Markets consolidate following recent dollar slide

Morning Comment          

Current mid-market inter-bank spot rates (as at 08:25 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

Despite recent weakness, there was some brighter news for UK retailers with the CBI distributive trades report for March showing the sales balance rose to 0 from -2 in February. However, the headline number doesn’t tell the full story with stores warning of a negative outlook from weak wages growth and elevated fuel prices. There were mixed but ultimately dovish comments from Bank of England officials. Governor King laid out his plan for an exit strategy saying that an interest rate hike followed by asset sales would be the preferred path. However, this was not a sign of a more hawkish stance as he went on to highlight the continuing pressure on banks and that there were no signs of increasing inflation. Meanwhile, MPC member Posen who recently voted for additional asset purchases, said he is less worried about downside risks but went on to say accommodative policy is still needed to support the economy. 

As we edge closer to yet another European Finance Minister meeting this weekend, the plan is to ensure there is a sufficient ‘firewall’ available to address additional bailout requirements. With the ESM having a €500bn fighting fund and the EFSF €200bn, FinMins are keen to engineer a situation where the funds can run together to effectively build a €700bn firewall rather than any unused EFSF funds expire in the middle of next year. Despite opposition from the German public, Chancellor Merkel has political backing for the plan. Meanwhile, concerns are growing over Spain’s ability to meet its revised budget deficit target this year. Therefore, although both Greek and Portuguese bond yields continued to fall, the euro has pulled back from its one month highs against the dollar. 

There were several Fed speakers yesterday with the combined take away being an air of caution with regard to the economic recovery. Europe and oil prices in particular pose a very real threat to growth. On the data front, there was further bad news on the housing market with prices falling 3.8% in the year to January. March consumer confidence dipped from an upwardly revised one year high in the previous month but was slightly above consensus at 70.2. A sharp decline in the Richmond Fed manufacturing index reflected the slowdown already seen in other states. 

Ahead today, the early focus is firmly on the final reading for Q4 GDP in the UK. Consensus is for the 0.2% contraction originally recorded to be confirmed. The Q4 current account deficit is expected to almost halve from £15.2bn to £8.4bn. German inflation is expected to drop a notch from 2.3% in February to 2.2%. The sole release from the States this afternoon is durable goods orders for February which are expected to rebound following a weak start to the year.  

Technical  

£-usd 

The pound hit a 4 ½ month high yesterday but stalled at the upper end of the 1.5985/1.6000 resistance zone we have been highlighting for some time. We still view this upswing with caution but respect we may have potential to squeeze up towards 1.6040/80 or 1.6170 resistance if 1.6000 finally gives way. Support today at 1.5915, 1.5900, 1.5885 and the 200 day moving average at 1.5850. Below this latter level needed to neutralise the current bullish bias. 

£-eur  

Sterling remain in consolidation mode but with a near term downside bias that threatens to break below 1.1945 support. If seen, look for a move lower to test 1.1885/70 initially then possibly on to 1.1830 and 1.1785/60. Resistance remains at 1.2000, 1.2070/80, 1.2100 and 1.2165.

 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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