United States Dollar: Yesterday started quietly in Asian trade with GBP/USD ranging between 1.5492/1.5528. Sterling had decent morning during European trade, a WSJ article discussing the possibility of an earlier than expected rate hike in the U.K. will have been noted. GBP/USD reached a high of 1.5563 before giving up 50 points and eventually falling below the 1.5500 level after UK Services PMI plunged to 49.7 from the 52.9 forecast, the first time that it registered a reading below 50 since May 2009. In its update on lending conditions, the Bank of England reported that demand for mortgages for home purchases fell significantly in Q4 and added that this was likely to persist into the New Year. With the data docket reinforcing a weaker outlook for future growth in the UK it was no surprise that cable selling persisted later into the session, with the pair moving as low as 1.5450, as investors positioned themselves for the Non Farm Payrolls release today. The general consensus is for payrolls to rise by 150k in December; however there was market chatter that a model being used by a large financial institution is predicting that the number will come in above the 450K level. GBP/USD opens lower this morning at 1.5426.
– We expect a range today in the GBP/USD rate of 1.5350 to 1.5580
Euro: EUR/USD started yesterday by drifting lower towards the 1.3100 level, as the euro was hurt by continued concerns over sovereign debt issues. In what was a eurozone heavy data docket, the stand out figure was the larger than expected contraction in the Eurozone November Retail Sales, coming in at -0.8% vs. 0.5% previous. Spanish Credit Default Swaps also hit an all time high despite the fact that the Spanish newspaper El Pais reported that China is to buy as much Spanish debt as it has of Greece and Portugal combined, around 6 bln euros worth. EUR/USD gravitated towards the 1.3125 level during the afternoon as news emerged of a large option structure located in that area. The owner of the option was to receive a very large payout if the market stayed below 1.3125 at expiry, which was thought to be 16.00 GMT. This structure clearly influenced the spot rate as the option seller tried to push the market higher but gave up just before expiry, leaving the holder of option as the winner. Subsequently EUR/USD fell below its 200 day Moving Average at around 1.3082. This exacerbated the euro selling and the pair fell below the 1.3000 area, hitting 1.2997, its lowest level in a month. European open saw GBP/EUR moving higher from the start after some heavy hedge fund euro selling, reaching a high 1.1902 later in the day with eurozone sovereign debt concerns weighing very heavily on the euro. In a research note yesterday Credit Suisse said that the euro may fall to 0.81 pence against the pound. GBP/EUR opens today at 1.1883.
– We expect a range today in the GBP/EUR rate of 1.1750 to 1.1950
Aussie and Kiwi Dollars: During early trading yesterday the AUD was the most volatile currency again, ranging between 0.9947/1.0014. Investors were beginning to liquidate long AUD positions amidst concerns that a longer term reversal may be taking hold. Economic data from Australia didn’t help its cause – AIG Service PMI printing below all important 50 level for second month in a row and also building permits declining larger than expected -4.2% against -3.6% eyed. For the rest of the day the AUD was weighed down by uncertainty over the flooding in Queensland and weaker commodity prices, falling as low as 0.9935. GBP/AUD and GBP/NZD were fairly range bound, with GBP/AUD failing to conclusively break through the 1.5600 level with any authority and GBP/NZD finding some resistance at 2.0500. GBP/AUD and GBP/NZD open this morning at 1.5537 and 2.0341 respectively.
– We expect a range today in the GBP/AUD rate of 1.5400 to 1.5620
– We expect a range today in the GBP/NZD rate of 2.0280 to 2.0450
