• Focus today is the US December non-farm payrolls at 13.30pm

Market overview

Yesterdays data releases were mixed across the major currencies. In the Euro zone Decembers PMI Services data came in weaker than forecast whilst the UK’s equivalent CIPS Services report was much stronger than expected with the headline activity figure the highest in 9 ½ years. This would normally have provided more of a spring board for the Pound to rally higher but December’s consumer confidence numbers released an hour later disappointed and largely negated the strong UK service sector figures which provide further fuel to the February interest rate hike argument. US December ISM non-manufacturing data was released on forecast proving to be a damp squib. This morning we get a slew of Euro Zone data to digest at 10.00am with producer prices, retail sales, industrial and consumer confidence and unemployment all forecast to stay relatively stable. Later in the day we have the all important US non-farm employment numbers to ponder at 13.30pm. The general consensus is for a number between 100k and 130k new jobs - for the record and for our dealing room sweepstake I am putting my £2 on 128k. US unemployment and average hourly earnings should stay stable at 4.5% and 0.2% respectively. England cricket fans will be relieved the Ashes is finally over after an embarrassing 5-0 drubbing. Don’t get too comfortable though as the Tri-Series one day tournament against Australia and New Zealand begins in a week and England is firm favourite to win the wooden spoon.

Currency - GBP - US $

The Pound hit a 6-week low against the US Dollar this morning and has now corrected 50% of the move in November from $1.88 to $1.98. We now eye key support at $1.9250 as a break here would suggest a move back below $1.90. The US Dollar picture has changed markedly over December with $1.9850 the peak on the 1st of December which coincided with magazine headlines predicting the imminent $2.00 mark and the collapse of the greenback in 2007.  Question is, was that “the kiss of death”? However 50% corrections often provide reliable floors so US Dollar sellers please pay $1.93 -1.94 its due respect.

Currency - GBP - Euro

Sterling looks like it is tied to the Euro by a piece of elastic because the Pound seems to be unable to break away significantly from the Euro despite solid variance in the data from the UK and Eurozone. There wasn’t any EU data yesterday but this morning brought news that inflation within the Eurozone remained at 1.9 percent in December as measured on the ECB’s favoured HCIP calculation. This ought to remove any chance of another interest rate hike from the European Central Bank but traders are still relatively convinced that we will see higher EU interest rates before the year is over (I know it has only juts begun). As for the UK, higher interest rates become far more likely when the levels of personal debt reach unacceptable peaks and that is exactly what we are experiencing at the moment. Despite the clothing retailer Next complaining about Christmas spending levels, every other retailer appears to have been able to persuade shoppers to melt that plastic in the pursuit of this year’s must have Chrissie pressie. Personal debt levels are alarmingly high but so are the bankruptcies and insolvencies and yet every ad on the TV is for another debt company who doesn’t appear to care whether you can repay them or not. That “one affordable monthly payment” offer is the prelude to higher UK interest rates and that is currently supporting the strength in the Pound. It will be a volatile time in the GBPEUR rate and a general downward trend is in place; Euro buyers may miss out unless they act soon.

Thought for the day

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FX Research and Analysis undertaken by:
David Johnson - Halo Financial