Forex Investment and Currency Trading

In Europe, ECB’s decision to ease by a 50bps cut, appeared at odds with the larger than expected UK. The ECB does have to have a consensus of 21 members, versus the smaller BOE, and the UK is in a worse position. Expect more cuts in Europe given the deteriorating outlook for EU growth. Next week, IP on Wed is the main release. In Germany, on Fri IP is out with a modest fall expected and then next week the main focus will be on the ZEW survey, which is out Tues. In the UK, PPI data is out on Mon and then the focus will shift to Wednesday with employment data due along with the BoE quarterly inflation report. Maintain long EUR and GBP bias for another week. Risk aversion across all asset classes is trending lower, which in turn should see the USD continue to lose some of its safe haven bid. The rate decisions from the ECB and BoE are unlikely to weigh heavily on EUR and GBP, with currencies being rewarded for proactive action by central banks at the moment. Declining risk aversion could take EUR/USD to the 1.35/1.37 region. Beyond this though the ECB and BoE ultimately have to cut rates more than the Fed, hence any significant bounce should still be viewed as an opportunity to establish medium term short positions.