The EUR rose sharply against the USD yesterday

tony nguyen

The EUR rose sharply against the USD yesterday after news that the ECB settled no Government purchases last week. In addition to this there was some market noise that the UPS-TNT deal, valued at 5.2 Billion EUR, gave some weight to the EUR in yesterday’s trading. EUR/USD is hovering around the lower 1.32’s and I expect a retracement back down over the coming days. It seems to hit a floor of 1.30 and then over upcoming sessions bounces to the mid 1.32’s and then falls back. Until we see a clear break above 1.33 or below 1.30 I think we’ll continue to trade in this range.

There wasn’t much drama from the peripheral nations Spain and Portugal yesterday that investors are waiting to see. We had a release from Moody’s saying that they were maintaining the A3 Government bond rating to Spain, although it placed the country under negative outlook, really due to the fact that it’s budgetary constraints remain a challenge that broadly suggest that further fiscal adjustments will need to be
implemented. I expect a further revision of their fiscal target for 2012 as although their new target is more realistic the structural reforms they need to implement to meet their target are vast. I don’t expect them to get their house in order that quickly and that’ll turn into EUR weakness down the line.

GBP/USD rallied above 1.59 yesterday as the Dollar took a hammering at the start of the US session. Cable climbed to a 2 week high. If you’re a buyer of USD put an order in the market. There is no cost attached to doing this and you can achieve the high of the market during UK, US and the overnight Asian session. It gives you access to the 24 hour market instead of being confined to placing trades in UK working hours. Contact
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GBP/USD couldn’t sustain the push above 1.59 and we’ve dropped off overnight back into the 1.58s. I’d expect this rally to be short lived and we’ll be back into the 1.57s over the next few sessions.

The main data out this morning were the UK inflation figures where consensus was for a move lower on CPI from 3.6% to 3.3%. It came in slightly above this at 3.4% (YoY) (Feb). The Retail Price Index (YoY) (Feb) was expected in at 3.5% and the figure came in better than expected at 3.7%. GBP has rallied right after the release of this data. We also have the release of CBI trends later on this morning.

In the Eurozone we’re fairly light however we have German Producer Prices released and the market will be paying attention to peripheral debt auctions with Spain selling 18 and 12 month bills and Greece auctioning 13 week t-bills.

GBP/EUR is bouncing around the 1.20 figure. It isn’t breaking lower or higher in any clear direction. I expect us to be quite range bound between 1.18 to 1.21 for a sustained period. As with GBP/USD, you should look at placing orders in the market as 1.20/1.2050/1.21 is going to be toppish in my view. Also, it gives you access to 24 hour trading and achieving the best rates instead of being reliant on UK working hours to achieve the best rate.

There’s not much news out of the US with third tier data out in the form of Housing starts and Building permits (MoM) (Feb). The main highlight in the US session will be the Fed’s Bernanke speech that will give us an overview of how the Fed views the current US economy and the value of the dollar. I’d look to place market orders today on GBP/USD and EUR/USD to take advantage of the likely US Dollar volatility.

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