Morning Report

The euro came under further selling pressure yesterday and posted fresh lows against several currencies. For us, it is quite clear that the euro is going to depreciate, fundamentals have been pointing this way for some time now and market sentiment is worsening every month. The key obstacle to further euro downside is profit-taking, but this is only short-term by nature. Today’s session bring the all-important non-farm payroll data from the US, which could have a considerable impact on the mood in the market. The US growth story is the only real positive headline out there at the moment.
STERLING/EURO: Sterling climbed higher still against the euro, perhaps helped by some better than expected UK services data. The key instalment of monthly UK growth data, the Services Purchasing Managers’ Index, came in well above expectations yesterday to reveal the strongest figure in five months. The market will not get overexcited about this week’s stronger than expected manufacturing, construction and services sector figures, but it does provide a little hope that 2012 could be slightly less gloomy than anticipated. This will also strengthen arguments that further QE can wait, which is a positive for sterling. Sterling is trading up above €1.21 this morning and after strong gains this week, there is scope for profit-taking to take the wind out of this pair’s sails. Nonetheless, the outlook remains positive here.	FORECAST
STERLING/US DOLLAR: Sterling came under further pressure against the safe-haven US dollar, amid some more positive US jobs data. Yesterday was one of those rare occasions where positive US data (a monthly jobs indicator) actually benefited the US dollar. Expectations will be elevated for a good result from this afternoon’s non-farm payrolls figures, which could very well mean the market will be disappointed. Amid strong euro-dollar flows, this pair headed a cent lower to its current level of $1.55. Further dollar strength looks likely.	FORECAST
EURO/US DOLLAR: The euro is suffering further declines ahead of some important eurozone confidence data and a meeting between Sarkozy and Monti. There are plenty more downside risks for the euro today. The EU commission will publish some consumer confidence data this afternoon and French President Sarkozy and Italian PM Mario Monti will meet today and provide a statement. Eurozone retail sales data is also likely to reveal a monthly contraction. Judging by yesterday’s response to positive US employment data, the US dollar could benefit whatever the result from today’s US non-farm payrolls figure. For now though, this pair is trading down at $1.28.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling failed to kick on after some early gains, but remains off its lows against the aussie dollar. Deteriorating eurozone confidence will surely send this pair higher eventually, but gains were limited yesterday. France and Germany have sold bonds this week, to limited success. Next week brings further bond sales from Germany, Greece, Spain and Italy, so market nerves are likely to continue to strangle risk appetite. Sterling is trading at 1.5125 against the AUD. We continue to prefer sterling to the riskier commodity currencies.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Despite strong UK services data and weak Asian stocks, sterling failed to hang on to yesterday morning’s early gains. It is not clear whether a positive number from this afternoon’s US non-farm payrolls figure will give a boost to risk appetite and help the kiwi dollar, or whether the market will see fit to invest in the US dollar in line with their improving economic fundamentals. Our bet is on the latter after yesterday’s trading pattern. Sterling continues to trade at a fairly uninspiring 1.9850, but we should see better levels to buy the kiwi dollar at soon.	FORECAST
STERLING/CANADIAN DOLLAR: A third consecutive day in the green for US stocks was sufficient to keep the Canadian dollar in demand.   US services sector growth ticked upwards last month, and jobs data was positive. In addition, Canada’s domestic economic picture was bright, with a monthly growth indicator hitting a seven-month high. Clearly America’s economic upturn is filtering into its northern neighbour. This pair is trading down below 1.58 today, and could test its multi-month lows again today, with both US and Canadian jobs data likely to be positive.	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 early optimism that characterised Tuesday’s session has already run out of steam, and the euro is once again feeling the heat as you would expect. There was no major catalyst for the euro’s poor day, but mediocre demand at a German bond auction was unlikely to help. Accordingly, there will be nerves ahead of today’s French bond auction. UK gilts continue to benefit the pound but this morning’s growth figure from the UK services sector has the capacity weigh on sterling. This afternoon brings some key US services and unemployment data, but the market will probably hold off until after tomorrow’s US non-farm payrolls.
STERLING/EURO: Sterling is now trading at sixteen month high against the euro as familiar eurozone concerns take their toll. A UK gilt auction found plenty of demand yesterday, which helped to force this pair higher. By contrast, a German bund auction was rather less successful yesterday, which the market may have taken as a prelude to a poor French auction today. There are plenty of risk factors on the horizon, Spain and Italy will be auctioning their debt next week, so bond yields will remain in focus. Standard & Poor’s has still not passed judgement on the credit rating of various eurozone states, again highlighting euro risks. Sterling is trading at 1.2070 this morning, and risks are skewed to the upside ahead of today’s French debt sale, regardless of what could well be a poor UK services figure.	FORECAST
STERLING/US DOLLAR: This pair is edging lower ahead of December’s UK services figure; safe-haven trades should also boost the US dollar.   Today’s session brings some further data from the US. US services growth is expected to tick up and unemployment figures are also likely to be encouraging today. Still, eurozone concerns returned to the fore yesterday and are likely to outweigh positivity relating to the building growth momentum we are clearly seeing in the US. We continue to favour the US dollar in the current environment. This pair is trading at $1.56, having lost half a cent yesterday, sterling could come under further pressure.	FORECAST
EURO/US DOLLAR: The euro suffered a major slide yesterday, not helped by concerns over a Spanish request for emergency loans. The euro is suffering from speculation that Spain will be applying for emergency loans soon. There were also comments from Italy’s largest bank which indicated the region’s funding crisis is worsening. German retail sales data was poor this morning, revealing a monthly contraction of 0.9%. December’s data for the eurozone services sector also revealed another contraction. With the US recovery gaining pace and the plethora of issues facing the eurozone, the US dollar is the clear outperformer here and another downside move seems a matter of time.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling is edging up against the aussie dollar this morning, helped by poor Australian trade balance data. Australia’s trade balance came in well below expectations to show its fourth consecutive monthly narrowing. Exports are the foundation of Australia’s economy and evidence such as this gives investors good reason to get out of a currency that looks overextended at the moment. Data also showed Australia’s services sector has contracted again in December. Sterling bounced up off support levels close to 1.50 as expected, and has since climbed up above 1.5150. Further sterling gains are possible.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling is on the climb against the kiwi dollar, with the market nervy ahead of today’s French bond auction. The New Zealand dollar is feeling the squeeze in risk off trading, now that eurozone bond auctions are back dominating the headlines. Asian stocks declined by a percent last night, which is demonstrative of the regional investment tone. The likelihood is that today’s French bond auction will also disappoint and risk aversion will intensify. This pair is trading up towards 1.99, and we shouldn’t have to wait too much longer for a return up above 2.00.	FORECAST
STERLING/CANADIAN DOLLAR: This pair saw some fairly range-bound trading as some strong US factory orders data offset heightened eurozone concerns.   US factory orders were at their highest in four months in December, which was a positive for Canadian export demand prospects. Positive US services sector data is likely to provide some further support to the loonie today. Still, eurozone worries are likely to see sterling avoid any losses today. Sterling is trading just above 1.58 and further range-bound trading seems likely today, though we should not have to wait too long for an upwards move.	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 04.01.2012

