Richard Driver, Analyst The currency markets were relatively calm yesterday, despite Standard & Poor’s downgrade to the European Financial Stability Fund by one notch. Focus was directed at last night’s Chinese GDP figure, which turned out to be positive and gave market confidence a much-needed kick. Today’s session brings the monthly UK inflation update, which is expected to show a sharp easing in price pressures. Whilst consumers will be relieved, this won’t be particularly positive for sterling.
STERLING/EURO: The euro benefited from a minor bounce overnight, regardless of downgraded bailout fund. Given that it is no longer backed by AAA-rated member-states (by S&P at least), it is little surprise to see S&P remove the bailout fund’s top rating. From the eurozone, we have a very important German economic sentiment survey, which is expected to be poor and could well weigh on the euro this morning. Later on this week there are further bond auctions from Spain and France, which should reveal what impact the recent debt downgrades will have on the eurozone’s struggling countries. For now this pair is trading at 1.2050.	FORECAST
STERLING/US DOLLAR: A bounce in the euro/dollar pair gave sterling a little upside against the greenback. Yesterday was a weaker session for the US dollar but this does nothing to change our bright outlook for the US dollar. The good news from China gave risk appetite a nudge in the right direction but it seems highly likely that Standard & Poor’s actions will have a lasting effect on confidence, which should see the dollar remain in favour. This pair is trading at $1.5370, but a move much higher is unlikely with the next negative headline seemingly just around the corner.	FORECAST
EURO/US DOLLAR: The euro brushed off another debt downgrade on Monday, as traders tried to put the weekend’s news behind them. These small retracements of the euro’s losses will not worry those betting on further dollar-gains; this pair’s downtrend remains very much intact. We will see what eurozone inflation has done in the last month later this morning, no change is actually expected but risks are towards a lower figure which might make ECB quantitative easing a more palatable idea to the Germans. Today’s session brings some manufacturing data from the US, which is expected to show a further uptick and could benefit the US dollar today. For now, this pair trades a little higher at $1.2750.	FORECAST
STERLING/AUSTRALIAN DOLLAR: A surprisingly strong Chinese GDP figure saw the aussie dollar push on even further. This pair has declined by more than eight cents in the past month, and the latest boost was given by a Chinese GDP figure that beat expectations to the upside. After last quarter’s figure of 9.1%, a showing of 8.7% was anticipated, but the market was relieved to see 8.9% growth. Chinese growth for 2011 stands at an impressive 9.2%. Good news for China is good news for Australia. This pair has broken down through support levels at 1.48 this morning, and there is scope for further sterling losses towards 1.47 today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The kiwi dollar is making hefty gains this morning in response to the good news from China. Sterling has already declined by a cent and a half since last night, purely as a result of the news that China grew at a faster pace than expected last quarter. There has been growing speculation of a sharp decline in Chinese growth of late, but figures such as these and the good industrial production figures that accompanied last night’s GDP figure, point to a “soft landing” from the booming growth of last year. This pair is trading down at 1.9150 this morning, and a further decline looks a good bet today. The kiwi dollar is performing excellently at present.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling lost further ground against the Canadian dollar, ahead of Bank of Canada interest rate meeting. The good news from China filtered into demand for the loonie as well, and this pair saw further downside. Today’s session brings an important US manufacturing indicator, which should benefit the Canadian currency. The main event today is the Bank of Canada’s monthly rate-setting meeting. The central bank is expected to leave rates on hold at 1.0%, but the assessments made within the BoC’s statement will be watched closely. This pair is trading at 1.5550 today and could lose further ground.	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 After rumours of a French credit downgrade sent the euro tumbling on Friday, Standard& Poor’s dealt nine eurozone states the blow it has been warning of for weeks. The news undermined the positivity that had emerged as a result of ECB President Draghi’s surprisingly upbeat press conference on Thursday. The markets will continue to mull over Friday’s events, particularly European traders who have not yet responded. There is a dearth of scheduled announcements today, though Draghi will be speaking this evening.
STERLING/EURO: Eurozone downgrades give sterling a cent and a half push in the right direction. France and Austria lost its AAA credit rating from S&P on Friday (which represented a one notch cut), whilst other eurozone states including Spain, Italy and Portugal were dealt a two-notch blow. The move was expected by many, though it did catch the market a little off guard by coming sooner than expected, and the euro weakened as you would anticipate. Sterling is trading up at a healthy €1.21 level this morning and we are betting on further euro-weakness this week. With eurozone data consistently weak, the euro is unlikely to get much respite in the coming sessions.	FORECAST
