of a surprise after the Bank of England’s third quarterly bulletin, which celebrated the effects of the last round of quantitative easing.

The market is now looking ahead to next month’s Bank of England meeting, where they may well finally pull the trigger on QE. The truth is that UK data is on a steady downtrend and most signs are really pointing towards a double-dip recession.

Sterling has come off highs up above €1.17, to trade at levels comfortably below €1.14 this afternoon. Do we see this lasting? Well, we find it difficult to envisage the euro maintaining this level of support in the medium term. There remains a sense that the next scare or damaging bad news headline from the eurozone is never far from view. Admittedly, the euro has traded robustly in the face of Italy’s debt downgrade yesterday but the Greek issue is still unresolved. In addition, sterling has suffered of late with the UK economy in the spotlight, but attention is likely to shift away until early October’s PMI data. This may give sterling a little breathing space over the coming week and a half or so.

Richard Driver
Analyst – Caxton FX

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Caxton FX Weekly Round-up

2011-09-13T16:24:00.002+01:00

Eurozone concerns peak and the euro plummets
Concerns over the eurozone debt crisis have peaked in recent sessions, which has seen the key euro/dollar pairing decline by nine cents in the space of a fortnight. Fuelling this sell-off, which has also seen the euro hit a ten-year low against the yen, are intense fears of a Greek default. Greece is not meeting its deficit targets and unless sufficient austerity measures are implemented, then it may not receive its next tranche of aid.

German patience with Greece, which has been crucial in maintaining confidence in the euro, is clearly wearing very thin. Comments from politicians in the leading eurozone nation have alluded to a possible default and Greek exit. The market is now estimating that the probability of a Greek default within the next five years is 98%. A default and the effects it would almost certainly have throughout major eurozone nations such as Italy and Spain cannot yet be fully priced in. Accordingly, the euro has plenty of downside potential.

Importantly, we have seen Asian sovereigns withhold their previously reliable support for the single currency. Rumours of Chinese support for Italian debt stabilised the euro’s fall on Monday, but this seems highly unlikely to provide any sustained euro relief rally. Italian bond yields also soared at a debt auction today regardless. In addition, France’s main banks are facing further downgrades due to their exposure to Greek debt.

The ECB looks increasingly likely to cut its interest rate, which along with solid Asian support, has driven the single currency to such strong levels. The absence of these two factors and the worsening of the eurozone debt crisis have caused us to revise our relatively bullish outlook on the euro. The imminent threat of a Greek default and a collapse in the European banking system should ensure further euro weakening in both the short and longer term. The effect of eurozone officials’ habit of much talk and little action seems likely to ensure that any solution to the eurozone crisis will be very slow in coming and market scepticism is growing all the time.

Bank of England holds fire on QE
Last week saw the Bank of England decide against introducing further quantitative easing to the UK economy. Recent PMI data from the UK was very poor so the speculation for monetary easing certainly built ahead of last Thursday’s announcement. Next Wednesday’s MPC minutes will reveal just how close the BoE policymakers were to pulling the trigger. As ever, if figures continue to weaken, the measure will continue to threaten to weaken the pound.

Sterling is trading fairly strongly in the current risk-off environment, except against the dollar which has gained in safe-haven inflows since the Swiss National Bank’s intervention in the swiss franc’s strength.

After trading at €1.17 early on Monday morning, sterling is trading a cent and a half lower but the risks of further euro-weakening are all too clear. Against the dollar, sterling is trading down at $1.58 and is looking significantly more vulnerable. The key factor governing this outlook is an even weaker looking euro/dollar pairing, which looks hard pushed to make a sustained move back above $1.40 in the current environment.

End of week forecast
GBP / EUR 1.16
GBP / USD 1.57
EUR / USD 1.3550
GBP / AUD 1.5350

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Swiss National Bank Gets Aggressive

2011-09-06T16:28:00.002+01:00

The SNB announced this morning that it intends to keep the EUR/CHF rate at a minimum of 1.20 - this is the 'floor' which it will be defending. This direct intervention in the currency market caused the swiss franc to understandably sell off sharply across the board in response.

With the SNB recently warning the Swiss public that they would have to endure a strong swiss franc for the foreseeable future, there has been some market scepticism towards the SNB’s genuine commitment/ability to limit the currency’s strength. The SNB’s announcement this morning referred to “utmost determination” to containing further CHF appreciation, and it has had the desired effect; the 1.20 target was achieved in a matter of minutes.

Central bank currency intervention has failed repeatedly; we have seen it in both the yen and the swiss franc. It can slow the pace of appreciation, but it does not reverse the trend. Could this time be different? The SNB definitely looks serious this time, claiming willingness to buy “unlimited quantities of foreign currency.” Whether it is successful or not, it is likely to cost the SNB hugely.

