PPI out of the UK at 09.30 followed by trade balance figures out of the EMU

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Where now for the Euro? The single currency has regained momentum after yesterday’s successful Spanish and Italian bond auctions and further reinforced by the ECB decision to leave interest rates unchanged at 1%. The EUR was further buoyed by comments from Mario Draghi at his press conference. He made the right noises; urging EU member states to carry on with its structural reforms in order to cut their deficits, boost competiveness and thus stimulate growth and should all reforms be implemented then market confidence should return. Is this the start of a EUR revival? If we look at the move on EUR/USD I think the upside is now limited. EUR/USD was trading around the 1.27 level at the opening of the European session yesterday and printed a high of 1.2878 this morning. I think we’ll see a retracement on this pair in the coming sessions with it back into the 1.27’s. Have any of the fundamentals in the Eurozone improved? No, they haven’t. My medium term view is that the EUR will decline against most of the majors and the Greek situation will come to a head in the next few months; with a possibility of a disorderly default.

What of our dear friend Sterling? Well, in technical terms, it has taken a hammering in the last few sessions. From a high of 1.5490 on Wednesday GBP/USD fell off a cliff to trade at a low of around 1.5280 yesterday. There has been an uptick in today’s session with a high of 1.5410 however I think the trend on this pair is now downwards. I think we could see Cable settle into the 1.52’s over the coming week. On the GBP/EUR cross we were hovering around the 1.21 level with no clear break upwards. These levels have now disappeared and we plummeted down to the 1.1950 level. With the Bank of England meeting showing nothing new and as expected keeping interest rates at their record low of 0.5% and not increasing QE it was, in a word, uneventful. It is still my opinion that GBP/EUR will go higher and we’ll see EUR/USD come off with GBP/EUR trading higher than EUR/USD at some point.

What do we have out in terms of data today? We’re fairly light in comparison to yesterday. We have PPI out of the UK at 09.30 followed by trade balance figures out of the EMU at 10.00. Across the pond and into the US session we have the trade balance figure (Nov) out followed by the Reuters/Michigan consumer sentiment index (Jan).

If you’re a buyer of USD I’d look to consider some of your exposure at these levels. Have there been higher and more attractive levels to buy at? Yes, there has been however I now see the trend on GBP/USD to be downwards. With regard to the GBP/EUR cross I’d look at working market orders to catch any sharp upticks in trading and try and achieve around the 1.20 figure in upcoming trade.

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Where now for the Euro?

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