Focus turned towards the U.S. after Ben Bernanke's comments last week moved GBP/USD and EUR/USD 1.5% lower. EUR/USD has pushed through the 1.30 mark and looks set to head towards the 1.28's in the near future. GBP/EUR has remained fairly flat moving between a narrow range of the high 1.17's and mid 1.18's. We should see some movement in this pair on Wednesday when Bank of England Governor Mervyn King will run through the quarterly inflation report at 10.30. This will give us the Bank of England's views on the current state of the economy, wages and inflation against the targets they have set themselves. As usual with Mervyn King expect the content to be fairly negative and look for a small pull back on the GBP crosses. If you are selling Sterling look to secure your rate before Wednesday mornings announcement or use stop loss orders to protect your downside risk.Wednesday is shaping up to be the key day data wise with Eurozone GDP figures set to be released at various times throughout the morning, most eyes will be on Germany's and the combined Eurozone GDP figures released at 7 and 10 am respectively. It will likely be confirmed that Europe is suffering its longest recession since the Euro was created over 10 years ago. If you look at other data coming out of Europe, particularly countries such as Spain and Itay the problem only seems to be getting worse, with no solutions forthcoming. Economically speaking the Euro should be a lot weaker then it is but financial markets and central banks are keeping the status quo. It would not surprise me though now we have broken through the 1.30 level on EUR/USD if we saw a move to short this currency pair and push it back down to near 1.25 over the next few months. We need to see action from governments to address their problems or a realistic solution from the ECB rather then the same points we hear every month from Mario Draghi. We all know its bad out there, how are you going to fix it?
With Cable pushing lower after last weeks activity there may be some opportunities if you sell USD to get in at the low 1.50's which is where we were a month ago. Longer term I still think we will see the rate push back towards 1.60 and the last weeks movement may just be a dip providing USD sellers with great value in the short term. Ask you trader about limit orders and try to catch the lows that may on offer. There is plenty of data out of the U.S. this week especially on Thursday with CPI figures and jobs data both being released at 13.30. The market should be a lot more volatile then it has been over the last few weeks, EUR/USD is likely to see the most movement with most of the data coming from these markets.
Further afield Japan release their GDP figure early Thursday morning and with USD/JPY through 100 and EUR/JPY through 130 I would expect Japan to continue their policy of easing. The Bank of Japan will be looking for a good GDP figure to support their recent measures, however they are likely to continue with this policy regardless of the figure so look for JPY to stay weak with levels of 110 and 140 for USD/JPY and EUR/JPY possibilities in the coming months.
Please get in touch if you have any questions regarding foreign exchange or types of contracts available to you. As always we welcome your thoughts on the market.
Have a great week.
Written by David McNeill