With positive manufacturing data out of the US and the UK, confidence levels continued to rebound, as evidenced by major gains in global stocks. There was good news out of Germany too, with unemployment levels dropping to a staggering twenty-year low. UK construction data came in above expectations this morning, showing some pretty reasonable growth. However, the market is unlikely to respond until tomorrow’s key UK services sector growth figure is announced.
STERLING/EURO: Sterling continues to trade close to the €1.20 level despite alarming warning from the Greek government.   The Guardian have reported that the Greek government have warned that without a new bailout within three months, the troubled state will be forced to leave the single currency. The euro has avoided a sell off so far, in line with a decent level of risk appetite to kick off the year, however the risks of a Greek euro-exit are increasing with every month of inaction from EU leaders. Sterling failed to benefit from a better than expected UK manufacturing growth figure. The data still reveals the sector spent a third consecutive month in contraction, albeit only marginally last month. No major movements are expected today.	FORECAST
STERLING/US DOLLAR: The US dollar continued to weaken off yesterday as strong US economic data spurred on riskier trades away. Impressive US manufacturing data saw investors exit the US dollar in search of higher-yielding currencies. With the figure climbing to an impressive 6-month high, it seems that the US economy is really recovering from mid-2011’s ‘soft patch.’ Hopes are high for this Friday’s key US non-farms figure. Last night’s US Federal Reserve meeting minutes revealed a predictably dovish tone, and failed to make too much impact on the rates. Sterling is trading just above $1.56 this morning, and a move up a cent higher in coming sessions is possible.	FORECAST
EURO/US DOLLAR: The euro benefited from further dollar-weakness and risk appetite, but the threat of S&P downgrades continue to loom. This pair often tracks movements in US stocks, and it was no surprise to see the euro make strides on a day where US stock indices were gaining by 1.50%. Impressive German employment data also helped the euro but data out of Spain was not so encouraging, showing a fifth monthly increase in unemployment. After stronger figures from China and the US, the dominant theme in the market at present is of renewed optimism about the prospects for global economic growth. However, rating agency Standard and Poor’s is still due to make its voice heard, and risk appetite is bound to take a hit. For now, the euro is trading up at $1.3050 and it could find further traction today.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Despite risk-positive news from the US, support levels close to 1.50 kicked in for this pair. The aussie dollar failed to march on yesterday, despite major gains in regional and indeed global stocks. This pair has dipped to these levels close to 1.50 twice before in recent months, and an upward correction ten cents higher is still very much on the cards. The aussie dollar remains very vulnerable to bad news out of the eurozone and to further monetary easing (interest rate cuts) from the Reserve Bank of Australia. Sterling is trading at 1.51 this morning and despite the cautious return of a market confidence, sterling should begin to bounce soon.	FORECAST
STERLING/NEW ZEALAND DOLLAR: This pair remains at a two-month low but with so much uncertainty still remaining, these levels look due an upward correction. Much like the aussie dollar, the New Zealand currency looks vulnerable to a pullback in coming weeks. The confidence we have seen of late is related to the improved global growth picture. News from the eurozone debt situation has gone quiet, but when headlines begin to flow again, sterling will be well-placed to climb back above the 2.00 level against the kiwi dollar. This pair is currently trading at 1.98 and sterling should be able to guard against a further downside move.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling benefited from some decent support levels yesterday, stopping the Canadian dollar from capitalising on such a strong US manufacturing figure. Regardless of what the exchange rates did yesterday, the improved economic picture in the US is a crucial development for the Canadian economy. Without US growth, Canada is in deep trouble, such is the closeness of their trading relationship. Oil prices also continued to climb yesterday, with Brent reaching $112 per barrel. Sterling nonetheless is trading half a cent higher at 1.5850, though a good US non-farm payrolls figure on Friday could see sterling give back these gains.	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 Happy New Year! The team here at Caxton FX would like to wish you the very best of luck for 2012, we hope the exchange rates go your way! The outlook for early 2012 remains unchanged as far as we are concerned, we continue to favour safer currencies in anticipation of further alarm bells from the eurozone. The week ahead brings the monthly growth updates from the UK construction and services sectors, in addition to this morning’s improved UK manufacturing figure. Expectations are not high, but sterling has been fairly resistant to poor data in recent weeks.
