Morning Report

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

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

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
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Morning Report

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

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


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Morning Report

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

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.

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

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.

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