A Day of Rest Before a Week of Activity

Raphael Sonabend, FX Analyst

Last Friday saw the week’s volatility finally being subdued as the markets weighed in the repercussions of the SNB’s decision to remove the Franc cap. Trading focused on US data, which was generally weak throughout the day. Despite this, traders focused on the preliminary University of Michigan consumer sentiment survey, which saw an 11-year high of 98.2. Global risk appetite increased as a result and higher-yielding currencies saw strength towards the end of the day. Today’s trading should be rather quiet compared to last week and our main focus will be on the German Bundesbank (Buba) monthly report at 11:00. After the European Court of Justice’s (ECJ) ruling last week, it will be interesting to see if the Buba report delves into the next stage of resistance for the Bundesbank against the ECB’s impending QE decision.



GBP/EUR: Currently trading at 1.3071

• Volatility carried through to Friday’s session as this pair opened trading at the 1.304 mark. Spiking to highs of 1.3165 as a result of a EUR/USD sell-off following strong US data, this trend is likely to be repeated leading up to the ECB conference on Thursday.
• With no UK data due out today our focus will be on the Bundesbank monthly report this morning. If this report is more hawkish than expected, we may see the euro recover a little after strong Sterling gains.

GBP/USD: Currently trading at 1.5152

• Friday saw volatility as mixed US data came out throughout the day. In the early afternoon US monthly CPI fell to -0.4% from -0.3% and core CPI fell to 0.0% from 0.1%. This 0.4% drop was the largest decline since December 2008. More troubling is that the biggest drop in clothing costs since 1998 and cheaper new and used cards, signifies that falling fuel isn’t the only drag on inflation. Later in the afternoon the preliminary University of Michigan consumer sentiment survey scored 98.2, well above the previous 93.6. This result signified an eleven year high and was driven by falling oil prices coupled with a strengthening job market. The dollar strengthened significantly on the back of this result.
• Martin Luther King Day in America will see all US banks closed and with no UK data due out, today should see quiet trading.

EUR/USD: Currently trading at 1.1588

• After a hectic end of the week which saw the Euro reach an 11-year low against the dollar, the pairing is set for yet another busy week as we approach the all-important ECB meeting on Thursday, where QE is expected to be officially announced. We expect a volatile week for the pairing in anticipation of this announcement, as well as the crucial Greek elections on Sunday.
• A public holiday in the US today means that there are no data releases from across the Atlantic, so most of the day’s activity is set to be influenced by repercussions from last week’s events and the German Bundesbank monthly report out today. The report has the potential to be more hawkish than usual after being afflated by the ECJ’s ruling last week and we may therefore see volatility surrounding the euro.

GBP/AUD: Currently trading at 1.8462

• Strong US data in the form of consumer sentiment saw this pair fall a cent and a half over the course of Friday’s session. Early morning data today saw Australian new motor vehicle sales gaining 3.0%. A strong result, compared to last month’s -0.5%, saw the Aussie manage to break the first support level before the pound resisted its gains and began its own advances.
• With no more data due out from either country today, the pound could continue to recover lost ground throughout today’s session.

GBP/NZD: Currently trading at 1.9461

• After the pound gained on the Kiwi on Friday morning from 1.9358 to 1.9535, the Kiwi reversed these gains on the back of US data and managed to close the day around 1.94. Sterling managed to limit these advances in this morning’s session and has since posted gains of its own.
• Today’s trading will be centred on tonight’s NZ NZIER business confidence survey. With no forecast released, traders will await the result in anticipation.

GBP/CAD: Currently trading at 1.8133

• The Loonie followed the trend of the commodity currencies above and weakened against the pound in the morning before gaining ground on the back of strong US data until the pound once more resisted the CAD’s gains in this morning’s session.
• With no UK data due out today we will turn our focus to foreign securities purchases data out of Canada at 13:30. Forecast to fall from 9.53B to 7.23B, the pound could continue to push up against the Loonie for the rest of the day.

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