STERLING/EURO: Sterling continues to trade at the lofty heights of €1.20, as investors turn the heads towards a tough start to the year for the euro. Key events this month are a Jan 9th meeting between Mekrel and Sarkozy which is likely to focus on budget discipline rules, and an EU Summit on Jan 23rd. The threat of wide scale debt downgrades throughout the eurozone will continue to weigh on appetite for the single currency until major progress is reached. UK debt has found favour in recent months, as investors look for alternatives to risky European bonds. However, if UK growth continues to deteriorate, it could lose its AAA credit rating and this pillar of sterling-support will be removed. It is crucial that the UK maintains its AAA credit rating. How likely this is depends on growth figures like this morning’s monthly manufacturing update. Sterling actually benefited from a welcome upside surprise, though the sector still remains marginally in contraction.	FORECAST
STERLING/US DOLLAR: The dollar has made a poor start to the week as some positive news emerged out of the global growth story. Chinese manufacturing improved significantly last month, and data this afternoon is expected to show that US growth did the same. US figures have been on a clear uptrend in recent weeks, but other giants such as China will have to follow suit if market confidence in the global recovery is going to make a truly sustained resurgence. Sterling is trading at $1.5550, a weak level that reflects the ongoing demand for the safe-haven US dollar.	FORECAST
EURO/US DOLLAR: The euro is trading at a 12-month low against the US dollar and we are betting on further declines. The eurozone’s high debt and low growth dynamics should see the US dollar make further gains over a vulnerable-looking euro. For today though, the euro may benefit from gains in European stocks. The FTSE 100 is already up by over 1.0%, and with US manufacturing growth expected to tick up this afternoon, euro losses may be avoided for today. Eurozone bond yields are still being watched carefully, Italy remains close to the dreaded 7.0% mark, though the pressure on Spanish debt has eased somewhat for the time being. The euro is trading at $1.30 this morning.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling is posting losses against the aussie dollar amid strong gains in Asian stocks. The improved Chinese manufacturing growth headline is complimenting an already upbeat mood in Asia, from which the aussie dollar is naturally benefitting. There is some early positivity in the market at present, but this is likely to be short-lived. Sterling is trading at 1.51, and there is some further downside potential until some key support levels kick in at 1.50. Beyond this, we could well see sterling head significantly higher.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling is suffering a downward correction against the kiwi dollar, but a return to levels well above 2.00 should come this month.    The positivity surrounding the Chinese manufacturing figure has fed into demand for the kiwi dollar as well. However, nerves over the eurozone debt situation will surely come back to haunt riskier currencies, and will continue to do so for at least the first half of this year. With this in mind, we see sterling heading back up above the 2.00 mark before long. For today though, sterling is trading down at 1.98 and this rally in risk could have some more legs by the look of European equities this morning.	FORECAST
STERLING/CANADIAN DOLLAR: This pair is still under pressure as sentiment towards the US economy continues to warm up to the benefit of the loonie. A good start to the year for risk appetite sees the Canadian dollar on the front foot against safer currencies like the pound. If US manufacturing data shows the improvements that are expected, we should see the loonie make further advances. Sterling is trading down at 1.58 this morning, which is not too far off a three month low. Oil prices are also making hefty gains, brent is up at $110 per barrel. This pair may head lower today.	FORECAST

