A volatile day yesterday saw the Euro weaken

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Euro weaken by over 100 points against the Dollar and Sterling

A volatile day yesterday saw the Euro weaken by over 100 points against the Dollar and Sterling from its Sunday night highs, as the positivity surrounding the outcome of the Greek election was worn away by the need for Greece to form an effective coalition quickly.

The hope is that the New Democracy party can form a coalition with Pasok and once this is announced it should give the Euro a short term boost. The storm cloud on the horizon however is Spain and market fears were not eased this morning with the announcement that the Spanish bank stress test results will not be ready until September. This pressure on the Euro is likely to lead to more stimulus packages from both the UK and the U.S.A. with Bank of England Governor Mervyn King forecasting further quantitative easing in his speech last week. We should learn more tomorrow with the release of the Bank of England minutes and also the Fed’s interest rate decision followed by Ben Bernanke’s press conference. Expect a lot of volatility throughout the day tomorrow off the back of these releases.

There is plenty of data out today and this morning saw some poor figures out of the UK and Germany. Consumer Price Index figures released at 09.30 out of the UK were lower than expected coming in at 2.8% with expectation being 3%. Retail Price Index was also down slightly at 3.1% with an expectation of 3.3%. We saw Sterling come off slightly after the announcement with cable dipping 40 points. Although looked on as a negative figure, I don’t think inflation falling is that much of a problem, the last thing we need is inflation rising through the roof while wages are kept on hold. The ZEW Survey out of Germany this morning, which measures economic sentiment, came in a lot worse than expected highlighting the markets view on the European crisis as very bearish. This afternoon at 13.30 we have housing data out of the U.S.A. which should be positive as it looks like we have seen the bottom in the American housing market. This could give the Dollar a boost off the back of a good figure.

If you are a seller of AUD it may be a good time to take advantage of where the rate is at the moment. We have seen AUD strengthen over the last month moving from 1.61 in mid-May to now below 1.55 against GBP. If you are transferring funds back to the UK in the near future it may be worth securing part of your funds to protect yourself against any move back upwards in the rate.

Written by David McNeill, Axia Fx

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