Raphael Sonabend, FX Analyst
Last Friday saw UK manufacturing PMI fall to 52.5 from 53.3, which fuelled traders with more pessimism to continue their Sterling sell-off. As Greece failed to elect Stavros Dimas as president, the country was forced into a snap election, which will be held on January 25th. As Merkel’s government insisted that Greece stick to their commitments (despite commenting that the Eurozone could cope if a Grexit occurred), Draghi poured an excessive amount of salt on Germany’s wounds by giving an exclusive interview to the German paper, Handelsblatt. In what could be considered an undiplomatic (Germany is strongly opposed to QE) approach, Draghi told the paper that the Eurozone banks are now preparing for new measures in early 2015, a strong hint that QE is about to start. As volatility erupted in the markets we can expect a busy week ahead fuelled with speculation. In the short-term, UK construction PMI has fallen from 59.4 to 57.6 and Sterling is unlikely to see a recovery anytime today.
GBP/EUR: Currently trading at 1.2794
The year began with heavy volatility as the Euro plummeted against the pound by two cent before regaining all lost ground. As Greece failed to elect a president, they were forced into a snap election and the Euro fell. The pound was unable to hold onto its gains as this pair broke the 1.29 mark last Friday and the Euro fully recovered with the help of poor manufacturing PMI data out of the UK.
This morning has seen the pound resist further Euro gains as weak Spanish unemployment change figures emerged. With German preliminary CPI (which is expected to improve) due to be released throughout the day and UK construction PMI having fallen this morning, we may see another day of Euro gains.
GBP/USD: Currently trading at 1.5302
Cable has seen continual Sterling weakness since the beginning of this year and has now fallen a total of four cent over the past four days. Breaking the 1.518 mark, this pair eventually met support and has since bounced back to 1.53 and is continuing to climb in the pound’s favour. Weak US data over the past week did nothing to limit the dollar’s gains.
UK construction PMI will hold our focus for today, having decreased more than expected the dollar is likely to continue posting gains.
EUR/USD: Currently trading at 1.1959
Yesterday evening saw Draghi giving an interview with a German paper where he gave his biggest hint to date that the purchase of government bonds is just around the corner. Draghi said “we are making technical preparations to alter the size, pace and composition of our measures in early 2015”, this suggests that QE could start as soon as Jan-22 (the next ECB conference). Fears of Greek chaos, speculation of QE and a strong US economy, have seen EUR/USD break the 1.187 mark and reach levels not seen since 2010.
This morning saw disappointing unemployment figures out of Spain, providing further misery for the Euro. With German CPI figures being released throughout the day, we expect to see a volatile day of trading, especially while the market digests Draghi’s interview yesterday.
GBP/AUD: Currently trading at 1.8922
The Aussie has started 2015 on the front foot as we have seen the pairing fall below the 1.90 mark on the basis of a strengthening US economy increasing risk appetite for commodity currencies and weak UK PMI figures on Friday. These gains have been met with resistance early on in this morning’s session following a decline in Australian PMI data.
Investors will be looking to the UK PMI data this morning and Aussie trade balance later tonight, with PMI having fallen and Aussie data also predicted to worsen, we could see a volatile day ahead.
GBP/NZD: Currently trading at 1.9938
Level trading was seen in this pairing throughout last week as no data was released from New Zealand and UK data remained light. The Kiwi posted gains as poor manufacturing PMI came out of the UK however the pound quickly recovered these later in the day.
With no data due from New Zealand today, trading will focus on UK data. As construction PMI fell by 1.8, we may see the Kiwi make some gains against the pound.
GBP/CAD: Currently trading at 1.8025
Last week came to a close with the Loonie capitalising on the fall of UK Manufacturing PMI data during Friday’s session. The sector expanded at a rate of 52.5, down from 53.3.
As normality resumes, the focus for today will be on UK construction PMI data, which declined from 59.4 to 57.6 (below the forecast 59.2). With the absence of Canadian data, the PMI release will dictate rate direction today and as a result we expect to see the pound lose some more ground
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