The EUR/CHF target rate of 1.20 will almost certainly be tested by speculators and ongoing safe-haven flows alike. Concerns surrounding global growth and eurozone debt are not going anywhere, so demand for safer assets like the swissie will persist. Nonetheless, in the short-term, you can expect the SNB to stick to their task. There could be some further major moves in the offing as well, as other central banks respond.

Knee-jerk moves saw the EUR/CHF gain by 8.5% and the GBP/CHF by almost 8.0%; these are major moves. The effects have been felt throughout the currency markets though; GBP/EUR has declined fairly sharply as investors get out of the swissie and into the single currency.

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Caxton FX Weekly Round-up

2011-09-05T14:52:00.002+01:00

UK growth data disappoints

The monthly instalment of growth data from the UK economy was weaker than expected. The manufacturing sector contracted again, and we saw the sharpest slide in the UK services sector in a decade. Sterling has not suffered too much as a result (except against the dollar), with the market focused on wider global concerns. The Bank of England meets again this week and there is likely to be increased discussion of monetary easing in light of recent economic data. Our bet is that given the UK services sector remains in expansionist territory, they will hold fire for now.

Poor US non-farms data adds to QE3 speculation

There was some promising data from the US last week; PMI data from Chicago was impressive, as was a factory orders figure. However, some awful consumer confidence and non-farm payrolls data stole the headlines. The former gave its worst showing in over two years, and the latter gave its worse showing in almost a year. The safer dollar is therefore outperforming at present, with global stocks in decline amid the familiar concerns over global (and particularly US) growth and the eurozone crisis.

Nonetheless, we are sticking to our longer-term forecast of a weaker US dollar. The Fed will be having an extended discussion as to monetary policy responses to the US economic slowdown at its meeting this month. If data continues to decline, we may well see Ben Bernanke’s hand forced on QE3. The major US data releases this week include non-manufacturing PMI data on Tuesday afternoon and trade balance data on Thursday. In truth though, the dollar’s performance this week will probably depend on risk appetite and activity in the global equity markets. The dollar is approaching the upper limits of its trading ranges against both the euro and the pound at present. We doubt that there is sufficient momentum for the dollar to push through these barriers, though there remains significant risk.

Eurozone concerns weigh on the single currency

Merkel suffered another German election defeat, this time in her home state, which has added to already heightened market uncertainty. The growing signs of domestic frustration at Germany’s leading role in eurozone bailouts are a real concern. In addition, the market is nervous ahead of Wednesday’s constitutional ruling from a German court on the country’s contribution to the bailouts.

Greece is also back in the headlines, with various nations demanding collateral for their contributions to the troubled nation’s second bailout, and with Greek officials in disagreement with the IMF/EU/ECB over further budget cuts. With all these eurozone issues weighing and more besides, EUR is definitely on the back foot. Nonetheless, Asian sovereigns have been very reliable in buying the euro on dips this year, and with EUR/USD at $1.41, the euro looks unlikely to fall too much further.

Sterling is trading at 1.14 against the euro; it has a little more upside but should meet some fairly stiff resistance around €1.15. These look to be poor levels for GBP/USD, which is very close to multi-week lows. We are confident EUR/USD and GBP/USD will bounce this month, but this may have to wait for this week.

End of week forecast
GBP / EUR 1.14
GBP / USD 1.62
EUR / USD 1.42
GBP / AUD 1.5350

Richard Driver
Senior Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Caxton FX Monthly Outlook

2011-09-02T09:48:00.002+01:00

August saw a collapse in global investor confidence which triggered huge losses in the stock market. Rating agency Stand & Poor’s downgrade of US debt proved the catalyst, but a variety of issues contributed to the slide in sentiment; global growth is stalling, the US economy is nearing another recession, and a long-term solution to the eurozone debt problem continues to evade us.

The US dollar and other safe-haven assets strengthened considerably amid the huge uncertainty that prevailed in early August but prospects for the dollar look negative. The Fed has announced that the US interest rate will remain at record lows until mid-2013, and debate within the central bank surrounding ‘QE3’ (further US quantitative easing) is ongoing. US economic data has broadly been very disappointing in recent weeks; hopes of a H2 pick-up in growth are diminishing and bets on another US recession are increasing.

Sterling enjoyed a strong few weeks, offering investors some safe-haven appeal of its own. With US and eurozone issues dominating the headlines, and with the Swiss National Bank and Bank of Japan taking measures to devalue their currencies, the market looked to sterling as a safer alternative. With confidence returning and risk appetite recovering, this theme has been reversed in the past week and the pound’s prospects are bearish; a poor growth outlook and a dovish central bank are weighing heavily.

