Caxton FX Currency Blog

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