STERLING/US DOLLAR: Sterling continues to trade at multi-month lows against the safe-haven dollar as the floodgates of eurozone headlines reopen. US consumer sentiment data was impressive on Friday, hitting an eleven-month high and pointing to further gains in US economic improvement. Today is Martin Luther King Day in America, so we will have to wait until tomorrow for some further US economic indicators. Global stocks inevitably finished in the red on Friday, with the US dollar a key beneficiary. Still though, UK gilts remain a safe-haven and sterling sees investment by association, so there was no major side for this pair, which is trading at $1.53.	FORECAST
EURO/US DOLLAR: Eurozone debt downgrades trigger a two-cent collapse for this pair and confidence is likely to be scarce this week. The euro resumed its downtrend against the US dollar on Friday. Reports merged that Greek negotiations on private sector involvement (haircuts) have stalled, but the blanket downgrade in the eurozone naturally stole the headlines. Bond yields are likely to feel the heat this week as a result, regardless of the ECB’s liquidity operations. The euro is trading below $1.27 this morning and there is a chance of a brief relief rally today, but beyond this we are betting on further euro losses as the picture worsens once again.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Even the negative eurozone headlines can’t seem to drive sterling higher against commodity currencies like the aussie dollar. Australian jobs data was poor again last night, contracting for the fifth month out of six. Home loans data was better, possibly helped by the recent Reserve Bank of Australia’s interest rate cuts. The labour market issue in Australia is a real concern though, and we may see it push the RBA to cut rates again soon. This evening’s Asian session brings a key Chinese figure – final quarter 2011 GDP. The aussie will be driven by this data release. This pair is trading just above 1.48, and only a stronger than expected Chinese figure is likely to drive sterling lower.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The kiwi dollar proved remarkably resistant to the eurozone debt downgrade headlines. The kiwi dollar is at all-time highs against the euro, suggesting it is a key beneficiary of the eurozone’s current woes. Certainly, we have been expecting the kiwi dollar to weaken off in line with reduced risk appetite. Tonight’s session brings some kiwi business confidence data but this pair looks likely to test lows down at 1.90 at some point this month. If a blanket downgrade in the eurozone doesn’t hurt the kiwi dollar, it’s hard to see what will at the moment.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling remains weak against the Canadian dollar, which continues to benefit from improvements in the US economy. Friday’s excellent US consumer sentiment data bodes well for the Canadian economy and its currency. There was more good domestic news as a result of a monthly trade surplus, though US trade balance data was the poorest we have seen in five months. Oil prices also dipped three cents to $111 per barrel, but sterling remains weak against the loonie.   Sterling is trading at 1.56, and support levels need to kick in today if another slide is to be avoided.	FORECAST
This email 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 was an action packed session yesterday, with the Bank of England and the European Central Bank giving their monthly interest rate decisions, as well as a subsequent press conference with ECB President Trichet. Elsewhere, UK manufacturing and industrial production data disappointed, we saw some rare poor US figures and a remarkably positive Spanish bond auction. There is a shortage of major data releases today, so traders will continue to reflect on yesterday’s events, though this afternoon does bring some US trade balance and consumer confidence figures.
STERLING/EURO: BoE and ECB keep interest rates on hold, but a fairly upbeat Draghi and strong Spanish bond auction give the euro a boost. As expected, the Bank of England kept interest rates at 0.50%, as they will do for at least the rest of this year. They also kept the asset purchase programme at £275bn, which is not expected to be stepped up until next month. UK manufacturing production was poor yesterday, revealing a contraction and lowering expectations for fourth quarter UK GDP. The ECB kept the eurozone interest rate on hold at the record low of 1.00%, though another cut is expected to come in the coming months. Draghi asserted that the cheap ECB loans issued last month are having a positive impact and by the result of yesterday’s Spanish bond auction, he may be correct. Spanish yields came down and they saw huge demand, the same may be true today of another Italian bond sale. Sterling is trading at €1.1950 and may remain under pressure today, though better levels should be revisited next week.	FORECAST
STERLING/US DOLLAR: The EUR/USD pairing dragged this pair up off its multi-month lows, with retail sales figures revealing the US is not out of the woods yet. US core retail sales data revealed the first monthly contraction since June 2010. Weekly US unemployment was also weaker than expected, so the market was given a reality check on the uncertainties that remain for the US recovery. Nonetheless, US consumer sentiment is expected to tick up for the fourth consecutive month. Sterling is trading up towards $1.54 this morning, benefitting from a period of dollar weakness. US stocks were on the up yesterday ensured a poor session for the greenback. Sterling may be able to maintain these levels for the time being, but we continue to bet on a stronger dollar.	FORECAST
