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.