Risk on sentiment has returned

Risk on sentiment has returned. EUR/USD was down at 1.3030 yesterday and then spiked around 1.3210, with 1.3220 being a key level preventing any further moves higher. We were down to near the 1.30 level in the Asian session as renewed uncertainties over the Greek deal surfaced. Early in the European session yesterday sentiment toward the single currency improved on the back of better than expected German Manufacturing PMI figures, coupled with positive manufacturing figures from the UK and China that suggested the start to 2012 and the global macroeconomic environment is more resilient than previously thought and subsequently is stimulating risk appetite. Where now for EUR/USD? We’re looking for a break in either direction with trading ranging between the key psychological support level to the downside of 1.30 and the aforementioned 1.3220 level. EUR/USD has failed to sustain a break above 1.32 after repeated attempts. In my opinion, if we don’t see a clear break above the 1.32 level in upcoming trading sessions then a downtrend will commence (which in my opinion is what the pair will do). This downtrend will accelerate with further pressure put on the EUR if we don’t see a satisfactory outcome to the Greek deal (answers on a postcard to what a ‘satisfactory’ outcome actually is please) and I still maintain my view that the single currency will weaken, and quite considerably, this year. Investors are now looking at the situation in Portugal and becoming concerned that they’ll follow in their southern neighbours’ footsteps and undertake a restructuring of their debt. Will it be another case of delaying the inevitable with Portugal? After all the noise in recent years and the ‘sweeping under the carpet’ of problems until they become critical I feel before too long we’ll be discussing Portugal, austerity implementation, haircuts and the like.

GBP/USD was a beneficiary yesterday of the uptick in EUR/USD with cable posting new yearly highs breaking through the 1.58 figure and is now sitting comfortably above this level. Is it going to 1.60? At the moment it is looking likely with the dollar coming under heavy selling pressure across the board. If you’re a USD buyer I’d look to implement market orders around 1.5850/1.59 and potentially the 1.60 level. If we have any spikes on an intraday basis then you could benefit from these levels. Please contact me to discuss placing these orders. We’ve had a slight downward move this morning on GBP/USD with UK Construction PMI pushing it lower with an expected figure of 52.7 in January however the release came in at 51.4.

EUR/USD is the driver for GBP/EUR and GBP/USD at the moment. With the Greek PSI deal promised to be completed by the end of this week expect volatile trading conditions. I’d look to work market orders on GBP/EUR, GBP/USD and EUR/USD to take advantage of the volatility.

Out of the EMU this morning we’ve had PPI data out (YoY) and (MoM) (Dec) that came under expectation. Figures came in at 4.3% and -0.2% respectively against the market consensus of 4.4% and -0.1%. Across the pond this afternoon we have initial and continuing jobless claims followed by Non farm productivity (Q4), Unit Labor Costs (Q4) followed by Bernanke’s testimony on how the Fed views the current climate of the US economy and the value of the USD. All eyes will on the non farm figure released tomorrow which as normal will be very volatile around 13.30 (UK time). If you have any questions on anything please contact me to discuss.

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Risk on sentiment has returned

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