Richard Driver, Analyst With many traders off on their Christmas holidays already, markets are very thin indeed now. US GDP was surprisingly revised downwards for Q3 of this year, revealing growth at an annualised rate of 1.8%. Still the market was not too bothered, comforted by the pick-up in US growth we have seen in the final quarter of the year and the improved outlook for 2012. Today’s session brings plenty of US data but if yesterday’s GDP figure failed to leave an impact, today’s releases will also go unnoticed. From all the team at Caxton FX, have a great Christmas.
STERLING/EURO: Sterling’s safe haven bid continues to provide support against the single currency, helped by improved UK GDP figure. UK GDP hit 0.6% in the third quarter of 2011, which was slightly better than expected. The market will be all too aware that the outlook for the UK economy leaves little to get excited about, but the GDP figure was still a nice surprise. Less positive was news that the UK’s current account deficit widened to its worst level in almost a year and a half. The safe-haven attraction of UK gilts, and sterling by association, has taken sterling up above €1.20, its highest point since early January 2011. Further gains are likely to come, but perhaps not today.	FORECAST
STERLING/US DOLLAR: This pair remains range bound as data fails to leave its mark and as the flow of headlines dries up. US GDP was revised downwards to 1.8% (annualised) for Q3 2011. This 0.2% downward revision is actually pretty disappointing but the markets didn’t respond. The Wall Street Journal has reported that the US Federal Reserve could leave interest rates at their current record lows of 0.25% until 2014 and beyond. This is dollar-negative in the long-term but will not worry the markets in the short and medium term. Sterling is trading at $1.57, which represents a stronger finish to the year than we expected. Despite a warning from Moody’s about the UK’s treasured triple-A rating, sterling has done traded very well in the past fortnight or so.	FORECAST
EURO/US DOLLAR: The euro continues to hover above the psychological $1.30 mark but we are still anticipating another push lower. ECB policymaker Smaghi has called for quantitative easing to boost the eurozone economy if deflation risks emerge moving forward. With QE consistently ruled out by the ECB, this is an interesting development and will certainly have caught the market’s eye. Unfortunately for the market, which would welcome eurozone QE strongly, Smaghi’s tenure at the ECB ends very soon so hopefully he will persuade some of his colleagues before doing so. The euro is trading at $1.3075 this morning, European stocks have opened strongly, so a push below $1.30 may have to wait until after Christmas and perhaps the New Year.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Aussie trading positively, helped by demand for Australian government bonds. Australia has also managed to maintain its AAA credit rating, and demand for its government bonds is giving the aussie dollar some decent support. This club of top-rated government debt will continue to shrink and for those nations that hang on to it, the associated currencies will reap the rewards. Sterling is trading at 1.5450 this morning, and no major movements seem likely.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling edged lower against the kiwi dollar despite the worrying news of another earthquake in Christchurch. Christchurch is still bouncing back from the destructive earthquake we saw in the city earlier on in the year. Another quake will strengthen the case for another interest rate cut from the Reserve Bank of New Zealand. The kiwi dollar still managed to strengthen against sterling however, helped by some positive weekly jobs data. Despite losses in Asian stocks last night, this pair is trading down at 2.0250, and we may see a session of range-bound trading.	FORECAST
STERLING/CANADIAN DOLLAR: The loonie continued to make gains over sterling yesterday, helped by a decent bounce in the US stock market. Positive US risk sentiment drove the Canadian dollar forward yesterday, traders turned a blind eye to the downward revision of the US GDP figure and focused on some improvements in the US labour market. US unemployment continues to be the number one concern in the US economy. This pair is trading at 1.60 this morning. We have a monthly Canadian GDP figure later today, which expected to show growth of just 0.1%, but as ever US GDP will probably overshadow.	FORECAST

