EUR to decline ... say's who???
Week Commencing Monday 10th April 2012
Overriding Market Themes
Some of the world’s most accurate foreign exchange forecasters state that the Euro will decline against the majors as an austerity driven Spain and Italy reignite the debt mayhem that has plagued the zone and potentially drag it back into recession. The Euro has been doing quite well over recent weeks, with EUR/USD flying back through the 1.30’s to capture breathing room at the 1.3150 level it is this morning, however many believe that a drop of more than 5 percent could be likely as we head towards the end of 2012. What does this mean for GBP/EUR? Well if this rings true we should at least see some longer term support at the 1.20’s, and although I do not expect to see Sterling smash through 5 percent in the year, I wouldn’t be surprised to see us trading up to the critical 1.25 level of resistance.
Across the pond Ben Bernanke has been at it again! The Federal Reserve Chairman said the US Economy is far from recovery, which gave traders the green light to continue speculating that more asset purchases are just around the corner. This, coupled with weak jobs data continues to underpin the view that interest rates in the US will remain low for the foreseeable future. Asian currencies all rose on the statement yesterday as they continue to enjoy the prospect of low borrowing costs in Europe and the US, fuelling continued demand for Asian exports and manufacturing.
Back home, interest in the house market picked up in March, fuelling speculation that confidence may well be returning to the all-important UK real estate sector. The Royal Institution of Chartered Surveyors states that 9 percent of surveyors reported an increase in buying activity compared with a month ago. In even more good news, it seems that activity in the UK’s service sector also picked up in March, with The Purchasing Managers Index (PMI) rising to 55.3 from 53.8 in February, following strong March surveys for both manufacturing and construction. It seems that the bulldog spirit is back and the UK is storming ahead of its European rivals, even despite one of the more aggressive austerity programs in the world. Let’s hope this bed of roses continues, as the higher we fly the further we fall if Italy of Spain fall foul of their sovereign debt struggle.
GBP This Week
Friday is the day when it all happens with UK PPI’s release dominating the week’s calendar. Tuesday’s trade balance data representing the only other release of note, which should not throw up any surprises with a slight decrease expected. UK PPI should report lower, indicating a slower increase in input prices for UK manufacturers.
With this being a short week, we don’t expect Sterling data to be the main driver of the currency and are looking out for movements when the big global releases are made, of which most are due of Friday.
USD This Week
The big one is Friday’s US Consumer Price Index and University of Michigan Confidence statement, which we expect to report a decline and increase respectively. CPI should fall in March, with all major declines in the food and energy sectors. This plays into Bernanke’s hands somewhat, as coupled with inflation is a governments monetary policy, which we already know is not due to raise interest rates until 2014.
The University of Michigan report, as mentioned, should show a slight increase in confidence in the US economy for April. This ties in with our and the markets expectation, and would imagine a bullish release is already priced into the dollar. With this in mind, we are watching for the unexpected as any bears in the mix will give GBP and EUR the excuse they need to rally.
EUR This Week
Thursday’s ECB Monthly Report dominates with week as we all learn Mario Draghi’s thoughts and outlook for the zone moving forward into 2012. We expect this to be moderately bullish whilst highlighting the risk of sovereign debt yield rises for the periphery being the biggest threat to European stability. Friday is also a big day with the German Consumer Price Index release, which we expect to close flat against previous figures.
Probably not the most exciting week for data releases in the EZ, so we continue to watch the situation in Spain. Spanish Prime Minister Mariano Rajoy seems to be stepping up his campaign to reassure investors that he can bring the countries deficit under control. Spanish Bonds saw their biggest weekly gains last week on speculation that Spain may be the next country to ask the international community to bail them out.
In Other News
All the team here at NU Currencies hope that everyone has a smashing Easter Weekend? We certainly did with a team pre-Easter celebration in our local town of Reigate. Our head of sales still looks slightly pale today in fact, oh how he should have headed my advice and stayed off the diet coke!
Facebook didn’t let the festivities dull down their buying senses however, with the announcement of the acquisition of Instragram for 1 billion USD. Apparently Instragram has 13 employee’s, so it doesn’t take a mathematical genius to work out they will be enjoying themselves for a while on that amount of money. Let’s hope they move over to the UK so that George Osborne can fail to get his hands on their taxes! Apparently, the Chancellor is shocked that some of the UK’s richest people have organised their finances in a way which they pay virtually no income tax. Come on George … what planet have you been living on all these years!
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