Morning Report

Richard Driver, Analyst The euro made some minor gains last night after the majority of EU states agreed to a German-inspired deficit control treaty at the EU summit in Brussels. This is seen as the first step towards a fiscal union, aiming to strengthen confidence in the Euro-zone. EU leaders also agreed on introducing the €500 billion European Stability Mechanism in July – a year earlier than planned, to help back heavily indebted states. These small steps to help pave the way out of the debt crisis were overshadowed however by yet more quarrelling from EU leaders over Greece and its economic management. The euro may again be under broad selling pressure today with Greece and Portugal in focus.
STERLING/EURO: The euro benefitted from some strong rhetoric yesterday, but Greece and Portugal will be the main concern today. Bargaining with Greece over its economic management, and a debt write-down seemed to overshadow the positive aspects of yesterdays summit. The Greek PM Papademos will hope to complete on debt-swap talks with bondholders by the end of this week with the country facing a 14.5 billion euro payment by 20th March. Concerns over Greece and its debt write-down have led to fears that Portugal may follow suit with the yield on 10-year Portuguese bonds reaching a record high yesterday. This will again be in focus today.	FORECAST
STERLING/US DOLLAR: The pound is currently trading up against its US counterpart as risk appetite increases on euro talks. Greek PM Papedemos said that there had been significant progress on PSI talks, with the market now anticipating that a restructuring deal on Greek debt may be achievable by the end of the week. There will be no guarantees however, and the market will be reluctant to buy into this rhetoric too far given recent history. The pound is also benefitting today from month end selling of the dollar for portfolio adjustments. The upside potential for this pair will be limited however unless there are solid decisions on Greek debt.	FORECAST
EURO/US DOLLAR: The euro is benefitting from increased confidence in the Euro-zone as most countries agree to tighter budget controls. Risk appetite tentatively increased during Asian trading as signs that EU leaders are finally making decisions to help contain the European debt crisis. European stocks are also up this morning, weighing on the safe-haven dollar. This pair should trade in a fairly tight range, with the upside potential for the euro restricted unless Greece are able to clinch a restructuring deal.	FORECAST
STERLING/AUSTRALIAN DOLLAR: The Australian and New Zealand dollars gained as Asian stocks rallied, boosting the allure of higher-yielding currencies. The Australian dollar rallied from one-day declines as Asian stocks advanced after European leaders signalled they’re taking steps toward resolving to the region’s debt crisis. This was helped after Greek Prime Minister Papademos stated that he was strongly committed to reaching a debt-swap accord. The Aussie also rose after a gauge of Australian business confidence climbed to a seven month high. This pairing is trading below 1.48 this morning.	FORECAST
STERLING/NEW ZEALAND DOLLAR: New Zealand’s dollar climbed against 15 of its 16 most-traded peers after a report showed home-building approvals rebounded in the nation. New Zealand dollar rose after home-building approvals increased 2.1 percent in December from the month before, when they dropped a revised 6.2 percent, the statistics bureau said in Wellington today. The Kiwi also enjoyed some strength off the back of Asians stocks advancing. This was caused by the European leaders indicating that they are taking the necessary steps to resolve the sovereign debt crisis. This pairing is currently trading below 1.91.	FORECAST
STERLING/CANADIAN DOLLAR: The pound is trading down on the Loonie today as Canadian GDP is anticipated. The currency was supported by wide speculation that the US’s accelerating growth would mean higher demand for Canadian exports. Todays GDP figure from Canada will be the main focus for this pairing today, with growth of 0.2% expected. Anything less than this will see this pair appreciate.	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.

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Morning Report

Richard Driver, Analyst The euro weakened this morning ahead of a gathering of EU leaders in Brussels. The first summit of 2012 aims to endorse a 500 billion-euro rescue fund to be set up this year, as well as put the finishing touches on a German-led deficit control treaty. Risks are however skewed to the downside for the euro, as investors continue to worry that a worsening economy and a lack of firm progress on the Greek debt issue will side-track negotiations. The focus for Sterling this week will be UK PMI data, which will indicate the health of the manufacturing, construction and services sectors. Positive data could scale back quantitative easing expectations and support the pound, with the market currently anticipating that the MPC will vote to add stimulus to a flagging UK economy as early as February 9th.
STERLING/EURO: The single currency declined this morning, as investors eye an Italian bond sale, and developments in the EU summit in Brussels. Concerns mount that EU leaders will fail to draw a line under the sovereign debt crisis, as struggles to complete a Greek debt write-off and now a struggling Portuguese economy threaten to sidetrack other negotiations. Meanwhile, Italy will have another bond auction today, fresh after its downgrade from Fitch ratings agency. A poor turnout will see investors sell the single currency.	FORECAST
STERLING/US DOLLAR: The Greenback has gained this morning with safe-haven flows bucking the trends of the previous week. Slightly weaker than expected US GDP data on Friday weighed briefly on the Greenback on Friday. The economy expanded 2.8 percent in the fourth quarter of 2011, with consensus put at 3%. This compares to the UK’s GDP figure of -0.2% which goes some way to explaining why demand for the dollar has been so high of recent weeks. The dollar is likely to continue to gain today, with European problems thrown into the spotlight with the EU summit. A poor Italian bond auction today will also weigh on risk sentiment, and see investors flee to the safe-haven dollar.	FORECAST
EURO/US DOLLAR: The euro is currently trading down 0.5% against the Greenback, snapping a 5-day advance ahead of the EU summit. Fitch cut the ratings of Italy, Spain, and three other euro-zone countries over the weekend, with Italy facing a bond auction today. Concerns that Italian debt won’t be bought after the Fitch downgrade will weigh on the single currency today, and investors will back the safe-haven dollar. The dollar is also benefitting ahead of the EU summit, beginning at 2pm this afternoon. Despite Greece seeming to get closer to an agreement on a debt write-off over the weekend, investors will be nervous that nothing conclusive has yet been agreed.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Higher-yielding currencies, including the Australian and New Zealand dollars, jumped last week after the Federal Reserve pledged to continue easy monetary policies to prop up the world’s largest economy. Unfortunately for the Aussie, some data from Ratings Agency Fitch soured the mood. The Australian dollar moved further away from three-month highs hit in the wake of the Fed's pledge to keep interest rates low, after ratings agency Fitch put major Australian banks on a negative ratings watch. Accordingly, AUD fell 0.8% against the greenback because of Fitch’s negative outlook on Australian banks. This pair is currently trading slightly higher at 1.4840 this morning.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The Australian and New Zealand Dollars weakened before European Union leaders meet to discuss the region’s debt crisis at a summit in Brussels today. A gauge of New Zealand’s services industry grew at a slower pace last month, according to a report by Business New Zealand, a Wellington-based employer group. The Performance of Services index fell to 50.6 in December from a revised 56.2 in November. A reading above 50 indicates an expansion. New Zealand’s currency halted its longest advance in 10 months as Asian stocks fell, extending a global slump in shares. Today this pairing is trading up at 1.9155, half a cent higher than its opening price.	FORECAST
STERLING/CANADIAN DOLLAR: The Canadian dollar has lost some ground today, but looks set for a good week against the pound. The Loonie will benefit as the US economy continues to improve as its closest and biggest trading partner. The US Federal reserve last week pledged to keep interest rates at almost zero through 2014, which boosted demand for the higher-yielding assets such as the Canadian dollar. On a quiet day in terms of scheduled economic announcements this pair should remain fairly range-bound.	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 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

