MARKET OPENS FLAT WITH DATA DRY - GBP.....DEAD

GBP/EUR is moving well in-line with EUR/USD short covering at market open this morning as a lack of market data or political upheaval over the weekend spurred a covering of EUR short positions by some fairly big FX market players.  This is standard practice though when regards hard and fast price moves in pretty much any market (but particularly the more liquid of markets) with the dominant pattern of a trajectory developing into a zig-zag as hard momentum slows and traders are forced to buy back an instrument which they have been selling.  EUR/USD has thereby bounced to 1.37 this morning, dragging GBP/EUR down into the 1.13 zone with it, as no major negativity over Greece (and the rest of the bankrupt EZ nations) has been further thrust into markets.  GBP/USD though, despite EUR/USD upside, is plumbing fresh yearly lows as Capital markets and risk-investment trades dip – the pair touched 1.55 this morning and currently trades at 1.56.

The start of this week ought to see EUR/USD trade sideways and Sterling trade on the back-foot with little economic data until Wednesday’s BOE Inflation Report.  The Euro will likely continue to exhibit its late profound weakness with absolutely no resolution expected on its little mini credit crisis whilst GBP is in pretty much the same boat further to nothing solid last week from the BOE and some horrid comments from IMF officials this weekend (apparently UK debt is just as bad as Spanish debt!).  We are looking for GBP/EUR to move to the low 1.13 today and bounce up for mid-week with GBP/USD likely to hold around 1.56.

All we can say to Pound sellers out there is this – yes Sterling is looking set for a recovery of sorts this year, but don’t expect it to be meteor-like.  It is becoming increasingly evident that with the financial markets still rather tender across the globe, and with China looking a little less fearsome than at the end of last year, risk-appetite and capital market flows will probably be pretty juddering for coming months.  If this is the case then GBP/USD is in for a volatile and a bumpy ride.  GBP/EUR will probably fare better but is still at risk of a recovery in sentiment for the Eurozone – we have to hope on GBP/EUR that the BOE will be kinder to the Pound next month.