EURO/US DOLLAR: The market was very short of euros leading up to yesterday’s events, and we saw the single currency benefit from some short-covering. ECB President Draghi gave a fairly upbeat (or perhaps balanced) assessment of conditions in the eurozone. We were expecting to see an understandably pessimistic press conference, but Draghi was positive on the impact of cheap ECB loans on bond yields and easing credit lines. This pair is trading at $1.2850 this morning, well off its lows more than a cent and a half lower. We still see EUR/USD resuming its downwards trend in the coming weeks though, particularly with S&P likely to take downgrading action soon.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling halted its decline against the aussie dollar as long-term support levels kicked in, but declining bond yields improved market sentiment. Positive bond auctions in Spain and Italy yesterday kept risk appetite broadly on the front foot. We remain sceptical that the aussie dollar can appreciate much more, given the risks that continue to hang over the eurozone and the global economy. Sterling has bounced off a rate of 1.48 and is trading half a cent higher. We are likely to see the 1.48 level retested today but we may see it hold firm.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling benefited from a welcome bounce against the kiwi dollar, but these remain very weak levels. Asian stocks climbed yesterday; the Nikkei index rose by almost a percent and a half. However, the kiwi came off marginally, showing signs of being overbought and overextended. Poor US data may have adverse impact on appetite for the kiwi dollar as well. This pair is trading at 1.9350 this morning, having reached lows towards 1.92 yesterday. Sterling will surely see higher levels against the kiwi dollar as soon as eurozone downgrade and Greek default headlines spring up once again.	FORECAST
STERLING/CANADIAN DOLLAR: Poor US retail sales data ensured that sterling found some support against the Canadian dollar.   Contracting US retail sales naturally weighed on sentiment towards the Canadian dollar. Oil prices also fell off sharply yesterday, with Brent crude dropping from close to $115 per barrel to below $111, although it is trading a cent higher today. The Canadian dollar will respond to this afternoon’s US trade and consumer sentiment data, and whilst the former is expected to be poor, the loonie may find some support from the latter. For now, this pair trades just above 1.56.	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 suffered another slide yesterday, which took EUR/USD to new lows and dragged GBP/USD with it. Today’s session sees the European Central Bank make their monthly interest rate decision, and whilst there is a chance of a rate cut, a rate hold at the current 1.00% level looks more likely. Also today are bond auctions by Italy and Spain, which is bound to keep the market very much on edge. From the UK, we have some UK manufacturing and industrial production data to look forward to.
STERLING/EURO: Sterling actually lost a little ground against the euro (which remains weak itself), ahead of today’s key ECB meeting. After having cut rates at his first two meeting’s as President of the ECB, Draghi is expected to leave interest rates on hold at 1.00%. As far as quantitative easing is concerned, the market is likely to be disappointed. QE is seen as one of the tools with which the EU can really address its issues, but Germany remains in opposition, particular with inflation still high (though easing). The Bank of England will also be meeting today, but there are few expectations of anything other than an unchanged policy towards the 0.50% interest rate and 275B asset purchase facility (QE). Next month will be a different story though. This pair is trading just above 1.20 and may even dip below this level today.	FORECAST
STERLING/US DOLLAR: Dollar strength has taken this pair to its lowest level in a year and a half, with a key Fed policymaker even indicating an interest rate rise (though a long way away). US Federal Reserve policymaker Plosser has stated that the economic conditions may dictate that the US central bank may need to raise interest rates before mid-2013, as previously pledged. This would be highly supportive of the dollar. Data today is likely to show that US retail sales have grown further in recent weeks. Today’s eurozone bond auctions provide plenty of scope for further dollar safe-haven flows. This pair has now broken its trading range to the downside, as expected, and we are anticipating further moves down towards $1.50 in the coming weeks and months.	FORECAST
EURO/US DOLLAR: Rumours of a French ratings downgrade triggered some euro to dollar flows, and this pair is looking vulnerable. Rumours floated about yesterday that France will incur a debt downgrade from Standard & Poor’s. The extent of the downgrade could be critical, one notch may be already priced into the market at present, but a two-notch downgrade could hit the euro hard. This pair remains at very low levels close to $1.27 and we continue to look for further declines. It is difficult to see the euro bouncing back against the USD at present, with so many risks hanging over the single currency.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling continues its downtrend against the aussie dollar, despite some higher than expected Chinese inflation data. Expectations of monetary stimulus in China have built in recent weeks, but higher than expect Chinese inflation data (4.1% y/y) reduces the scope for this. As such the outlook for Chinese growth is marginally affected. Nonetheless, the Chinese inflation still eased and the aussie dollar marched on. The aussie dollar looks very overbought at these levels and must surely suffer from some profit-taking soon. It is also susceptible to a drying up of risk appetite as a result of events in the eurozone today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The kiwi dollar continues to outperform sterling, though eurozone bond auctions will test this. The kiwi dollar has been the top performing major currency so far this year. Kiwi commodity prices declined for the seventh consecutive month in December, but the NZD continues to make gains regardless. This pair is now trading at 1.92, but poor eurozone bond auctions have a habit of hitting risk appetite hard, which may help sterling bounce back against the commodity currencies today.	FORECAST
