UK GDP data meets expectations

This Week's Highlights

• UK GDP data meets expectations
• German businesses are confident but Government unhappy with ECB

FX Market Overview

Mr Cameron's day started off badly after the EU sent Britain a tax demand for an extra €2.1 billion but issued rebates to France and Germany. The oddity is that whilst the Franco/Deutsch pair is getting a rebate, economically embarrassed Greece has also had a demand for higher taxes. The battle lines are being drawn and I suspect, if we had a UK 'In or Out' referendum on Europe right now, the OUT camp would win the day.  Let's hope the Prime Minister's day is boosted by positive growth figures when the Q3 GDP data is published in first draft form at 08:30 GMT. The forecasts are for a minor reduction to an annualised 3.0% but this data has been quite erratic over the past year so it's anybody guess. Sterling

German business confidence is quite buoyant according to the GFK sentiment index. At 8.5, the index doesn't look impressive. However, that is an improvement on the 8.3 forecasts and only marginally down on the previous month. This comes at a time when the relationship between the German and EU leaders is on very shaky ground. This can be seen in the German government's reluctance to show any support for the ECB's policy stance. Germany is clearly unhappy with the lax attitude to EU rules being shown by France and Italy; especially with regard to these country's budget deficits. The EU has until the end of next week to reject the budgets submitted by France and Italy and they may well do so if Germany has its way. It's all getting a bit tense. But that is next week's excitement. In the present tense, the Sterling - Euro exchange rate is in mid-range right now. So, in the absence of any further EU data, this morning's UK data was very influential as we head towards the weekend.

Today's data diary was about as full as the 'South Yorkshire Police' section of Cliff Richards' Christmas card list. So traders were scrabbling around looking for reasons to trade. We did get US new home sales but that wasn't going to be enough to make big waves. As such, I suspect we will have a reasonably quiet run into the weekend in volatility terms.

Away from the markets, two radio stations in San Francisco have acted a little rashly in my opinion.  Their local baseball team, The San Francisco Giants are due to play a big game in the World Series (It's the US series really but that clearly didn't sound grand enough). Their opponents will be the Kansas City Royals. In preparation for the game, both stations have banned NZ singer Lorde's song, 'Royals'. The song, which is about aspiration and an indictment of materialism, has nothing to do with baseball and I think they have got the wrong end of the stick. I would have thought the  lyric, 'So we'll never be Royals, It don't run in our blood', would have been a great line for Giants Fans but I suspect the radio stations have never listened to all the lyrics. They should. It's a great song.

Currency - GBP/Australian Dollar

This week's Australian economic growth data was spot on the forecasts so the Aussie Dollar barely twitched. However the pressures on the global economy are weighing on the Aussie Dollar.  A drop in Chinese demand and weak New Zealand inflation both negatively impacted the Australian Dollar  and the rise in the value of the US Dollar ( the currency in which many Australian commodity exports are valued) had the effect of weakening the Aussie Dollar too. In spite of all of those things, the Pound isn't strong enough to command any great advances against the Australian Dollar and we are ending the week with the Sterling - Australian Dollar exchange rate barely half a cent away from the rate at which it started the week. As you can see from the chart above, this pair is as mid-range as it is possible to be. It is looking like the pound is ready for a rebound according to the relative strength indices so don't be surprised if we have another crack at the A$1.85 level in the days ahead.

Currency - GBP/Canadian Dollar

The Sterling – Canadian Dollar exchange rate has tested the top of its current range at C$1.8250 this week and it has been down to the bottom at C$1.80 as well. There has been news from the Bank of Canada which left the base rate on hold and news of falling oil and commodity prices which have kept the Canadian Dollar on the back foot. Some Canadian banks are predicting more pain for the Loonie (the nickname for the Canadian dollar) and that pain will, they say, emanate from further depression of the energy market and further stress on the Canadian economy if the US economy doesn't start to recover at a more sustainable pace.  The Sterling – Canadian Dollar rate is currently sitting on support at 1.8050 and as long as it stays above that level, there is scope for upward pressure. However, the UK side of the equation is also uncertain so dips and troughs in this pair are also likely. I guess what I am saying is that this will be a volatile pair in the weeks ahead. Use that volatility to your advantage with automated orders.

Currency - GBP/Euro

The downward sloping green trendline on this chart is a long term downward trend (since the end of 2008) and you can see how the Pound is running out of steam each time this level is tested. Sterling is on the up in general terms and has made some headway in most exchange rates over the last few months but it has to make a significant jump to get above the €1.28 level. If it does, then the upward momentum will threaten the €1.30 level in very short order. To add to this upward pressure, the trendline which capped this pair since 2000 (not shown in this chart) has been breached and is providing support for the Pound at €1.2725. In essence, it looks like this could head higher but Sterling lacks oomph at the moment and it will take some form of data catalyst to give it the kick up the backside that it needs.

Currency - GBP/New Zealand Dollar

The New Zealand Dollar has been a tad stronger of late but poor inflation data for the 3rd quarter of the year put the mockers on that. So the Sterling – NZ Dollar exchange rate has bounced between NZ$2.00 and NZ$2.05 this week. That is towards the upper end of the recent trading recent trading range and the channel that has contained this pair for over a year is still very much intact. So we can use the outer edges of that channel as guides for buyers and seller. NZD buyers can target rates around NZ$ 2.07 and seller can target NZ$1.96.

Currency - GBP/US Dollar

The $1.60 level is always going to be a target for traders. It's a nice big fat round number and that resonates with brokers and traders for some strange reason. So it is no surprise that, although the US Dollar pushed the Pound below there for a brief spell, Sterling bounced a little. We are in a kind of stasis at the moment, perilously balanced at the mouth of $1.60 with technical tools pointing in opposite directions. I suspect we will continue to see volatility in this narrow pattern for a while yet but the might of the US Dollar may well push the poor little pound lower over the next few weeks. The caveat is that the USD is very susceptible to oil, Middle East, commodity and Federal Reserve news so anything could happen and it probably will.