ALL EYES ON EUROPEAN BIG BOYS AND U.S AVERAGE JOES

Yesterdays morning saw a big reversal in risk appetite as revised UK GDP figures showed a worse than expected UK decline over the year. Newspapers hailing the current years growth figures as the worst since the end of the second world war. With most headlines these days, the Great British trading community reacted with vigor and both GBP/USD and GBP/EUR saw massive drops. Sterling lost major ground against the Euro as German Retail Sales came out 0.4%, signaling Europe’s biggest economy making significant ground towards recovery.

Today all eyes will be focused on the European rate announcement. It is clear that the central bank will leave rates unchanged, but traders will be watching for any potential leaning from Trichet. The market will react to any suggestion that they bank have formed an exit strategy, or conversely the suggestion that further quantitative easing could occur. US Non farm payrolls report will also be closely watched. Last months figures causing elation on Wall Street. Although the unemployment rate breached 9% for the first time since 1983, hitting a 25 year high of 9.4 percent, it signaled that the labour market has hit a bottom. Today’s non-farm payrolls report will be critical in confirming whether the hemorrhaging is over or if the improvement was only a one month fluke. We expect no discernable change in Non-Farms however.

If we see some hawkish comments from the ECB, expect the GBP/EUR pair’s recent decline to begin reversing. GBP/USD will react to anything outlandishly different than a -345k figure on the front page of the Non-Farms report. Lets see GBP/EUR continue it’s decline to around 1.1550 and GBP/USD to trade around 1.6350.