The Euro opens today in a similar position to yesterday’s close. The markets are waiting to see what interest rate Portugal will have to pay for the €1 billion Euro’s they will need to raise through their 4 and 10 year bonds. If the rates are too high they may have to go cap in hand to the European Union and IMF for assistance. The EU has already helped bring the levels down of Portugal’s benchmark 10 year bonds from lifetime highs of 7.3% to the 7% level. Tomorrow also sees Spains bond auction where they are expected to sell up to €3 billion of debt. The outcome of these auctions has put the euro on a knife edge and we can expect a volatile day as a result.

Key news events today for the Eurozone also include Germany’s GDP figures for 2010. The forecast is expected to show that the Geman economy is expanding at the fastest rate in 20 years. If the announcement is released as expected it will further cement Europe as a two speed economy, yet may still support the Euro in trade today despite the headline bond auctions. Europe operating as a two speed economy could however increasingly become a problem as the richer countries in the Eurozone are expected to provide liquidity to bail out those that cannot manage their finances.

The British Pound has made gains of close to 2 cents against the Dollar in the last 24hrs due to market speculation that higher than expected inflation rates could force the Bank of England to raise interest rates. Historically inflationary pressures have always been seen as the UK economy emerges from recessionary times. The Bank of England have a difficult balancing act to manage; with lower than expected retail sales figures yesterday for the month of December, and recent house price news showing a larger than expected drop in UK houses, any increase in interest rates could decrease economic activity and force a double dip recession.

The GBP/EUR pair has hesitated in trade in the last couple of days with resistance above at 1.2191 and 1.2281 and support below at 1.1980 direction is hard to call. Most traders would expect resistance to be tested in the next few days yet a key move is unlikely until some influential market news is released.

The GBP/USD pair is currently testing the 1.5670 level in opening trade this morning. The pair looks set to make further gains on a light sterling rally this morning.

If you have a deliverable currency requirement or have any questions or queries about the markets please don’t hesiatte to contact me.

“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”

Best Regards

Luke Zorab
Torfx Currency Dealer