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Expects Euro to Decline to 85 Pence
BY: PAUL DAY :
Tthere is a very good correlation between UK yields and the direction of EURGBP which suggests a further shift higher in the UK yield curve should see the Pound outperform. As such, I continue to favour EURGBP to head lower, potentially to the 0.85 region over the next few weeks.
For the EURGBP trade, we continue to look at the good correlation between UK 10yr Gilt Yields and the GBPEUR rate. Since the collapse of Lehman, this correlation has worked very impressively, with a rise in Gilt Yields being coupled with an outperformance by Sterling. Over the turn of the year however, Gilts yields rose 50bps, with no corresponding bid to the pound. We look for this correlation to remain steady and expect EURGBP to drift potentially as low as 0.8450-0.8521 during the first quarter.
For the Euro, there has been little in the ECB decision to make us alter out early 2010 outlolok for the Euro. We retain our bearish outlook for the first part of the year and expect EURUSD to fall to 1.3750-1.39 during the first quarter and also continue to look for EURGBP to head lower.
BY: HOWARD FRIEND
The ECB press conference produced a big yawn, rates 'on hold' as expected and inflation and economic outlooks unchanged from December. Of note was his stressing that downside risks remain for consumption and investment, and that M3 and credit growth are "likely to remain weak" - hardly cause for panic for bond holders. No bombshells on the Greek situation, and Eurozone break-up not an option. We remain dovish on the Eurozone while credit growth remains subdued, and see further downside risks to the Euro going forward. Technically, we look for EUR/USD to decline towards the 1.3750 to 1.3900 region over coming weeks.