STERLING/CANADIAN DOLLAR: Sterling has had a poor few sessions of late, having lost three cents against the Canadian dollar.   This pair has fallen sharply from October’s highs above 1.63 and now looks to be targeting another visit to September’s lows below 1.55. The upturn in the US economy is primarily responsible for this, as well as evidence of ‘soft landing’ in China (a controlled decline in a still solid growth rate rather than a crash). This pair is currently trading below 1.56 and we think today’s session could finally see this pair bounce a little.	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 markets are lacking much stimulation at present and we are seeing plenty of range-bound trading. Rumours suggest that investors may have to accept a 60% write-down (haircut) on their Greek bondholdings, up from the 50% originally agreed towards the end of last year. Today’s session is another quiet one in terms of scheduled releases. We may have to wait until events tomorrow to kick the market into action; the ECB’s press conference should throw up some volatility.
STERLING/EURO: Sterling traded within a pretty tight range yesterday, but continues to look well supported at these multi-month highs. The markets will keep an eye on demand at a German bond sale today. Compared to the rest of the eurozone, German bond auctions are nowhere near as alarming. However, even the slightest deterioration in demand for the paymaster’s debt causes market nerves. Fitch’s ratings gave the market a bit of a scare yesterday by stating publically that there is a “significant chance” of a downgrade to Italian debt. This is hardly a surprise but will weigh on sentiment nonetheless. Sterling is trading up above €1.21 this morning, and there no major moves are expected today.	FORECAST
STERLING/US DOLLAR: Trading for this pair has been particularly flat this week but the bleak outlook for the EUR/USD pairing should see GBP lose out to the dollar. We have now heard several US Federal Reserve policymakers this week and the doves certainly appear to be shouting louder than the hawks, as you would expect in such an uncertain global economic environment. Interestingly though, there appears to be good support for additional monetary easing, though not through QE3, rather through mortgage backed securities. Sterling is trading at $1.5450 and is a avoiding a downside move for the time being. UK trade balance data may give sterling an issue today, with the deficit expected to widen.	FORECAST
EURO/US DOLLAR: This pair is also struggling for direction, but reports that hedge funds may resist a Greek restructuring plan will concern the market. A 100bn euro plan to restructure Greece’s pile of debt is rumoured to be unsatisfactory to many private investors, which will only drag these negotiations out further. The eurozone’s final GDP for the final quarter of last year is expected to come in at 0.2%, a pretty weak figure that will already priced into the euro. Euro/US dollar is trading just below $1.28 this morning and there is room for further sideways movement today. Market players may well hold off and wait for tomorrow’s ECB events.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Sterling continued to trade positively yesterday in the wake of the positive Chinese trade balance headline. Chinese inflation data will be released this morning and is expected to ease for the sixth consecutive month, which is a positive for Chinese economic growth and therefore demand for aussie exports. Sterling is desperately trying to keep its head above the 1.50 mark against the aussie dollar, and whilst in the longer-term we believe it will, it may see some further downside today.	FORECAST
STERLING/NEW ZEALAND DOLLAR: Sterling’s brief bounce against the kiwi dollar was short-lived, and it is on the defensive once again. Concerns over an Italian debt downgrade from Fitch’s ratings ensured the rally in risk was interrupted yesterday. This pair has declined by ten cents in the past month, which is more a case of kiwi dollar strength than sterling weakness. This pair is trading at 1.9450 this morning, there is plenty of opportunity for risk appetite to dry up this week, particularly ahead of bond auctions in Italy and Spain tomorrow.	FORECAST
STERLING/CANADIAN DOLLAR: The Canadian dollar continued to rally against the pound, probably trading off Chinese positivity. The recent strong Chinese trade data is not just positive for the antipodean currencies, other commodity currencies such as the Canadian dollar also stand to benefit. There was also some very positive housing data out of the Canadian economy yesterday. Risk appetite was positive in North America yesterday too, with the S&P 500 index gaining by a percent. Sterling has posted fresh three and a half month lows against the loonie but we are still sticking to our bet on a bounce for this pair soon.	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.