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

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

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?

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.

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 13th, 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.

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

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

Richard Driver, Analyst The euro extended its gains yesterday, despite an initial sell-off when the US came on-line, as the IMF announced it is seeking to almost double its war-chest by raising $600 billion to help protect the global economy against a worsening European debt crisis. European stocks are up this morning despite threats of a roadblock by the US and other countries. Today sees bond auctions from Spain and France (the first since its AAA downgrade by Standard & Poor). Direction will be dictated on the results of these, but with debt-sales so far going without too much of a problem since the sweeping AAA downgrades, investors will be reluctant to bet against them.
STERLING/EURO: The single currency continues to extend its gains this morning, with developments in Greece and French and Spanish bond auctions eyed. The euro has had a positive week thus far, with news yesterday bolstering support for the euro as the IMF said it is prepared to double its war chest to help contain the debt crisis. This could be de-railed however, as the US declared its position that Europe has the capacity to solve its own problems, and should put up more of its own money. Investors will eye today’s bond auctions as a signal of confidence in the euro-zone, and if the previous bond auctions are anything to go by, we could see a positive turn out, with the euro benefitting.	FORECAST
STERLING/US DOLLAR: Sterling rose against the US dollar yesterday, gaining almost a cent as risk appetite improved. The US dollar came under selling pressure yesterday as stronger risk appetite undermined the dollar’s safe haven appeal. Sterling gained ground as optimism about Greek debt talks and the International Monetary Fund’s intention to increase its lending capacity boosted risk appetite.Sterling remains well supported against the US dollar this morning as signs that the US economy is improving are continuing to bolster risk appetite. Further indications of the health of the US economy could be revealed this afternoon, when US unemployment, housing and manufacturing figures are released in the States.	FORECAST
EURO/US DOLLAR: The euro continues to hold steady above the 1.2850 mark as investors target bond auction results. Global risk appetite has returned somewhat, with the IMF announcement and expectations that Greece will reach a deal with its bondholders. Investors will be reluctant to sell the euro further before the results of French and Spanish bond auctions results are announced, so we should see this pair holding firm before the announcement later on today. Direction will also be determined on noises coming out of Greek talks. Any breakdown in talks, or talk of a default will harm the euro and see investors once again clambering for the safe-haven dollar.	FORECAST
STERLING/AUSTRALIAN DOLLAR: The Australian dollar weakened for the first time in three days after a government report showed employers unexpectedly reduced payrolls.   Australian employment suffered a surprise fall for the second straight month of decline, after data showed that employment fell by 29,300 in December, against market expectations for a rise of 10,000. This caused the aussie to weaken against all of its 16 major counterparts and it is now trading at 1.4840. Labour market weakness could shore up expectations for a third rate cut at the Reserve Bank of Australia’s Feb 7th Policy meeting.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The Kiwi dollar fell from an 11-week high after a government report showed consumer prices declined. New Zealand’s annual inflation unexpectedly fell last month as food prices dropped 2.2 percent, providing the central bank with room to keep interest rates at a record low to combat the global issues that threaten to stop the recovery of New Zealand’s economy. The consumer price index data released last night showed CPI fell 0.3 percent in the three months after a forecasted rise of 0.4 percent; this was the first decline in two years. This pairing is trading at 1.9270 this morning.	FORECAST
STERLING/CANADIAN DOLLAR: With the return of global risk appetite and a strong US economy the Loonie is holding up well against the pound. Canadian manufacturing data this afternoon will be eyed in an otherwise quiet day in terms of economic announcements. The Loonie will likely keep its gains today in what has turned out to be a poor week for sterling.	FORECAST
This post is prepared by Caxton FX Ltd for information purposes only and may contain personal views that are not the opinion of the company. This is not an offer to purchase or sell any security or an investment advertisement. Caxton FX Ltd is authorised and regulated by the Financial Services Authority, although foreign exchange transactions with Caxton FX are regulated by HM Revenue and Customs. This email does not constitute advice for any foreign exchange transaction, nor is it intended as a solicitation for funds or recommendation to trade.