Developments in Italy over the weekend have weighed on the single currency and as expected EUR/USD scaled back its recent gains with a drop back to the 1.35 level. As mentioned last week, political tensions will harm investors’ confidence in the single currency. I expect further EUR weakness this week. As always, the irrepressible Silvio Berlusconi is at the heart of it all due to his legal ‘troubles’. His criminal tax fraud conviction means he faces expulsion from Parliament. His friends and allies say they’ll quit if Berlusconi is forced out. It may be a case now that Prime Minister Letta is forced into a corner and elections are inevitable. Again, uncertainty and anti-Euro sentiment would come into play. In today’s trade on EUR/USD it’s very much a case of the ugly parade. Who is better looking out of two pretty ugly candidates? EUR or USD? The single currency has Italian problems and the US has to agree to extend the debt ceiling or face a Government shutdown. I’d suggest we’ll see EUR lose some of its lustre this week.GBP/EUR? Tantalisingly close to Sterling’s arch nemesis the 1.20 level. We printed 1.1991 in overnight trade. We’ve since dropped off. I expect the upward momentum to continue with us pushing through the 1.20 level in upcoming trading sessions. You know what I’m going to say next. Look at Market orders at the 1.20 level. If you are a buyer of EUR from GBP you won’t have had the 1.20 level since Saturday night had a watchable television schedule. A long long time. Contact myself or one of the trading team to discuss implementing Market orders so you maximise any intraday spikes.

GBP/USD? I’m of the opinion that the trend is upwards for Cable. Why? I think demand for Sterling will continue with growth prospects continuing to improve, UK House prices grew the most in six years this month and the escalating issue of the debt ceiling in the US will dampen investors’ appetite for the US Dollar. If you have a GBP/USD exposure these levels are attractive to either buy on Spot or on a Forward contract basis out for one month. If you need to convert USD back into GBP then I’d look at putting orders in at 1.61 to take advantage of any dips in the market and any data releases that come in under expectation.

We’re fairly light on data today with only the Eurozone CPI data to look out for. In the early hours on Tuesday morning we have the Australian interest rate decision with the expectation for the rate to remain at 2.5%, there is likely to be some movement in AUD crosses off the back of this figure. Wednesday we have the ECB interest rate decision along with the monetary policy statement and press conference. Friday is the headline figure of the week with the NFP figure released from the US (Non-farm payrolls). Expect a lot of volatility on USD crosses Friday afternoon (UK time).

If you have any questions or comments please do let me know.

Have a great week.

Written by Liam Alexander