Weekly Analysis: Euro still looking vulnerable

Early year optimism disappears very quickly

There were signs of a rally in confidence and risk appetite in the session or so of 2012 but sentiment quickly deteriorated due to all the familiar eurozone-related concerns. Poor demand at eurozone bond auctions (including that of Germany, much to the market’s concern) and widening yield spreads saw the euro resume its downtrend almost across the board. Linked to this are ongoing concerns of blanket downgrades throughout the eurozone when Standard & Poor’s decides to take action. There are plenty of bond auctions this week to keep the euro under pressure; Greece will look to the market on Tuesday, while Italy and Spain will do so on Thursday.

Also in the headlines in recent sessions has been the worsening economic picture in the eurozone. EU leaders finally appear to be willing to address the issue of eurozone growth. The debt crisis is having such as impact on confidence that the region is spiralling into recession and EU leaders have earmarked the Jan 30th meeting as an opportunity to look at eurozone growth and the region’s soaring unemployment levels (10.3% for the eurozone).

Figures last week revealed a eurozone services sector contraction, as well as negative monthly growth in both German and eurozone retail sales. Forward looking data such as German factory and eurozone industrial orders also undershot expectations last week. It seems businesses on the continent are preparing for the worst and sitting on their capital. With the lack of leadership we have seen on the debt issue, it is difficult to question why.

Merkel and Sarkozy’s meeting produced little of real note; they remain committed to the progress made on introducing greater budgetary discipline in the eurozone and continue to urge Greece to reach an agreement with private bondholders on haircuts before the country is given its 2nd bailout.

The ECB will have its monthly meeting and press conference on Thursday, which will surely overshadow the BoE’s Monetary Policy Committee meeting. We think there is a greater chance of another ECB rate cut than the market is currently appreciating. Eurozone data is only going one way and with inflation also beginning to ease, Draghi could well pull the trigger for the third consecutive month. That said, we are still betting that the ECB will keep its powder dry for this month, though another cut in Q1 is almost a dead cert.

UK growth takes a more positive turn, but for how long?

Last week’s monthly set of UK growth data take a turn for the better, with each of the services, manufacturing and construction sector figures beating expectations. The services sector was particularly impressive in December.

The outlook for the UK recovery remains highly uncertain and risks are firmly fixed to the downside. Sterling should benefit nonetheless, with hopes being raised that the Bank of England may be convinced that further quantitative easing may not be necessary after all. High demand for UK debt continues to support the pound; gilts were the top performing government bond for 2011 and are starting 2012 where they spent the last.

Sterling is trading up at a sixteen month high of 1.21 against the euro and the outlook is looking very strong for GBP/EUR. Less so against the dollar, the US recovery is gathering pace at an impressive rate, which is only adding to the safe-haven appeal of the greenback. GBP/USD is trading just above a four month low of $1.54.

