Currency Overview

Euro is the outperformer overnight after Equity markets close positive and European peripheral spreads improve
Light profit taking on AUD & NZD as technical indicators point to oversold levels.
Sterling actively down against mopst major counterparts as RICS house Price data declines to worst level sicne May 2009.

The euro posted its biggest one day gain versus the dollar in two months yesterday as strong Chinese economic data boosted confidence, encouraging investors to move back into riskier currencies. Risk in FX has given back some of it’s gains from yesterday’s session. The USD is still on the back-foot but we have seen light profit taking with NZD$ and AUD$ positions.

New bank capital requirements and regulation and an upgrade to the European Commission’s forecast for eurozone GDP in 2010 also left investors in an optimistic mood, helping to support Euro price movement to highs of $1.2892 against the the USD and 1.1934 againt the Euro. The Euro managed to continue its run higher yesterday afternoon as real money names were consistent buyers of the single currency above 1.2800. The tightening in European peripheral spreads, a decent performance from equities and the move in US rates all conspire to propel the Euro higher as yesterday’s outperformer.
Looking at Sterling price movement the market has opened up fown on the day against virtually all of its counterparts. There was a mixed round of data from the UK overnight. Consumer confidence picked up after three months of decline, with the Nationwide’s index rising 6 points. The RICS housing survey, however, showed its worst result since May 2009. Last nights worse than expected RICS only added fuel to the fire with growing sentiment that the economic data is turning to the downside as we head into Q4. Key speeches this week as outlined yesterday – Weale at 11am speaking at the Treasury Select Committee – he has only spoken briefly once before since replacing Barker, warning of the risk of a double dip recession as a result of fiscal tightening, while King speaks tomorrow (11.30am) to the Trade Unions Congress in Manchester. Given the context of these speeches and stance of both members, hard to see anything other than a dovish tone being sounded, although I do feel some of the recent move has got this outcome now priced so reluctant to add fresh GBP shorts purely on these speeches at current levels.

Today we get the UK CPI (Consensus expects a rebound to +0.3% mom following -0.2% previously), Eurozone Labour costs, German ZEW Survey, Eurozone IP, US retail sales (retail sales appear to have picked up in August, judging from retailers’ reports. We expect a gain of +0.6% on headline and +0.7% ex-autos vs. consensus at +0.3% for both).

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Tom Trevorrow

+0044 1736 335264

tom.trevorrow@torfx.com