Sterling/Euro

Eurozone concerns are at a reasonably low ebb at present; despite bond yields still at elevated levels, the ECB’s programme of buying Spanish, Italian, Portuguese and Irish bonds is a show of commitment that has gone some way to calming fears. Nonetheless, frustrations remain; the European Financial Stability Fund has not been expanded and is thus insufficient in size to deal with a Spanish or Italian bailout.

The proposal of a common eurobond has been rejected by Merkel and Sarkozy. Vague commitments to common governance and a Tobin tax were the main results of the two leaders’ last meeting, neither of which inspired much confidence. However, judging by the strength of the euro, the market seems willing to wait for officials to work out a longer-term answer to the eurozone’s structural debt problem.

The outlook for the ECB interest rate outlook is coming under increased scrutiny, in light of a slowdown in quarterly growth figures from Germany (0.1%), France (0.0%) and eurozone as a whole (0.2%).This slowdown is in line with a global trend however, as shown by a second quarter UK growth figure of 0.2%. It should be noted that Trichet was slightly more dovish at last month’s ECB press conference but nevertheless, the ECB have shown they are dedicated to controlling eurozone inflation and rate cut seems unlikely at this stage. The eurozone’s higher interest rate (1.50%) will continue to attract investment moving forward.

Last month’s MPC minutes made the UK interest rate outlook even more dovish, with the two remaining MPC hawks (Weale and Dale) abandoning their quest for a BoE interest rate hike. In addition, the recent Quarterly Inflation Report indicated a calmer outlook for inflation next year. With UK growth so weak, there is little pushing the BoE towards monetary tightening now.

Indeed, there is substantially more chance of further UK quantitative easing than of a rate hike. Last month’s manufacturing and construction PMI data was poor, as were retail sales and unemployment figures. The only saving grace was some strong growth in the UK services sector, which was enough to stave off fears of further UK quantitative easing for the time being. A poor showing in August’s PMI figures in coming sessions could well see this pair drop considerably, all eyes will be on the all-important services figure.

Sterling looks distinctly vulnerable to further falls against the euro. Global stocks are recovering in line with a return of risk appetite, which favours the single currency. The key driver of the euro also remains firmly in place - Asian sovereign diversification away from the dollar into the euro. With multiple bailouts in recent months and questions hanging over Spanish and Italian debt, and now concerns over German and French economic growth, the resolve of far eastern buyers has been tested but the euro seems destined to remain strong.

We have seen highs up at €1.1550 but this pair is trading back down at €1.1350 at present. In accordance with a weakened outlook for the US dollar, a dip down towards the key EUR/GBP target of 90p, which is equal to €1.1111, seems a decent bet.

GBP/USD

This pair remains true to its longer-term range of $1.59-1.67, with both currencies hemmed in by domestic economic underperformance. There have been some truly alarming US economic figures in recent weeks that have contributed significantly to the decline global stocks. US second quarterly growth undershot expectations (showing 1.0% expansion on an annualized basis) and Philly Fed manufacturing and consumer confidence data slid to levels not seen since the recession.

The Fed has responded by pledging to keep the US interest rate at its current record-low for two years to come, until mid-2013. Speculation of a third round of US quantitative easing has been rife over recent weeks and hopes were high for indications at Bernanke’s Fed press conference and his recent speech at Jackson Hole. The Fed Chairman has held fire on further monetary easing for now but the measure remains very much on the table. If data continues along its current downtrend, then the Fed will have to pull the trigger; many will have their sights set on the Fed’s September meeting. The meeting has been extended to two days, a reflection of the depth of debate surrounding the measures which the Fed is considering in order to stave off another US recession.

The longer-term impact of Standard & Poor’s downgrade of US debt (due to inadequate pledges of spending cuts) should not be underestimated. Looking ahead to next year, if the US government fails to address its fiscal position then further downgrades are likely; Standard & Poor’s has stated as much. The short-term fallout saw sterling fail to sustain a move higher against the dollar in the middle of August, having been rejected at $1.66.

The strength of the EUR/USD rate should keep sterling fairly well-supported against the dollar in coming weeks and months but we do not see any break of this pair’s longer-term range in the current climate. However, if US data does continue to worsen and the Fed does introduce QE3, a break towards $1.70 seems a very good bet indeed. In all likelihood, we may have to look beyond September for the Fed to pull the trigger, and this pair will continue to fluctuate in range in the short-term. An increasingly bearish outlook for the dollar, rather than sterling strength should mean that if there is any direction bias for this pair, it is to the upside from the current $1.62 trading level.