End of week forecast:

GBP / EUR 1.2150
GBP / USD 1.54
EUR / USD 1.27
GBP / AUD 1.51

Richard Driver
Analyst – Caxton FX
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Morning Report

Richard Driver, Analyst Major headlines from yesterday’s session surrounded Merkel and Sarkzoy’s meeting, which indicated further commitment to last month’s pact on greater budgetary responsibility rules. Elsewhere, the scandal surrounding the private currency trading by the wife of the head of the Swiss National Bank has seen the central banker step down, though policy towards swiss franc pegging will remain unaffected. Today’s session is a very quiet one in terms scheduled data releases. This week’s next main event to which the market will begin casting their eye is Thursday’s ECB meeting.
STERLING/EURO: This pair saw range-bound trading, regardless of Merkel and Sarkzoy’s show of unity. Merkel and Sarkozy demonstrated a united front yesterday; they were committed to following through with December’s agreement on tighter fiscal union and urged Greece to make quick progress on reaching an agreement with private bondholders on haircuts, so that the country can receive its second bailout. The longer these negotiations drag on, the more pressing concerns of a Greek default and euro-exit become. There was a bit more positive news from the UK economy last night, a gauge of retail sales showed the best growth in eight months and house price data was better than expected. This pair is trading just above €1.21 this morning, and we may see further sideways trading for now.	FORECAST
STERLING/US DOLLAR: Sterling benefited from a minor bounce yesterday as support levels kicked in, but a move south will surely come. Support levels at multi-month lows near $1.54 gave this pair some welcome support, and sterling proceeded to creep half a cent higher on a fairly flat trading day in general. It shouldn’t be long until the $1.54 level is re-tested however. The outlook for the USD is much-improved from this time last year. Further QE looks more unlikely to come in the context of the last few weeks data and if the recent trend of positive data strengthening the greenback continues (when in the past strong US data has increased risk appetite away from the safety of the dollar), then it could be one of the top performing currencies this year.	FORECAST
EURO/US DOLLAR: The euro enjoyed a little rebound but it will be nothing to concern those betting on downside for this pair. This pair was trading at $1.42 in late October and is currently trading fourteen cents lower, so yesterday’s half-cent short-covering will not alarm investors with bets on the euro weakening. The downtrend remains intact and clearly the market saw little to get excited about with regards to Merkel and Sarkozy’s press conference yesterday. Asian sovereign buyers will be crucial if the euro is to slow its downtrend. The intensifying crisis of confidence in the euro is likely to reduce diversification away from the USD, but EU leaders still have the power to reinstall some faith in the single currency.	FORECAST
STERLING/AUSTRALIAN DOLLAR: Commodity currencies did well yesterday and this pair stooped to more than a five month low. Sterling is trading a cent lower this morning; the aussie dollar benefited from demand for Australian government bonds but Chinese trade balance data was the key driver of this pair’s weakness. The Chinese trade surplus showed an impressive uptick, and obviously reflects positively on Australia’s exports and economy. Aussie building approvals data was also strong. Support levels at 1.50 really need to kick in today if sterling is to avoid making a move out of its current range to the downside. We still see sterling bouncing back, though the risks that it will fail are significant.	FORECAST
STERLING/NEW ZEALAND DOLLAR: The encouraging news from China also benefited the kiwi dollar, which sent this pair to almost a four month low. The kiwi dollar is making even more impressive gains than its aussie neighbour at present. This is largely due to the fact that the RBA is far more likely to cut interest rates in the coming months than the RBNZ. Building consents data from NZ was pretty poor last night, but the kiwi dollar still marched on. This pair is trading at a very low 1.95 this morning; eurozone fears need to heighten if sterling is going to return to levels above 2.00.	FORECAST
STERLING/CANADIAN DOLLAR: The Canadian dollar traded very positively yesterday and looks likely to re-test support levels down at 1.5750. The negativity surrounding Canada’s domestic economy dissipated yesterday (for how long though, remains to be seen) as US stocks saw some upside. Markets are a little calmer this week compared to last, which is a positive for the loonie. The US economic growth story looks likely to support the Canadian dollar this year, and this should outweigh and probably even reverse weakness in the Canadian economy. Negative eurozone headlines remain the biggest risk to the loonie and we still believe the pressure will return to its detriment. For now though, this pair trades just below 1.5750.	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.

Caxton FX January Outlook: GBP/EUR/USD

December was an awful month for the single currency; the crucial EU Summit failed to satisfy market expectations and the euro was punished accordingly. Preceding the Summit, hopes for a holistic, assertive and credible plan to deal with the region’s debt profile were elevated higher than ever. Unfortunately the fiscal compact on budgetary discipline and various other commitments that were made did little to convince the market that EU leaders are on the right track. The region’s debt dynamics are finally taking their toll on the euro in a very material way.

