Broken on EUR vs USD

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And finally the 1.30 level has been broken on EUR/USD. It’s about time too. The EUR posted losses for the third consecutive day yesterday hitting lows against the USD around the 1.2945 level. We’ve seen a retracement back above 1.30 this morning however I don’t see any reason for it to hang around here for too long. I think we’ll see further pressure on the EUR in the coming days and weeks.

Around this time of year there isn’t as much liquidity in the market and investors aren’t looking to take any risky positions. However, with the EUR I think you’ll see investors putting pressure on as they’ll see it as a great opportunity. We have the Spanish bond auction today and I don’t think that’ll be any great shakes. With the ongoing sovereign debt crisis I expect borrowing costs to increase for Spain. They’re looking to sell around 3.5 billion EUR of debt with maturity dates of 2016, 2020, and 2021 today.

Italy yesterday had to pay the most in 14 years to sell five year notes. That gives you an idea of the predicament they’re in. Is there any good news for Europe forthcoming? Yes, it’ll be Christmas soon so they’ll be out of the headlines for a while. That’s about it. With the improved landscape in the US and the continuation of positive data I see further strength for the US Dollar. EUR/USD can only go one way in my opinion and that’s back below 1.30. If you’re a seller of USD and buyer of EUR it may be an idea to look to secure some of your exposure now.

Sterling has been a beneficiary of the free falling single currency and we’ve reached new highs on GBP/EUR. Will we reach 1.20? I don’t see any reason as to why not. We should have broken through this level before now. However, with mixed data coming out of the UK it could just as easily come off and be back down into the 1.17’s. Again, on this pair – if you’re a buyer of EUR and seller of GBP I’d look to secure at these levels. Inflation, as expected, fell yesterday. CPI was down to 4.8% from 5% in November giving some much needed respite for squeezed families. This was largely due to the slowdown in food prices. This good news was tempered however with unemployment in the UK rising by 128k in the three months to October to 2.64 million, the highest since 1994. It is this mixed data that gives me slight cause for concern on the direction of the Pound. Securing at present levels against the EUR may be a wise move with volatility in the Eurozone being the driving factor rather than anything the UK does or doesn’t.

Switzerland kept its rate at 0% at the SNB meeting this morning for the third month running. They’re determined to enforce the exchange rate of 1.20 CHF per EUR. There had been speculation they were going to raise the floor to 1.25 on this cross. The CHF is still at high these levels and I’d expect this to weaken gradually over time. An official statement read “The SNB stands ready to take further measures at any time if the economic outlook and the risk of deflation so requires”.

In terms of data out today, as alluded to above we’ve had the SNB interest rate decision out this morning and also industrial production that came in negative territory. In addition to this;

- We’ve had German PMI Services and Manufacturing data (Dec) out. The German figures came in better than expected at 52.7 and 48.1 respectively.
- We’ve had the same data releases out of the EMU this morning with the PMI figure coming in at 46.9, slightly better than expected however still under the key 50 level. I
- We have the ECB monthly report out at 10am (UK time) that’ll provide us with a detailed analysis of the Economic situation and the risks to price stability within the Eurozone.
- Turning our attention to the UK we have Retail Sales (Nov) out of the UK that are expected to come in at 0.3%. With the unseasonal weather I’d expect this to be a weak figure.
- In terms of employment data we have the Employment Change (YoY) (Q3) and (MoM) (Q3) out of the EMU
- Inflation data today comes in the form of CPI out of the EMU with expected figures of (YoY) (Nov) 1.7% and the core CPI expected in at 1.7%, a slight uptick from the previous 1.6%
- Across the pond we have a lot of tier 3 data out with the only really figures of note being the US Current Account (Q3) figure released at 13.30 UK time. The expected figure is a fall down to -107.7 Billion from -118 Billion USD. Reason for cheer I here you say.
- Rounding off the data releases from the US we have Industrial Production (MoM) (Nov) where the consensus is 0.3% against the previous of 0.7%. A high figure is generally bullish for the dollar.

We’ve seen further pressure on the EUR after the release of some of the above data. We’re back under the 1.30 level on the EUR/USD pair after the aforementioned dalliance with levels around the 1.3320/1.3330 level earlier this morning. As mentioned at the top of the report I foresee further downward pressure on the EUR and it wouldn’t surprise me to see the 1.29 level broken before not too long. This should push GBP/EUR up and we may break the 1.20 level. There will be a lot of resistance at the 1.20 level. Please contact to discuss the placing of ‘market orders’ to take advantage of any high’s we may see. Quite frequently these highs are achieved in the US and Asian session and therefore market orders allow you to take advantage of overnight market moves and achieve the best rate possible. If you have any questions please don’t hesitate to get in touch.

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