Caxton FX Currency Blog

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.