Sentiment towards the UK economy has been at a particularly low ebb in recent weeks; growth figures have been disappointing and sights have been set very low for 2012 growth. Nonetheless, with the UK government remaining committed to its deficit reduction plan, there continues to be strong (and sterling-supportive) demand for UK gilts and there remains minimal scope for Bank of England intervention.

The focal points for this month are inevitably eurozone-related. Investors will be looking to the EU Summit on 30th of January with hopes for major decisions to deal with the debt situation. Growth will also be discussed and this has up until now remained a largely unaddressed problem. The eurozone looks likely to head back into a technical recession this year, and it goes without saying that the region cannot solve this crisis without economic growth.

Sterling/Euro

Slow progress and poor leadership are hurting the euro almost across the board at present. Sterling has climbed to a sixteen-month high of €1.2150 against the euro, which says far more about waning confidence levels towards the single currency than it does about the UK’s economic growth prospects.
Out of last month’s EU Summit came an agreement to top up the eurozone’s bailout resources by €200bn in IMF loans. Typically, and almost symbolic of EU leaders’ inability to take action, this figure was later revised down to €150bn. Agreements to bring forward the introduction of the European Stability Mechanism (the permanent bailout fund) by a year to the middle of 2012 and to enforce stricter budget discipline are valuable long-term developments, but they do little to deal with the region’s very pressing short-term issues. The market is short-termist by nature; investors are far less concerned with avoiding future crises, they are preoccupied with the threat that the current crisis poses to the very existence of the euro.

Rating agency action (or the threat of it) is worrying the market at present. The bodies responded to the latest EU Summit inaction by downgrading the ratings of eurozone states such as Belgium and put several key nations such as Spain and Italy on ‘negative watch.’ Fitch’s even came to the damning conclusion that a comprehensive solution to the debt problem is “technically and politically beyond reach.” Standard & Poor’s are yet to wield their axe but are likely to do so in coming weeks, and this represents a major threat to the euro and risk appetite more generally.

Bond auctions in the eurozone are also in sharp contrast. Debt sales have been attracting diminishing demand and, alarmingly, this even applies to the core countries of France and Germany. Bond spreads are widening throughout the eurozone (Germany excepted) and further bond auctions this month will keep the pressure on the euro.

Greece remains the first head on the chopping block and its government has already stated this week that they will be forced to exit the euro in the event that they do not receive a second bailout by March. We can expect nerves to build steadily ahead of this deadline.

The prospects for the UK economy, despite a couple of encouraging growth figures from the UK services and construction sectors this week, are distinctly gloomy. Flat to minimal (around 0.5%) growth seems likely this year, and the risks of a recession are very significant. However in truth, developments in the eurozone will have a greater say over the UK’s recovery prospects than domestic policy.

Risks for this pair are quite clearly to the upside from our standpoint; the uptrend may be stalled by bouts of profit-taking on sterling’s rallies, but we see this pair climbing a further cent towards €1.22.

Sterling/US dollar

Sterling has been trading within a three cent range of $1.54 - $1.57 since late November and although this pair has threatened a move to the downside several times, sterling has managed to maintain sufficient support.
The US recovery is finding some real transaction at present, we haven’t seen such consistently positive economic data flow in almost a year. US manufacturing, consumer confidence and employment gauges are all on the up. The labour market, which remains both the US government and the US Federal Reserve’s number one concern, in particular appears to be making some progress, with January’s key monthly employment change figure hitting an eight month high.

In comparison to slowdowns in economies such as the UK, the eurozone, China and many others, the upturn in the US is attracting plenty of investment besides safe-haven flows. Often strong US data will weaken the dollar but at present, the opposite is true. In addition, the upturn in the US is diminishing the case for further quantitative easing from the Fed, which again is a positive for the US dollar.

Safe-haven flows are still the number one driver of the greenback’s strength however. The eurozone situation continues to peg back risk appetite and we are confident it will do so for many months to come. With fears of central bank intervention hanging over the yen and particularly the swiss franc, demand for the US dollar is high.

With market confidence on a noticeable downtrend, we see this pair breaking its current range to the downside in coming weeks. A move towards $1.53 is our bet.

Caxton FX one month forecast:
GBP / EUR 1.22
GBP / USD 1.53
EUR / USD 1.26

Richard Driver
Senior Analyst – Caxton FX


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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.

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.