Quiet Monday with MLK day keeping a lid on volumes. Cable Flat. Minor EUR gains.

Tom Tong21/Jan/2014Currency Updates

GBP

Sterling opened with minor uplift as momentum from last weeks outstanding Retail sales led to some Sterling bulls remaining at large. Across currency markets volumes were slim as MLK day meant many were on holiday.

Sterling scuttled up against the Dollar however gains were reversed in the morning and cable was flat at the close. Trading against the Euro was much the same, minor data out of Italy and Germany failed to produce any notable nudges, however London closed with Sterling gains on the Euro.

The release of a BoE study on the effect of worldwide QE is worth noting. With the pace of global QE beginning to decelerate we can begin to hear the general market chatter below the dimming roar of the money presses. Put simply the BoE feel that if the curtail of worldwide QE is correctly timed then the effect on markets will be minimal. Carney said last month Britain had come to the end of it’s £375B QE program. Instead the debate is now centered on when the BoE will raise interest rate’s as Britain’s recovery gains traction. The street is now widely predicting the BoE to alter the unemployment threshold to 6.5% from 7% a move that will send out clear intentions of its plan to keep rates low for longer.

The IMF will release revised growth projections for 2014 today. The U.K is the bookies favourite with a weighty 1.9%-2.4% widely called. Key Play for Sterling this week will be the curtain lifting on BoE minutes on Wednesday. Likely to be little moves prior to this.

EUR

Last week was a poor week for the Euro, however yesterday saw a flip in its fortunes and it uppercutted against a 2 month low against the greenback. Support stemmed from higher short term market interest rates, although speculation the ECB may step in capped gains.

Overall the single currency has weakened this month as year end factors such as eurozone banks repatriating assets fade. Chatter over further loosening of monetary policy has had little to no effect. The Eurozone overnight bank to bank lending rate topped 0.30% on Friday, above the headline 0.25% rate that banks pay when they borrow at the ECB’s unrestricted lending rates. Draghi stated last month that rises in interbank rates could lead to further ECB intervention.

PPI out of Germany and Industrial orders out of Italy led to minimal movement with most in the market seemingly unwilling to enter weighty positions.

The ZEW survey is set for release this morning and should provide an interesting insight into economic sentiment for the Eurozone. On past measures although far from accurate a strong survey can shift short term sentiment amongst traders.

USD

With MLK day NY was closed and volumes were light with the Dollar mostly bouncing around resistance levels, there was no data out to initiate any moves and overall trading was a fairly sedated affair. Excitement flared later in the day from an online Wall St Journal article outlining the case for an increased FED pace of tapering next week. This lent the greenback support in overnight trading and it bounced up against the Yen which has had a fairly choppy time recently.

The greenback retreated from its 2 month high against the Euro as higher short term market interest rates lent the Euro support. Cable was fairly flat with most waiting for BoE minutes on Wednesday. Politically yesterday was a far more notable day for the U.S.

Obama was likely sitting pretty in the White House yesterday. Iran began to flick the off switch on its nuclear ambitions yesterday as it works it’s uranium enrichment plants gently to a halt. Western media is keen to portray the nation as a crazed Bond villain. In reality the new President Rowhani has been impressive since taking power in August. He is keen to wriggle back onto the international trade scene and smooth relationships with the West.

On the flip side the West is positively petrified of Iran having the power play of a nuclear bomb. Therefore they have agreed to relax international trade sanctions in return for Iran losing its nuclear ambitions. Crude initially dipped however climbed back up, commodity currencies remained unchanged.

Key Play for the Dollar this week will be Thursday with bundles of macro data set for release. Data of note today includes- Redbook index and also T-Bill auctions.

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Written by Tom Tong

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