Euro On Alert Due To Central Bank Policy

Market expectations of a Fed rate hike in December and possible further policy easing at the same time from the ECB have been the key factors behind these moves. Since the middle of October, the euro has lost around 7-8% against the dollar. In level terms this translates into EUR/USD trading back down near $1.07 and EUR/GBP changing hands below 71p.

For the above trend to continue, it will likely depend on the degree of monetary policy divergence (i.e. the extent of Fed tightening and ECB easing). Therefore, markets will be paying close attention to the data flow and Central Bank comments over the coming weeks to try and ascertain the likely magnitude of divergence from these key Central Banks. From a technical aspect, there are some important resistance levels that would need to give way for the euro to weaken further. In EUR/USD, $1.05 is a key level that would need to be overcome. Meanwhile, the 70p mark is a major support level for EUR/GBP.

Looking at the week ahead, the calendar may not provide much in the way of new insight to satisfy markets and therefore impact on the main currency pairs could be limited. In the US, the FOMC minutes from the surprisingly hawkish October meeting will be looked to for guidance on what the Fed wants to see from the US data between now and the December meeting in order for it to be content with hiking interest rates for the first time in nearly a decade.

Elsewhere, both the UK and Eurozone schedules are relatively quiet. On the UK side, CPI and retail sales data (both Oct) are the highlight. While in the Eurozone, a speech by ECB President Mario Draghi is likely to once again emphasise the ECB’s policy easing credentials.

Greek negotiations extended

Negotiations between Greece and the Eurozone Finance ministers has been extended today. Currently the finance ministers are struggling to agree regarding the protection available to people who default on their property loans.

This is a tough time for the Syriza party as it is waiting on receiving the next instalment of the rescue package. The Syriza party wishes to use the next €2 billion instalment as a combine relief measure alongside spending cuts from the government. Read more

New Zealand Dollar may edge lower

The New Zealand dollar was little changed against the greenback as investors continue to weigh up whether the Federal Reserve will hike interest rates next month. Government data today showed New Zealand's consumer spending rose faster than expected in the September quarter, led by a pick-up in car purchases.

New Zealand's Reserve Bank may cut interest rates after falling dairy prices weighed on the terms of trade. This week's GlobalDairyTrade auction is expected to show another decline in international milk product prices.

Currency volatility can eat away at companies’ profits

We have a new story on our blog about how currency volatility destroyed Diageos profits by 290 million pounds. Unfortunately for the company this occurred because the Pound got stronger against emerging market currencies. We would like to introduce an action plan so you don’t get exposed.

TransferMate awards

In other news, TransferMate have been short listed for the eir Elevation Awards.

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