Financial recovery stalls in 2011 but will next year be any better?

An article from James Hickman, MD of Caxton FX, reviewing the past year and what we can expect in 2012.


What a year 2011 has been: the uprisings in the Arab world, earthquakes in Japan and New Zealand and not to mention the deaths of three dictators, the Royal Wedding and the London riots.

In terms of the financial environment, if we look back to the end of 2010 we were still waiting for conditions to improve for the global economic recovery and as we approach the end of 2011, we still cannot see the wood for the trees.

2011 was meant to be a year where we took bigger steps towards the goal of economic improvement but in my mind, there have been two key factors which have prevented this from happening.

Firstly, there has been a top-down liquidity squeeze which has had a significant impact on everyone from countries and large banks right down to individuals and small businesses.

In short, no-one can easily borrow money and as we all know, accessing affordable loans is key to a vibrant and growing economy, whether you are the government or a small shop keeper.

What this has resulted in at the top end – which is the really worrying part – is that some countries have been unable to repay existing loans and debts. Consequently, some loans have been written off causing share values to plummet and the very real situation of some of those countries staring default in the face.

The second key factor in the global economic recovery, or lack of it, has been the financial mess within the eurozone.

The European Central Bank (ECB), working alongside the central banks of the 17-member states of the eurozone, have been too slow to react to the debt crisis over 2011 and have constantly been playing catch-up, despite several crucial summits over the year.

This has seen the markets respond negatively towards this inertia and subsequent bailouts have required strict austerity measures, which as we have seen in the UK, are not looked on in a favourable light by the local populous, as well as being hard to implement.

The knock-on effect of this has seen the euro, which has been pretty strong since 2007, depreciate against most major currencies since the summer. While a cheaper currency is a good thing for exporters, importers looking to bring in goods from economies linked to stronger performing currencies, such as the USA and UK, will find it tough to buy goods and services when the dollar and sterling are performing so well.

So what’s in store for 2012? Unfortunately doom and gloom still holds centre court and we predict that the issues that we have talked about so far will continue to rear their ugly heads well into 2012.

There is a strong possibility that the euro will continue to weaken well into Q1 and Q2 and we might also see some of the periphery eurozone states start to drop out of the single currency.

