Forex Weekly Report

To start this piece it is worth referring back to our “potential surprises for 2014″ section in the FX weekly report covering the period 20 – 26 January 2014. We highlighted the potential for a surprise improvement in the Eurozone economy. The probability of this taking place is increasing and we would expect this to translate into a short-term squeeze higher in the Euro. However, as further evidence emerges that reduces the chances of entrenched deflation, this could then lead to a slide in the Euro, as was seen at the beginning of 2013 for the Yen and related crosses. Combined with the outlook for cable, as discussed later in this report, we would expect a period of strength in EUR/GBP, which would theoretically be swiftly reversed, (assuming the deflationary scenario were to be priced out of the market). Thus the movement of this key Euro cross is likely be dominated by the Euro component.