The euro has retraced back from its three months high of $1.3861 seen versus the dollar yesterday with sentiment undermined by events in Egypt as well as fresh reminders about Europe’s debt problems. Activity though was described as subdued overnight but should turn volatile as we approach the all importan

Traders are also turning cautious on the single currency ahead of today’s ECB press conference. The euro has been pushed higher over recent days on speculation that the central bank may raise rates in response to higher inflation in the eurozone and thus will be looking for hawkish comments from Trichet today to support this view. Indeed, markets expectations of hawkish rhetoric from the ECB have been so built up since Monday that there could be scope for some disappointment.

Also due for release today are the services PMIs for the eurozone and the UK, as well as the non-manufacturing ISM in the US. The data should provide key insights in terms of the pace of economic activity in the main economies in the opening weeks of the year. The UK report will be particularly important for sterling, which is holding recent gains versus the dollar and euro ahead of the release. Data already released this morning showed the Irish services PMI returning to growth in January.

The index rose to 53.9 from 47.4 previously, with rising exports and better weather helping to make up for December’s sharp drop. The reading was the best since last July and follows on from Tuesday’s very strong manufacturing PMI. Meanwhile, data released overnight showed the Irish exchequer deficit narrowing to €483 million last month compared to a figure of €780 million for the same month last year. Tax receipts were up nearly 2% in year-on-year terms.

The market currently provides a good price on the USD – bulls are looking for a test of 1.63 but with the USD looking overbought, buyers should look to take advantage. Stable movement on the GBP/EUR cross this morning but overall trading positively – the high yielding currencies continue to track risk. Negative movement with the NZD overnight due to employment data so may be a good time for any Kiwi buyers.

Market commentary by Tom Trevorrow