Caxton FX one month forecast:

GBP / EUR 1.12

GBP / USD 1.6350

EUR / USD 1.46

Richard Driver
Senior Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Caxton FX Weekly Round-up

2011-08-30T17:20:00.002+01:00

Bernanke holds fire on QE3...for now

Last Friday saw Ben Bernanke give his Jackson Hole speech, at which the Fed Chairman ushered in QE2 last year. Many had high hopes for indications of a third programme of monetary easing this time around, but were disappointed. It is clear though that the market has not given up on the Fed pulling the trigger at some point. Nor should it, if US data continues on its current path, then there can be no doubt that the Fed’s hand will be forced on the issue. US consumer confidence data this afternoon was incredibly poor, hitting its lowest point in over two years, at which point the US economy was deep in recession. The signs are all there and we remain bearish on the dollar in the longer-term, though safe-haven flows have been plentiful today.

Tonight’s Fed’s meeting minutes are unlikely to reveal much we don’t already know, further easing is not quite necessary at present but the Fed will act accordingly if US data continues to disappoint. Many will be turning their heads towards next month’s Fed meeting.

Friday also saw the release of the all-important quarterly US growth figure, which undershot consensus forecasts to show 1.0% growth (annualised). This week’s major release is the monthly update from the US labour market, a poor figure here will certainly increase QE3 bets.

Sterling on the back foot amid improved risk appetite

Sterling has performed well in recent weeks, benefiting from increased safe-haven appeal but risk appetite has improved in recent sessions. Global stocks are recovering and safe-haven flows are being redirected from the pound.

This week brings the monthly growth updates from the UK manufacturing, construction and services sectors. The services sector spearheaded growth last month and the same will need to be true this time if concerns of further UK quantitative easing are to be kept at bay.

Euro trading strongly despite usual issues

We have seen fairly weak demand for Italian debt at an auction today, suggesting that it could be the subject of the next episode in the eurozone debt saga. The issue of demands from Finland for collateral in return for Greek aid has re-entered the headlines today, which has put the single currency under pressure today.
Nonetheless, the euro is back at a seven week high against an out-of-favour pound, and is towards the higher-end of its range against the dollar. As ever, Asian investment is keeping the euro fairly well-bid.

On the downside for the euro though, the ECB interest rate outlook has come into question. With data last week revealing a further slowdown in the eurozone (though not as bad as many expected), speculation is growing that we may see interest rate cuts in coming months. Our bet is that this speculation underestimates just how hawkish the ECB is and will continue to be.

Sterling is trading under €1.13 and under $1.63 this afternoon. This GBP/USD level looks a little too weak and we could see it bounce back in coming sessions. Against the euro, sterling looks a little more vulnerable but losses below €1.12 look a stretch.

End of week forecast
GBP / EUR 1.13
GBP / USD 1.64
EUR / USD 1.45
GBP / AUD 1.5150

Richard Driver
Currency Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Bernanke fails to indicate QE3

2011-08-26T16:44:00.001+01:00

Bernanke's speech at Jackson Hole, where at the same point last year he introduced QE2, has disappointed those hoping for a further programme of monetary easing, which would boost confidence, help to safeguard the US economic recovery, and improve the US stock market.

In truth, Bernanke's failure to pull the trigger on QE3 should not come as a surprise. The US economy is certainly in dire straits; its second quarter US GDP figure (annualised) was announced this afternoon to be a disappointing 1.0%. However, we may have to see the US recession dip back into recession, or at least come closer to doing so, in order for Bernanke to introduce QE3.

One key issue is that of US inflation. When QE2 was signalled, US inflation was falling, but at present the figure is rising and further monetary easing would exacerbate this. Another issue is that of dissent within the US Federal Reserve; the central bank is more prone to decisions by consensus and it would have been unusual for Bernanke to go ahead with the collection of high-profile, dissenting, fellow US policymakers we have heard from in recent weeks.

Bernanke stated that he is focusing on ways to promote US growth and improvements in the US labour market. However, this is not the end of the issue. The Fed is quite clearly willing to implement more quantitative easing, it is just setting the bar a little higher than many in the equity markets would prefer. The Fed's meeting minutes demonstrate that they are discussing the measure seriously as an issue.

So what's happened in the currency markets? Well, the US dollar rallied initially but gains have been erased. The was no new information provided by Bernanke. Do we the dollar hanging on to this week’s gains in the longer-term? No, we remain bearish on the greenback. Not even safe-haven flows seem likely to provide long-lasting support. An outlook characterised by low growth (and possible recession), high unemployment, ultra-low interest rates (and QE3?) and possibly further debt downgrades should ensure dollar-weakness.

Richard Driver
Caxton FX Anlayst

For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.