Mike Paterson’s daily Forex brief

Chancellor Merkel and President Sarkozy, now commonly abbreviated to Merkozy (Jedward really do have a lot to answer for), yesterday laid out the basic framework for greater fiscal union for the Eurozone for which they will seek to gain approval on Friday with a new treaty to follow in March.

There was the expected compromise on key positions such as Eurobonds (there won’t be any) and the new treaty will be modified to incorporate budget rules and automatic sanctions for the 17 Eurozone countries which ideally will be ratified too by all 27 member states, although it appears that this will not be essential. This leaves the UK and PM Cameron between a rock and a very hard place as I said yesterday and effectively disabled as an influential force.

After a relatively positive reaction from the markets the mood was somewhat gazumped by

late yesterday afternoon after European trading had finished when US rating agency Standard & Poor’s announced it would place all 17 Eurozone countries on negative watch with the top 6 having a 50% chance of downgrade.

Cue another sell-off and we’ve seen EURUSD down to 1.3338 from the post-Merkozy announcement highs of 1.3487 while GBPUSD has fallen to 1.5590. EURGBP broke down through first support at 0.8550 (GBPEUR resistance at 1.1696) but has failed to break the next key level at 0.8520 (1.1737) and we’ve seen a rally back to 0.8555 as EURUSD finds buyers overnight in the dips yet again to climb back to 1.3370 as I type. Chancellor Merkel has come out fighting this morning and said that S&P will be proved wrong by important decisions taken by the Eurozone this week.

Overnight the RBA cut Aussie interest rates by 0.25% as widely expected and we’ve seen a sell-off in the Aussie $ but finding buyers in the dips to hold up any further falls for the moment. EURCHF continues to look well supported despite the EUR sell-off and currently sits at 1.2400 after touching highs of 1.2426.

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Gold and equities too have fallen back after a decent rally and it’s a mixed bag of sentiment as we go into Day 2 of this potentially crucial week, where we see US Secretary Geithner join in the discussions. I can’t see where we are going to break too far out of recent ranges until later in the week when we see whether the EZ leaders really can pull this off but we can expect continuing volatility.

Today's Data:

10.00-EU- Eurozone GDP / German Factory Orders

00.30-AU- GDP

Interbank Rates as of 08:16 BST

Current Price

Overnight

High

Low

EUR/USD

1.3369

1.3405

1.3334

GBP/USD

1.5626

1.5653

1.5590

EUR/GBP

0.8555

0.8568

0.8538

GBP/EUR

1.1685

1.1713

1.1670

GBP/CHF

1.4489

1.4514

1.4391

GBP/AUD

1.5318

1.5384

1.5225

EUR/CHF

1.2396

1.2420

1.2328

GBP/HKD

12.1148

12.1357

12.0869

EUR/HKD

10.3678

10.3990

10.3192

GBP/ZAR

12.6303

12.7236

12.5334

USD/JPY

77.77

77.87

77.68

GBP/CZK

2.9438

2.9677

2.9362

Agree or disagree? Then please leave a comment in the box below or contact me by e-mail.

Mike ‘Oscar’ Paterson has been in the Forex trenches for nearly three decades working as a senior Spot trader in London at UBS, Chief Dealer FX at the State Bank of Victoria and in charge of Spot CHF at Credit Suisse with a daily turnover in excess of $1.5 billion. Mike now works as an independent consultant providing a fully bespoke service to the corporate and private sectors in physical FX delivery as well as guiding those who wish to improve their currency trading. Mike also presents seminars and workshops and writes for a number of publications.
To contact Mike please call +0044 (0) 1732 700383 or email mike.paterson@economicvoice.com
The views expressed above are those of the author and should not be taken as investment advice. MSP Foreign Exchange Services will have no liability for, or to, any persons executing trades based on the content above.

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