If I were a betting man, Greece would be a good shout for being the first to drop out of the single currency as they will find it hard to stick to the ECB’s fiscal measures which are proving deeply unpopular at home.

Greece’s departure could also cause a domino effect with other weak eurozone states also dropping out of the single currency.

But I think it’s incredibly important to note that we don’t see the euro completely collapsing any time soon – so there’s no need to panic. There appears to be the political will to keep the single currency project alive and with weaker countries dropping out, the remaining countries will see a reverse in fortunes and could actually see the euro strengthen again.

Closer to home, we see sterling maintaining its current position as being one of the stronger currencies. While a strong pound is an advantage for importers, taking advantage of being able to bring in cheaper goods, it will be expensive to export British goods - especially to the eurozone – which raises further concerns about the UK’s trade deficit.

Considering our high debt levels and the fact that everyone wants to see a weaker pound, we might see further Bank of England (BoE) intervention to try and weaken sterling, as well keeping interest rates at a record low of 0.5%.

Another question at the front of peoples’ minds is whether we will experience a recession in 2012. While the markets have responded warmly to the Government’s austerity measures and growth is flat rather than negative, all of this will be blown out of the water if there is a recession in the eurozone, an event which is more than likely.

The eurozone is our most important trading partner and if there is recession on the continent, this will interrupt trade flows and hinder the amount of business UK companies can carry out.

Nonetheless, if we do see the weaker eurozone nations drop out, the consequences will be only felt by the UK in the short-term and we will eventually see a balancing act where the eurozone will regain its strength.

In terms of currency and considering that our outlook for both the global economy and the eurozone debt crisis is negative, as a final thought, we see the euro losing ground against both the dollar and sterling in 2012. Additionally, the dollar should outperform the pound in risk averse circumstances next year and maintain its position as a safe-haven currency.

Produced by Steven Fifer, Caxton FX

Richard Driver, Analyst There was huge demand for the ECB’s cheap three-year loans to European banks -the almost €500bn figure was double what was widely anticipated. The euro rallied briefly, until the market came to its sense and concluded a greater need to take loans is hardly confidence-inspiring. The euro subsequently came under a great deal of pressure. Today’s session brings some UK current account data, the final quarterly GDP figures from the UK and the US, which are not expected to be revised. These figures are unlikely to trigger much volatility, and safe-haven currencies will probably be preferred.
STERLING/EURO: Sterling made the move above the psychological €1.20 level yesterday as market fails to see bright side of ECB lending. The ECB’s €489bn tender to Europe’s banks has failed to trigger a euro rally. There is scepticism as to whether European banks will use the additional funds to purchase Italian and Spanish bonds. They seem more likely to sit on the extra capital and protect themselves. Yesterday’s MPC minutes revealed there is plenty of support for further QE in February, but this is to be expected. The growth outlook for the UK economy is flat in the first two quarters of next year, though there are hopes for a pick-up in the second half of 2012. Today’s finalised third quarter UK GDP figure was revised up to 0.6% from 0.5%, this pair is trading at €1.20 and there is scope for another upward move.	FORECAST
STERLING/US DOLLAR: US stocks are trying to recover at present, which is taking funds away from the US dollar.  The S&P stock index gained by 3.0% yesterday, funded to a large extent by US dollar. US data again ticked up in the form of improved existing home sales (though not by as much as hoped). Finalised US third quarter GDP is expected to remain at an annualised rate of 2.0% this afternoon. Sterling is trading up above $1.57 this morning despite rating agency Moody’s hinting that the UK’s AAA credit rating is vulnerable to downgrade. If this were to come to fruition, sterling would surely take a hit, but for now the market has turned a blind eye.	FORECAST
EURO/US DOLLAR: A volatile day’s trading saw this pair climb to $1.32 before dipping almost two cents lower, as market concerns over eurozone bond yields persist. How eurozone bond yields are going to be brought down in the short-term was neglected at the EU Summit earlier this month, and yesterday’s ECB loan tender may have been an attempt to fill this void. European banks need to increase their capital ratios by the middle of next year in line with the Basel III criteria, so there is a good chance that yesterday’s high demand will be used for this, rather than to bring eurozone bond yields down. The euro is trading up at $1.31 thanks to a positive start for European stocks. This level looks a little high and could be corrected lower.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling lost considerable ground against the aussie dollar in risk-positive trading conditions. Asian stock indices rallied last night by 1.5-2.0%, and took the aussie dollar with it. The aussie dollar rocketed back up through parity against the US dollar as a result. The ECB loan story is the key factor driving this improvement in global investor confidence and this relief rally looks to have some more legs in it yet. Sterling is trading down at 1.5450 against the aussie dollar, and we are likely to see the pound remain under pressure today as well.	FORECAST
STERLING/NEW ZEALAND DOLLAR: A volatile session saw this pair edge higher as regional market confidence dried up, though kiwi GDP data was impressive. Appetite for the kiwi was weaker yesterday, but the third quarter New Zealand growth figure beat expectations to the upside, ticking up to 0.8% from Q2’s 0.1%. The strong showing can be put down to this autumn’s Rugby World Cup, but underlying growth was actually less impressive so the kiwi failed to rally. Sterling is trading at 2.03 this morning and although this pair has been losing ground this morning, risks are to the upside.	FORECAST
STERLING/CANADIAN DOLLAR: Strong Canadian retail sales helped the loonie trade positively against the pound. Canadian retail sales came in well above expectations, climbing to an eight month high. Oil prices also continuing to climb, as are US stocks, which all played into the hands of the loonie yesterday. Taking a longer-term view of the Canadian dollar’s performance in 2011, it has actually been one of the worst performers, largely down to a US economic slowdown and worsening eurozone crisis. Sterling has lost ground to risky currencies in early trading but we should see a rebound as the session progresses.	FORECAST

