Euro poised for profit taking

Today's Highlights

Sterling still strong but BOE awaited

Euro poised for profit taking

RBNZ rate cut due

FX Market Overview

Last week's major stories included the governor of the Bank of England hinting at the proximity of the BOE's first interest rate rise; a comment that boosted Sterling's strength, and events in Europe which largely weakened the Euro.

In reverse order, the Euro story continues with Greek banks re-opening for business today although restrictions remain. Greek citizens can only withdraw €420 a week and there are other limits to transactions but the authorities are hoping this re-establishment of banking 'normality' will calm the Greek public. The euro remains weak and in a week which is light on data, there is a chance it will weaken again. However, technically speaking, the Euro is bumping its head on significant resistance levels, so there is as much chance of profit taking. That profit taking will be enhanced if the German data is stronger than expected and especially if EU consumer confidence is anything like positive.

On the UK side of things, the Pound is gathering strength because it appears to be one of the only thriving economies in the world. However, fears are being raised that the UK cannot grow in isolation; Britain needs export clients to aid development and they are pretty thin on the ground right now. We'll know more about the UK economy with this week's release of the minutes from the last BOE meeting, UK retail sales data which is forecast to be pretty upbeat and the potential for another drop on public sector borrowing.

Thursday is expected to bring an interest rate cut from the Reserve Bank of New Zealand after disappointing inflation data and growing concerns over the slowdown in China and fears over Australian demand as well. You are probably aware of just how weak the New Zealand Dollar has been in recent months and there is every chance it will weaken further, especially if the RBNZ hints of the expected September and December cuts that many in the markets are expecting.

The Australian Dollar is also weak but there are two events that have the possibility of strengthening the AUD this week. Early tomorrow, we will get the minutes from the last Reserve Bank of Australia meeting and there is wide diversity in expectations for that but on Wednesday, we get the Aussie inflation data which is expected to show a significant rebound from last month's lacklustre 0.2% growth. Something like 0.9% or higher would strengthen the AUD so please beware.

In other news, a little girl on Colorado was playing in her bedroom when she fell out of her third floor window but she held on tight to her big minion cuddly toy and it cushioned her landing, probably saving her life. There is no punchline to this but I am holding a 6 foot Minion just in case.

Currency - GBP/Australian Dollar

Turmoil in the Chinese equity markets would appear, on the face of it, to have nothing to do with the value of the Australian Dollar but it does have an impact. China is Australia's number one export market and the slowdown in the Chinese economy is a real challenge to Aussie exporters. The Reserve Bank of Australia is definitely concerned and there are many calls for interest rate cuts from the RBA. You can see that drama playing out in the weakness of the Australian Dollar in the Sterling – Australian Dollar chart above. The high we saw in 2008was just over A$2.70. The low in 2013 was 1.43. This paid has recovered half of that fall and appears to be ready to soldier on to A$2.22. There are many pitfalls along the way and we may not make that figure in the medium term even but the Strength of the Pound, combined with the weakness of the Australian Dollar is at play here and even if this pair dips, it doesn't look like that will be a reversal; merely a correction.

Currency - GBP/Canadian Dollar

We saw Canadian inflation pick up a little in the data released this afternoon. However, US inflation dipped a little and, as the US of A is Canada major export market, that has a greater impact on the Canadian Dollar than on its US counterpart. So the Sterling – Canadian Dollar exchange rate is reflecting the strength of the Pound plus the weakness of the CAD which have joined forces to bring this pair back to levels not seen since 2008. If this pair can stay above C$2 to the Pound, we have the scope for a further rally; maybe as high as C$2.14 before the year is out. The caveat to this is that if this pair doesn't hold up at the C$2.00 and above, expect significant falls in the short term.

Currency - GBP/Euro

As the problems for Greece and the rest of the Eurozone rage on, we are seeing further weakness in the Euro. That combined with the strength of the Pound has brought the Sterling – Euro exchange rate up to levels not seen since mid-2007; a time when the Pound was collapsing under the strain of the credit crunch. Technically, the Pound is significantly overbought at this level and, pending further agreement on Greek debt, we may find that the Euro is relatively oversold. So that is the warning bell for anyone who thinks this is a one-way bet. It most certainly is not; not at this stage at least. All eyes remain on the EU and, in particular on Greece and Germany. Chartists are concentrating on the €1.41 level and if that holds, we may see further gains. It's all a bit of a kerfuffle really isn't it.

Currency - GBP/New Zealand Dollar

Interest rate cuts from the reserve Bank of New Zealand, threats of further cuts in the future and the worries over the strength of NZ's major export markets (Australia and China) are all weighing on the New Zealand Dollar. This at a time when the Pound is resurgent made it inevitable that we would see higher GBPNZD exchange rates but no one had any idea the pace of the rise would be as steep as it is. This has to be seen in context though; from 2007 to 2013, the GBPNZD exchange rate fell by roughly NZ$1.30. At the time of writing, we are nearly 62 cents up from that 2013 low; almost half way back up the ladder. NZD buyers are enjoying rates not seen since 2009 and it makes the picture much more rosy for those importing from or migrating to New Zealand. NZ$2.42 is the 50% retracement level and a break above that will target NZ$2.57 in the medium term but there is every possibility of a drop back into the NZ$2.20 area before any further headway is seen.

Currency - GBP/US Dollar

The US Dollar has fallen back a little in the past few days as the Federal reserve Chair, Janet Yellen has started to prepare the markets for the first interest rate hike since the financial crisis but her forecasts have been very vague and that has unsettled the markets rather than placating them. With US inflation in the doldrums, there appears to be very little chance of a rate hike this side of the new year. That's my opinion, not necessarily Mrs Yellen's. I can't be alone in that view or the USD would be stronger in anticipation of higher yields. So, whilst the GBP-USD exchange rate is very definitely in a medium term upward trend, there is a 6 or 7 cent range between the high and low of that trend channel and we are slap bang in the middle of that as I write. Use $1.53 and $1.60 as you guides and you won't go far wrong.