• February 4, 2012

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Bloomberg Median Forecasts

Commentary

Sterling strengthened against the US dollar this morning, despite comments made by Fitch Ratings yesterday. The ratings agency warned ‘the scale of the UK’s fiscal challenge is formidable and warrants a faster pace of medium term deficit reduction’. [1] The comments are likely to limit sterling’s upside potential leading into the UK emergency budget on 22 June in my opinion. A slight widening in the trade deficit may also limit sterling’s upside today. The figures released from the ONS showed the UK trade deficit widening from £3.2 billion to £3.3 billion in April. A widening of the trade deficit means that the nation imported more goods than exported. From a supply and demand point of view, the increase in imports (relative to exports) suggests the UK had to effectively sell sterling to buy the foreign product, thereby increasing supply of sterling and reducing the value of the currency. David Choe, London

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Bloomberg Median Forecasts

Commentary

Since trading resumed this week, the EUR/USD has been moving in a relatively small range—after breaking below the psychologically important 1.2000 level on Friday. There was some positive economic news for the euro area today when it was reported that German Factory Orders grew by 2.8% in April. While this would typically be excellent news and favor strength in the continental currency, held in context with all of the other issues facing several members of the European Monetary Union, it was not enough to convince traders that the euro deserved to break back over the 1.2000 level. This pair is currently trading slightly over the opening level of the week, but has failed to spur much conviction in either direction. Heaviest resistance may come into play if this pair once again approaches 1.2000, however a break higher may not find further resistance until about 1.2100. Initial support may be present at today’s low of 1.1875 with further support matching the lows back in February of 2006 near 1.1825. Dan Cook, Chicago

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Bloomberg Median Forecasts

Commentary

Early in the US trading day the euro was on course to continue climbing higher. However, as traders start to close positions heading into the long US holiday weekend, some softness has been seen in the continental currency. Over the last few days the euro was able to gain back 300 pips as several government statements—and a simple lack of new bad news—helped drive optimism that the eurozone crisis may not be as severe as previously projected. While this optimism helped propel the euro higher versus the dollar in previous sessions, it appears from the price action today that while optimism is fine while the market is trading, few speculators are willing to believe strongly enough to risk holding long euro positions into the weekend. Not even US fundamentals that would typically herald a weak dollar have been able to keep the uptrend going and the euro has fallen more than 100 pips from its intraday high reached earlier. Uncertainty still looms large on the horizon and while selling pressure on the EUR has abated a bit in recent days, until there is some bite to back up the political bark, it is hard to envision a broad community of traders that are willing to hop on the euro bandwagon. Dan Cook, Chicago

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Bloomberg Median Forecasts

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