Sterling continues to benefit from robust data

Morning Comment      

Data / Events due today 

Fundamental

Despite US consumer confidence falling to a 5-month low, reaction in financial markets was muted allowed bond yields to rise and dollar followed suit eroding most of its earlier losses. One notable exception was sterling which continued to edge higher, buoyed by a strong CBI distributive trades report. Even although reweighting explained some of the +33 retail sales balance (consensus +3), the figure would still have been +21 using the previous parameters. The expectations component also rose to a six year high.

Stronger than expected money supply in Europe combined with the early morning release of improving consumer sentiment in Germany again helped the euro to hold onto gains around the $1.30 level although the dollar pullback in the afternoon dragged the single currency off its highs.

Overnight, weaker than expected Australian inflation has all but ruled out a rate hike at next Tuesday’s meeting sending the A$ lower.

Ahead today, some event risk for sterling with several Bank of England MPC members testifying to the Treasury Committee on Monetary and Financial Stability. In the States, durable goods orders are expected to have picked up although much of the increase is seen coming from the transport sector. Tonight’s Beige Book will likely reflect recent dovish comments from fed Chairman Bernanke.

Technical  

£-usd

The last 10 weeks, and in particular the last 8, have been good for cable. All but a few pips of a 50% retracement of the entire 1.7040/1.4235 fall between August last year and this April have been carved out and we open today around 5-month highs. The 50% retrace level sits at 1.5640 and will be pivotal for sterling. Yesterday saw the first close above the 200 day moving average in 6 months so above 1.5640 would provide yet another positive development and set sights on 1.5700/35 and 1.5835. Support today at 1.5575/65, 1.5520/10 and 1.5445.

£-eur 

The pound is threatening 1.20 again today, as it has done in each of the last 3 days but 1.2025/50 remains the near term hurdle to clear which has so far proved elusive. Above here clears the path to 1.2135, 1.2235 and the 1.2395 high from the end of June. Support, little changed form the last couple of days, sits at 1.1960/40, 1.1905, 1.1880/70, 1.1835, 1.1790 and 1.1720.

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

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