Dollar fails to take advatage of favourable conditions

Morning Comment          

Current mid-market inter-bank spot rates (as at 08:15 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

The euro was first to take a battering yesterday as PMI releases came in weaker than expected across the board. Germany’s manufacturing sector contracted for the first time this year as the index slipped to 48.1 against expectations of a 51.0 print. Although the service sector in Europe’s largest economy expanded, the pace of growth was slower than in February. Region wide, both the manufacturing and service sectors were weaker than consensus and remain mired in contraction territory, raising the prospect of a technical recession in the Eurozone. Later in the morning, industrial new orders for the Euro area in January were also weak, down 2.3% from the previous month. The single currency was not helped by Bundesbank chief Weidmann noting German budget plans were ‘unambitious’. 

Sterling rallied on the weak EZ data but soon fell victim to poor retail sales figures. Sales in February fell 0.8%, the biggest decline since last May while January figures were also revised sharply lower. 

In the States, we saw recent improvements in the labour market continue as initial jobless claims fell to their lowest levels since February 2008. Leading indicators rose for a fifth consecutive month highlighting the US recovery. Following hawkish rhetoric from his Minneapolis counterpart, St Louis Fed President Bullard was on the same hymn sheet as he noted there should be no QE3 barring a significant deterioration in the economy and inflation outlook. 

Despite the comparatively healthy state of the US economy and a general anti-risk feel to financial markets, currencies are uncharacteristically stable. So although common sense would suggest the dollar trades higher, market reaction ensures it’s not a one way bet. 

Following a recovery in January, UK Nationwide consumer confidence released overnight saw the survey slip back to 44 from 47. Given yesterday’s retail sales report, the outcome here was far from surprising. 

This morning, risk sentiment has been boosted by rumours of another cut in the Chinese Reserve Requirement Ratio which has seen the dollar dip from its overnight highs. 

A quiet end to the week with only BBA loans for house purchases from the UK (expected lower than in January) and US new home sales which are seen rebounding from a weak January.

Technical  

£-usd 

Sterling selling was not unexpected given the slide in momentum and ‘outside day’ mentioned in yesterday’s report. Support at 1.5765 held firm however and we open th9is morning back around the 200 day moving average (1.5855). In the near term, 1.5775/65 appears to be the area to monitor on the downside with a break suggesting potential to extend the fall towards 1.5705/00 and 1.5615/05. Resistance is at 1.5890/95, 1.5920/25 and the strong 1.5985/1.6000 area. 

£-eur  

Yesterday produced another unconvincing upside attempt from the pound. We have traded on a 1.20 handle for each of the last 8 trading days but the best closing level in this sequence has been 1.2025. Unless 1.2070/80 can be taken out to convince we can re-challenge 1.2100 then the 1.2165/70 year high, support at 1.1950/45 may come under further scrutiny. Below here, the prospect of a deeper correction rises. Next supports at 1.1915, 1.1880/70, 1.1830 and 1.1785/60. 

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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