Richard Driver, Analyst Markets turned remarkably positive yesterday in light of a positive German business climate data and a successful Spanish debt auction. Global stocks rallied and dragged riskier currencies with them, leaving the dollar on the back foot in mid-week trading. The MPC minutes have been released this morning, revealing a unanimous vote in favour of holding the UK interest rate at 0.5% and leaving the Bank of England’s asset-purchasing programme (QE) unchanged at 275bn. The door was unsurprisingly left open to further QE.
STERLING/EURO: Sterling continues to creep higher against the single currency, but ECB loan offer could help the euro in the short-term.   The ECB today will be offering three-year loans to struggling European banks in a bid to ease the liquidity squeeze that is building as a result of the debt crisis. Demand is expected to be high for the ECB’s loans and market tensions surrounding an impending credit crunch have lifted considerably in the past session. This morning’s MPC minutes revealed UK policymakers are firmly in wait and see mode. The Bank of England’s Broadbent yesterday reminded investors that the UK economy is in a painful period of transition, but cautiously asserted that our banks are better equipped to cope with financial shockwaves than before the financial crisis. Sterling is approaching the €1.20 mark this morning but the euro may have a stronger day in light of positivity surrounding the ECB’s liquidity commitments.	FORECAST
STERLING/US DOLLAR: The US dollar is weakening off fairly aggressively in risk-positive conditions, but our preference for the greenback remains unchanged. Sterling has climbed by almost two and a half cents from Monday’s closing price, which is a reflection of the considerable injection of risk appetite we saw yesterday. US housing data added to the positive sentiment on display yesterday, and more is likely to come this afternoon. We may see risk assets continue to recover today, after many sessions under pressure, which is likely to keep the US dollar on the back foot. Still, even with the ECB’s three-year loan offer, we favour the US dollar as the prime safe-haven in an uncertain start to 2012. Nonetheless, sterling is trading up towards $1.5750 this morning, which represents a one-month high and a good rate to buy the dollar.	FORECAST
EURO/US DOLLAR: The euro is trading a cent and a half higher against the US dollar as Spain enjoys a positive bond auction.   Yesterday’s Spanish bond auction drew solid demand and the ECB’s loan offer is only likely to help bond yields in the eurozone, with banks more willing to buy peripheral debt. Yesterday’s strong German business climate survey also helped the euro, and a German consumer climate was also better than expected, all suggesting that the German economy could bounce back from here. Global equities rallied and the euro predictably tracked these gains, climbing to a much more comfortable level of 1.3150 against the US dollar. Further gains seem fairly likely as sentiment continues to improve.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling lost considerable ground against the aussie dollar in risk-positive trading conditions. Asian stock indices rallied last night by 1.5-2.0%, and took the aussie dollar with it. The aussie dollar rocketed back up through parity against the US dollar as a result. The ECB loan story is the key factor driving this improvement in global investor confidence and this relief rally looks to have some more legs in it yet. Sterling is trading down at 1.5450 against the aussie dollar, and we are likely to see the pound remain under pressure today as well.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The kiwi dollar made some hefty gains despite a widened NZ current account deficit. Data last night revealed that New Zealand’s current account deficit worsened to its worst level in a year. However, as usual international developments proved far more important and the kiwi dollar joined in on the rally in riskier assets that we saw yesterday. Sterling is trading down below 2.03 this morning, and a bounce back may have to wait for today and perhaps even this week, but sterling should return to higher levels before long, with major concerns over the eurozone likely to resurface.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling erased some early gains against the loonie as US stocks rallied on positive headlines from the eurozone and the US economy. The Canadian dollar recouped some ground as the eurozone’s short-term situation improved. Further positive signs from the US economy, this time in the form of the housing market, also added to the improved outlook for demand for Canadian exports. Still, this is a less volatile pair than GBP/AUD or GBP/NZD, and sterling’s losses were capped. Sterling continues to trade close to 1.61.	FORECAST

