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.