EUR/USD has broken through the 1.30 barrier...

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EUR/USD has broken through the 1.30 barrier and hit the 1.2910 level in yesterday’s trading. In the overnight Asian session the pair was capped at 1.2968 and there’s been further downside pressure in early London trading. We’re currently quoting around the 1.2940 level. I see a further push lower with a break below 1.2910 opening the gates to the next target level of 1.2875. I don’t see any reason for optimism on the EUR. Perhaps fundamentals are finally coming into play after what seems an eternity of EUR resilience? With the ECB May monthly report released this morning showing unemployment in the Eurozone will increase
to 11% against a previous forecast of 10.6% and analysts expectations of a decline in GDP growth by 0.1% in 2012 it only points to one thing to me – an escalation in the crisis, and thus further EUR weakness.

A Bloomberg Poll suggests that more than 50 per cent of investors are predicting a Greek exit this year with the election and Government in Greece to put not too fine a point on it, a complete shambles. There will be more debt restructurings and I’d be amazed if Greece don’t leave the Euro within the year. As I said many
weeks ago the key driver for the market is now politics. With the French elections having put its first Socialist premier in place since 1981 the dynamics of the German/French alliance are set to change. Up until now policy makers have been adamant that Greece will not leave the Euro. They’ve been trying to provide confidence to the market that the Euro as an ideology was/is sound. Could there be a new round of elections as a referendum on membership? Quite possibly. Once a strong advocate that Greece would definitely not leave, German Finance Minister, Wolfgang Schaeuble, seems to have relaxed this view proving that a Greek exit is more likely than ever. “If Greece decides not to stay in the Eurozone, we cannot force Greece. They will decide whether to stay in the Eurozone or not”.

So what of GBP/EUR? Well, if you’re going on holiday to Europe this summer you’ll have more money in your back pocket than you will have had for the past 3 ½ years! Sterling is now firmly in the 1.24s against the single currency. Where now? I’d look at further EUR weakness rather than GBP strength as being the key driver to push the pair through the 1.25 level. If you’re a buyer of EUR and you haven’t yet already done so; put an order in the market to take advantage of any sharp upticks in intraday trading. If you’re looking at 1.25 being a nice round number then put an order in at that level and we’ll automatically execute it for you whether that be in the UK/US or overnight Asian session. If you have an exposure for the next 1 month/3 month period look to cover off with a Forward Contract or a Time Option. You can also look to utilise an ‘OCO’ thus covering your downside risk with a stop loss and taking advantage of any moves to the upside with a market order. If I’d told you 3 months ago you could achieve 1.24 on Spot you’d have covered off as much as you could. If you have Spot business to execute achieving above 1.24 is not a bad level at all to
secure. Contact me to discuss.

GBP/USD has settled into range bound trading between 1.61 and 1.62. We’ve had industrial and manufacturing production in the UK out that came in line with expectations, with YoY contractions of 2.6% and 1.3% respectively. MoM growth rates came in higher than expectations. The main event of the day has been the BoE interest rate decision and the decision on whether to modify the Asset Purchase Facility (QE) that currently stands at 325 billion GBP. Shock horror, both unchanged as I said Tuesday. We’ve had Sterling strength on the back of this pushing the pound up against both the EUR and the USD. I expect GBP/EUR to push through the 1.25 level. It’s too soon for more QE so that’ll maintain GBP coupled with an increase of EUR weakness.

What have we got on from across the pond this afternoon? We have Initial jobless claims (May 5) and Continuing jobless claims (Apr 28) with the US trade balance (Mar) released followed by Bernanke’s speech. We also have the US Monthly Budget Statement (Apr) out at 18.00pm GMT.

On the back of the unchanged UK interest rate and no further easing I’d look at 1.25 on GBP/EUR being a target level today and tomorrow. Contact me to discuss as there may be a lot of resistance around the figure and we may see a retracement back off so look to secure if you’re a buyer of EUR from GBP.

Any questions let me know. Happy to discuss.

Written by Liam Alexander, Axia Fx

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