Where now for the Euro? After the initial uptick on Friday at the EU summit the EUR plummeted against the USD yesterday down to new lows of around the 1.3160 mark. Investors are now shunning riskier assets and thus fuelling the demand for the US Dollar as a safe haven. So, the crisis rumbles on with no clear direction or answers forthcoming. The market is not convinced on what it’s heard in recent days. Fitch ratings and Moody’s Investor Services said last weeks summit “offered little help in ending the regions debt crisis”. Will rating agencies now cut Sovereign credit ratings in the common currency area? If they do so, then there is no other alternative than the EUR to fall and Dollar strength to accelerate and in my opinion we’ll see EUR/USD under the 1.30 level. This should be enough to push GBP/EUR towards the 1.20 level. These levels shouldn’t be surprising as we feel the EUR has been overvalued throughout the course of this crisis however the EUR has always maintained its stubbornness. I think we’ll finally see the necessary correction in the EUR and it’ll be pushed lower on the threat and implementation of a downgrade by the rating agencies.
GBP has reached nine month high’s against the embattled single currency. If you have any kind of EUR requirement please contact to discuss securing some of your exposure at these levels. If you know a likely requirement for January/February and haven’t utilised Forward Contracts/Time Options before then now is an opportune time to do so. In addition, ‘Limit orders’ and ‘OCO’s’ should be considered at these elevated levels on GBP/EUR to limit your currency risk.
Indeed, the EUR has fallen some 1.6% this past month with the US Dollar appreciating 3.1%. We have the Federal Reserve policy meeting tonight (UK time) where the US Central bank are expected to keep its target rate between a level of 0 – 0.25%. With the US economy showing signs of life, the expectations for a further injection of QE have decreased amongst analysts. With the expectation changing we may see some support for the US Dollar that’ll drive further pressure onto the EUR/USD cross.
We have had better than expected data out this morning in the UK with the house price index rising from -0.9% to -0.4%. We’ve had Retail Price Index figures along with the Consumer Price Index that all came in on target with Core CPI being the only figure coming in slightly below expectations. GBP is relatively unchanged after the release of this data.
We have German and EMU ZEW survey’s out this morning that will be closely monitored by the market that will look to see what the institutional investor sentiment is in these regions along with the current climate. The difference between those that are optimistic and those that are pessimistic will give us some movement on the EUR dependent on the positive/negative figure. How the outlook can be positive is beyond me however we shall await the figures. Expect more volatility on EUR crosses today. Other data out today consists of Retail Sales out of the US (Nov) where it is expected to show an improvement from October coming in with an improvement of 0.1%.
The markets are very hard to call at present. The EUR should lose further ground however it takes just one positive comment/action from the ECB/officials to change the direction of the single currency. I’m going to suggest we’ll see further weakness over the coming days with slight upward intraday moves on the EUR however with the downtrend remaining. I would say however that if you’re a buyer of EUR and seller of GBP then at these levels (best for 9 months) it may be a wise move to cover of some of your exposure. Please contact to discuss.
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