Sterling advance stalls

Morning Comment          

Current mid-market inter-bank spot rates (as at 08:05 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

Sterling has been a beneficiary of relative economic strength and a less dovish outlook from the Bank of England. Despite a weak Q1 GDP reading, the pound has continued to grind higher and we saw fresh multi-month highs against the US dollar and euro again yesterday. However, bulls ran out of steam after morning gains and the pound closed the day well off its highs. 

In Europe, Spain became the latest nation to fall into recession with Q1 GDP falling 0.3%. As growth throughout the region slows and inflation remains in check, ECB President Draghi and his team may yet find room to ease policy in the months ahead although no change is anticipated at this Thursday’s meeting. 

In the States, data was mixed to weak. The Chicago PMI fell to 56.2, its lowest level since November 2009 while the Dallas Fed manufacturing index was also soft, hitting a 7-month low of -3.4 in April from +10.8. Personal income was a shade stronger than consensus while personal spending, as expected, saw a sharp pullback in March. Core PCE was a positive as it edged higher to an annualised 2.0%, its highest level since November 2008. 

Overnight, Dallas Fed President Fisher said the Fed have done what they can to stimulate job growth via monetary policy, confirming his anti-QE3 stance. In Australia, the Reserve Bank cut interest rates as expected but by 0.5% rather than the widely anticipated 0.25% sending the A$ lower. In China, manufacturing PMI edged higher but undershot consensus. 

Ahead today, following the disappointment of Q1 GDP, we have the first indication of how the economy is looking at the beginning of Q2 with the release of PMI manufacturing. Activity is expected to slow but remain in expansion territory. In the States, ISM manufacturing is seen edging a touch lower but comfortably in expansion. Most of Europe is closed today for the May Day Holiday. 

Technical  

£-usd 

The pound has been advancing for two weeks now with only a couple of very minor blips along the way. Yesterday saw a fresh 8-month high hit just above 1.6300 before gravity kicked in and we closed the day down a net half cent. However, April was the fourth consecutive positive month for the pound so bulls remain firmly in control in the bigger picture. For today, we may see bears test the water a little further with 1.6185, 1.6155, 1.6115/10 and 1.6060/55 the near term targets. On the upside, 1.6300/25 remains the next big test for bulls above which clears the way towards 1.6425 and 1.6500/65.

£-eur  

After hitting a 22-month high yesterday morning but falling well short of testing the June 2010 high at 1.2395, the pound opens today testing trendline support at 1.2230. Momentum is beginning to fade and a break here would suggest a re-test of the pivotal 1.2160 level. Below here, bulls start to lose a bit of grip bringing 1.2100, 1.2035 and the psychological 1.2000 level back into play. Resistance now at 1.2260/80, 1.2310 and 1.2395.

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