EU bank stress tests overshadow UK GDP release

Morning Comment       

Fundamental

Eurozone data comprehensively surprised to the upside yesterday with manufacturing and services activity together with industrial new orders all beating economists median expectations. Later in the day, consumer confidence also bear consensus, rising to -14 from -17, giving the euro a late after lift.

Similarly, UK retail sales were strong with World Cup driven sales of electrical goods the main contributor.

The dollar slipped a touch in afternoon trade as 3 month dollar LIBOR fixed below 0.5% for the first time since late May in the wake of yesterday’s dovish testimony from Fed Chairman Ben Bernanke. US weekly labour data was mixed with initial claims higher than expected while continuing claims fell. Meanwhile, existing home sales were not as bad as feared although they still fell by 5.1% on the month.

Aside from the results of bank stress tests in Europe, which are officially due around the end of the UK trading day, we have German IFO this morning, where business climate and expectations components are seen slipping back while current conditions are expected to improve from last month. As for the stress tests themselves, various leaks have already filtered out with the latest being from Spanish newspaper sources this morning saying several cajas (savings banks) have failed. In total, 91 banks have been tested covering 65% of the banking sector in the EU. Of more importance than the pass or fail will likely be how deep the tests go and how comprehensive the published results are. 

The day’s highlight for the UK comes from the advance Q2 GDP reading which is expected to show growth for the quarter of 0.6%, up from the final Q1 reading of 0.3%. 

Technical    

£-usd 

Cable heads into the final day of the week exactly where it opened. Momentum is a bit slack but as long as we hold above the 21 day moving average at 1.5176 and the 1.5125 midweek low, the bias remains bullish. Below these, the 1.5030/1.4950 area comes back into play. Resistance for today at 1.5295/1.5300, 1.5320/50 and 1.5390 ahead of the stronger 1.5470/1.5525 zone.   

£-eur  

The pound has dug its heels in this week following the previous three weeks of selling pressure but remains below the 55 day moving average at 1.1930 which needs to be regained to reduce the potential for further near term downside. Support today at 1.1840, 1.1810/1.1790, 1.1765 and 1.1720. Stronger support remains at 1.1660/25. Resistance should 1.1930 be cleared lies at 1.1980, 1.2025, 1.2060 and 1.2135. 

Analysis of further currency pairs, forward contract pricing, and information on limit or stop loss orders is available at any time on request.  

Telephone 0131 476 7371

<<Back