Euro slide extends as greek saga continues

Morning Comment          

Current mid-market inter-bank spot rates (as at 08:55 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

Although PMI manufacturing growth slowed to 51.2 in February from 52.0 on the back of a fall in new orders, the index remains in expansion territory. Sterling dipped after the data but quickly found its feet with Bank of England MPC member Weale erring on the cautious side with regard to inflation which would diminish the prospect of additional asset purchases. 

In the wake of Wednesday’s LTRO in Europe, the single currency has continued to trade on the back foot. The situation has not been helped with news that half of the recently agreed €130bn euro aid package to Greece will be held back until there is proof austerity measures will be implemented. Additionally, the IMF will wait until after the bond swap window closes next Friday before deciding on its contribution. The threatened collective action clause adds to the lack of clarity which will most likely keep a lid on the euro for now. 

There were slight revisions to German (upwards) and French (downwards) manufacturing PMIs yesterday leaving the region wide index as previously report at 49.0. 

Data releases in the States were mixed. There was further encouraging news from the labour market as initial jobless claims fell to their lowest level in four years. However, the steadily improving employment situation has not filtered through to consumer spending with a smaller than expected 0.2% rise seen in January. ISM manufacturing disappointed with growth slowing from 54.1 to 52.4. Fed Chairman Bernanke noted higher inflation and improving labour market conditions has decreased the prospect of QE3. He continued his less dovish theme by saying the low rates for an extended period language adopted by the FOMC was not set in stone. 

Given all of the above, it is perhaps surprising that risk assets remain so well supported. It is hard to fight against these trends but there are certainly enough warning signs around to suggest a sharp decline in risk could be just around the corner. 

German retail sales already released this morning were weak with a 1.6% fall for January compared to December. Expectations had been for a 0.5% rise. 

A quiet day ahead with only UK construction PMI and Eurozone PPI data scheduled for release. The construction sector in the UK is expected to hold steady from January’s reading while January producer prices in Europe are likely to rebound from December’s 0.2% decline. 

Technical  

£-usd 

He pound has broken and held above the 200 day moving average (1.5897) over the past two days but has been capped by 1.5995, the 50% retracement of the April 2011/January 2012 fall. These two levels are important to monitor to signal the next directional move. There are some signs of positive momentum tailing off so unless we get an upside break soon, 1.5895 could come under pressure. Below here sets up a test of 1.5860 and 1.5820/00. A sustained break above 1.5995, the psychological 1.6000 level and 1.6020/25 is needed to keep the recovery on track with 1.6165/70 the next important upside level to monitor. 

£-eur  

Sterling’s recovery continues with 1.2020 and 1.2040 resistance levels now in focus. However, additional resistance at 1.2080, 1.2100 and the 1.2165 high for the year could ensure further upside progress is slow. Support now seen at 1.1925/15, 1.1885 and 1.1850/45. 

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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