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Francine Lacqua
While concerns grow over the fiscal state of the western world, Moody’s has at least moved this morning to ease concerns about the credit status of Britain and America. So what are the consequences on the market and in particular the foreign exchange markets? Well I’m joined in the studio by Peter Rosenstreich, the Chief Market Analyst at ACM Advanced Currency Markets. Thank you so much, Peter, for coming on the show.
Peter Rosenstreich
Thanks for having me.
Francine Lacqua
What a week.
Peter Rosenstreich
Very much so.
Francine Lacqua
I mean it has been incredible because suddenly all of the worries on sovereign debt have come to the surface. First of all what does it mean for the euro because this, of course, is the currency where we’re seeing the most trouble.
Peter Rosenstreich
Right, absolutely. You know, it changed the game for the most part. About two weeks ago you could not find a dollar buyer anywhere across the board and now, all of a sudden, people are talking about the resurgence of the dollar in this, and weakness of riskier currency trades. So it’s a game changer, it’s one that the markets really need to watch out for. What that means for the eurodollar is how much correlation do we see between the risk appetite trade and the eurodollar. And what we’ve seen recently is there’s been erosion of that correlation, so every time there’s a risk event, like the Dubai, like Greece, we’re seeing a lesser effect in the erosion of the euro’s sort of overall strength. So that’s really what we’re seeing and that’s a trend that’s going to continue through 2010.
Francine Lacqua
Peter, we’re not talking about default at the moment, I mean we just heard from the John that the PIGS, you know, the Portugal, Ireland, Spain, they’re not at risk of defaulting.
Peter Rosenstreich
Correct. I mean what we’ve heard and what we’re looking at in terms of budgets, you know, tomorrow we’re not going to see a massive default, but it’s something that we need to constantly monitor. We made the mistake of perhaps misreading the credit market slightly going into the financial crisis saying well, these are the spreads and rates, the spreads in CDS are widening, we didn’t quite perhaps factor in the importance of this and we’re not going to make the same mistake twice. Credit, I believe that Greece is now above Ireland in terms of CDS, the pricing, and I think that’s something that needs to be continued to watch, and if budgets are going to be the focus of 2010 I think the euro, I mean the EU has some significant weakness there.
Francine Lacqua
So give us a couple of levels, Peter, in terms of what we’re seeing the eurodollar year end but also into 2010?
Peter Rosenstreich
Well we think that we’re going to see a small pullback in the eurodollar. We’re seeing part of that now, we’ll see a continuation in Q1 2010, back to about the 140 level, so nothing drastic but a slight pullback in eurodollar. From there we’d expect the growth differentials to really take into a place, and for the Eurozone to catch up to the US and really outpace the US in 2010, and that should mean eurodollar strength, and we go back up to the 150 levels and above that in late 2010.
Francine Lacqua
Peter, I also wanted to get your view on the pound. Now we had some very big news actually from the Chancellor, Alistair Darling, in that pre-budget report, deficits are also a huge concern here although Moody’s said we’re not ready to downgrade.
Peter Rosenstreich
Yeah, well you know what, again going back to that budget, are we in the financial markets, do we have to become accountants now and look at every line item in budgets? It might be the case. And we’ll see very quickly how important budgets are to the financial markets. Our overall view is right now we’re teetering on a massive head and shoulders pattern at the 162.50 levels. How that trade sort of takes shape is really going to define the pound’s strength. If we break below that I think there’s some significant downside risk to the pound, but should we be able to stay above that support I think heading back up with the resurgence in risk appetite, we’re seeing some good news out of China which means that the equity markets should bounce and the cables should get a bounce, we head right back up from that net line.
Francine Lacqua
Alright Peter, thanks so much, great to have you on the show.
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