httpvh://www.youtube.com/watch?v=tmnWObortu0

After once again plummeting to fresh 4 year lows yesterday the euro regained some footing during trade although this is likely to prove to be short lived.

Euro strength was based on rumours, both unfounded, that a) the ECB was leading a coordinated effort of euro buying to bid up the price and b) that Greece was considering leaving the EU. One central bank that was happy to intervene was the Swiss National Bank who jumped into the market to sell the franc against the euro with EURCHF moving from 1.40 to 1.43 in a matter of minutes. This had the effect of strengthening the euro against its other crosses pushing EURUSD up into the 1.23s and GBPEUR down to the low 1.16s.

As I said, this euro strength is unlikely to remain for long as every trade recommendation on EURUSD that I’ve seen from banks and hedge funds is to ‘sell spikes’ i.e. to short little pop-ups like this.

GBP was dragged higher against the dollar as the risk atmosphere improved in light of the euro’s appreciation. This was in spite of a fairly poor set of minutes from the Bank of England. While the view was indeed a 9-0 consensus, the markets are still somewhat shifty about how the Bank of England will walk the tight-rope between dealing with our high inflation levels and still allowing the recovery to flourish.

Markets did remain volatile for the rest of the day as investors dealt with the repercussions of the German ban on ‘naked’ short-selling. Equity market futures suggest a positive open for the FTSE and other European markets this morning however.

Interesting day for the pound looking forward today with our retail sales measure at 09.30. We expect this to be roughly positive as the effect of the improving weather is balanced out by people waiting until after the election to make large purchases. The consensus view is  0.3%. We also have a UK debt auction with the DMO selling UK 2020 bonds at a vield of 4.75%. given the recent concerns over the UK’s ability to raise funds in the market the bid-to-cover ratio will be a useful barometer of how the market perceives the UK.