Sterling strong as retail sales boost GDP hopes

Morning Comment          

Current mid-market inter-bank spot rates (as at 08:10 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

Sterling was given a sharp boost on Friday morning by strong March retail sales figures. Retail sales, including fuel which was a large factor due to panic buying ahead of a potential taker driver strike, rose by 1.8% on the month and 3.3% annually, the largest rise in 14 months. 

In Germany, the closely monitored IFO survey came in largely unchanged from March but above expectations and at a 9-month high which helped underpin the euro. Earlier, peripheral Eurozone bond spreads had widened putting pressure on the single currency. 

Over the weekend, the IMF announced an additional $430bn had been raised aimed at safeguarding the Eurozone economy. Being at the upper end of expectations, it was seen as a positive step. However, strong opposition showings in French elections took some of the shine off the euro with president Sarkozy now set for a second round head to head on May 6^th with Socialist candidate Hollande. 

Early trading in financial markets has seen the French/German 10-year bond yield spread widen in the wake of the election results. 

The calendar today is dominated by Eurozone PMIs where slight improvement is expected across the board, although not enough to haul region wide indexes back into expansion territory. Wednesday is the big focus for the week with the first reading of Q1 GDP and the latest FOMC meeting which includes their updated economic forecasts. Q1 GDP for the US is also released on Friday. 

Technical  

£-usd 

Last week’s close above the 200 week moving average (1.5959) was the first since August 2008 and is a potential positive for sterling. On the other side of the coin, we still see signs of bearish divergence in daily momentum studies and with the strong 1.6170 resistance level looming, it is still worth being cautious at current levels. Resistance this morning at 1.6135/50 protects the above pivotal level which in turn is the gateway to 1.6325. Support now seen at 1.6070/60, 1.6025/20, 1.6000, 1.5985. Stronger support sits in the 1.5975/40 zone. 

£-eur  

The pound posted its strongest weekly close in 20 months but struggled to make additional headway in the latter part of the week amidst declining momentum. This leaves us with resistance still at 1.2250, 1.2280 and in the 1.2345/95 area. Support today at 1.2195/80, 1.2165/50, 1.2090/80 and 1.2000. Bulls remain in control but again, we must be wary of the slip in momentum. 

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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