Currency update - 13 March 2012
Mar 13th 2012, 9:11 am
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Currency update - 13 March 2012
Sterling bear raid fails
- But no conclusive rebound for the pound
- UK trade figures could test it today
Good morning. The food scares are coming thick and fast. Hard on the heels of warnings about skimmed milk (lacking in nutrition), artificial sweeteners (make you fat), grapes (pesticide residue) and soft drinks (heart attack risk up by 20%), researchers have discovered that red meat causes heart disease. But never fear: the good news is that eggs and water are okay, if you can get hold of them.
As for sterling, the researchers were not in agreement yesterday. The first to publish reckoned that technical support for GBP/USD, dating from late January and mid-February, was critical and that a downward break could be as bad for the pound as a burnt bacon sandwich. A negative spike late on Monday morning initially bore out their claim when Cable dropped three quarters of a cent. However, a rival group maintained that the Cable move was a red herring (danger of choking) and should be ignored. In their opinion the sterling/euro exchange rate was more important than sterling/dollar. They could see no reason why the pound should be singled out for punishment at that particular juncture, there being no UK economic data on Monday with which to whack it. And sure enough, Cable stabilised, with the assistance of psychological "round number" support at $1.5600.
But despite the hesitation yesterday afternoon, the technical picture for sterling/dollar does not look good. It is easy to imagine another downward push creating a clear break that could lead to a further three cents' loss before the pound encounters its next technical support level at the low of mid-January.
Not only were there no UK data on Monday, there were none from anywhere else either. With minimal hard evidence to inspire them, investors could do no more than refine the assessments they had made on Friday regarding the Greek bailout and the strengthening US economy. They spent the day adjusting their positions, pushing currencies around in a way that betokened no coherent strategy.
Overnight, sterling received support of a kind from the RICS housing price balance which came in at -13%, its best level in two and a half years (though still indicating falling prices). The yen got lucky when the Bank of Japan kept monetary policy unchanged: the risk had been of an announcement about new asset purchases. Lower levels of mortgage lending in Australia and a three-point fall in business confidence there failed to deter buyers of the Aussie dollar.
There will be more for investors to go on today. ZEW reveals its latest economic sentiment readings for Germany and Euroland while US retail sales are expected to show growth on the consumer front. This evening the Federal Open Market Committee is expected to announce no increase to its bond-buying programme. Australian consumer confidence and housing starts come out tonight, as do Japanese figures for industrial production and orders.
Sterling's challenge comes this morning with January's balance of trade. A deficit appreciably less than £8bn would be helpful to the pound while one much bigger than that could provide renewed inspiration for the bears who bottled out yesterday.
- But no conclusive rebound for the pound
- UK trade figures could test it today
Good morning. The food scares are coming thick and fast. Hard on the heels of warnings about skimmed milk (lacking in nutrition), artificial sweeteners (make you fat), grapes (pesticide residue) and soft drinks (heart attack risk up by 20%), researchers have discovered that red meat causes heart disease. But never fear: the good news is that eggs and water are okay, if you can get hold of them.
As for sterling, the researchers were not in agreement yesterday. The first to publish reckoned that technical support for GBP/USD, dating from late January and mid-February, was critical and that a downward break could be as bad for the pound as a burnt bacon sandwich. A negative spike late on Monday morning initially bore out their claim when Cable dropped three quarters of a cent. However, a rival group maintained that the Cable move was a red herring (danger of choking) and should be ignored. In their opinion the sterling/euro exchange rate was more important than sterling/dollar. They could see no reason why the pound should be singled out for punishment at that particular juncture, there being no UK economic data on Monday with which to whack it. And sure enough, Cable stabilised, with the assistance of psychological "round number" support at $1.5600.
But despite the hesitation yesterday afternoon, the technical picture for sterling/dollar does not look good. It is easy to imagine another downward push creating a clear break that could lead to a further three cents' loss before the pound encounters its next technical support level at the low of mid-January.
Not only were there no UK data on Monday, there were none from anywhere else either. With minimal hard evidence to inspire them, investors could do no more than refine the assessments they had made on Friday regarding the Greek bailout and the strengthening US economy. They spent the day adjusting their positions, pushing currencies around in a way that betokened no coherent strategy.
Overnight, sterling received support of a kind from the RICS housing price balance which came in at -13%, its best level in two and a half years (though still indicating falling prices). The yen got lucky when the Bank of Japan kept monetary policy unchanged: the risk had been of an announcement about new asset purchases. Lower levels of mortgage lending in Australia and a three-point fall in business confidence there failed to deter buyers of the Aussie dollar.
There will be more for investors to go on today. ZEW reveals its latest economic sentiment readings for Germany and Euroland while US retail sales are expected to show growth on the consumer front. This evening the Federal Open Market Committee is expected to announce no increase to its bond-buying programme. Australian consumer confidence and housing starts come out tonight, as do Japanese figures for industrial production and orders.
Sterling's challenge comes this morning with January's balance of trade. A deficit appreciably less than £8bn would be helpful to the pound while one much bigger than that could provide renewed inspiration for the bears who bottled out yesterday.