Investors finally punishing the euro

Euro suffers heavy losses

The euro suffered heavy losses last week as the markets set about pricing in a lack of any real or satisfactory progress at the Dec 9th EU Summit, and the near certainty that 2012 will be another very rocky year for the single unit. Eurozone downgrades are currently the number one driver of market fears at present. Moody’s has cut Belgium’s rating, Fitch has asserted that a comprehensive solution to the debt problem is “technically and politically beyond reach” and has proceeded to place major eurozone nations such as Italy and Spain on a negative watch. Action from Standard &Poor’s seems highly likely before long and it could well be France’s triple-A rating in the firing line.

The euro is trading at an eleven-month low against the pound and the US dollar. Eurozone bond yields remain under pressure, the markets are clearly frustrated and it is quite clear that the rating agencies are too. In this environment, we see the euro making a difficult start to 2012.

Eurozone finance ministers agreed yesterday to bolster the IMF’s resources by €150bn. The market will always welcome greater commitment to support the eurozone’s struggling nations by increasing available aid, but with the decisions contingent upon the parliamentary approval of individual member states, the euro has failed to gain as a result. Besides in reality, €150bn does little to change the complexion of the eurozone crisis.

UK data disappoint further, but sterling unperturbed

Last week’s UK growth figures added to an already gloomy economic picture. UK unemployment is now at a fresh 17-year high and retail sales contracted by 0.4% in November. Still, sterling was largely unaffected by these figures.

Rating agency action n the UK’s triple-A status is the key risk as far as sterling is concerned. The market has come to terms with low growth and high debt in the UK, but if these two factors worsen sufficiently to prompt rating agencies to downgrade UK debt, then sterling could well lose the quasi-haven status it has been benefiting from in the past few months. If UK gilts lose their appeal, then so too will sterling to a certain extent.

The MPC minutes are released this Wednesday, and expectations surrounding it are fairly muted. The MPC will remain in wait-and-see mode until it steps up it QE programme in February and there are not too many talking points besides the UK economy’s uncertain outlook.

Sterling is trading at €1.1950 and €1.20 before the year’s end is by no means out of reach. Against the US dollar, again sterling is looking decidedly more vulnerable but having climbed up towards $1.57 today, is actually holding up pretty well in what are distinctly risk averse trading conditions. The euro is desperately holding on to the $1.30 level but we continue to favour the safety of the US dollar, particularly with S&P liable to make their voice heard in coming sessions.


End of week forecast
GBP / EUR 1.1975
GBP / USD 1.56
EUR / USD 1.3025
GBP / AUD 1.57

Richard Driver
Analyst – Caxton FX
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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