Low expectations from today's EU Summit

Morning Comment          

Current mid-market inter-bank spot rates (as at 08:40 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental  

Yesterday’s UK inflation release was slightly below forecast at 3.0%, the lowest reading since February 2010. The lower annual rate sent the pound a touch lower in initial knee jerk reaction but selling was shallow and short lived and sterling quickly regained composure. Public finances were distorted by the transfer of £28bn of assets from the Royal Mail pension fund and £2.3bn from the Bank of England’s Special Liquidity Scheme. 

Short dated Spanish bond auctions were well backed although yields were sharply higher again. Eurozone consumer confidence was marginally better than expected but not enough to give the single currency a lift. Independent ratings agency Egan Jones downgraded Spain from BB+ to BB-. 

In the States, existing home sales were a touch firmer than expected but as we highlighted yesterday, the risk for a lower Richmond Fed manufacturing index was realised with a 10 point fall to 4, its slowest pace of growth in five months.   

Former Greek PM Papademos put the skids under the euro once again as he stated preparations for a euro exit were being considered. 

In a clear indication of opinion on global policy, the IMF noted the UK should consider a rate cut and additional QE if the recovery falters while the OECD said the Fed should not abandon QE and that the ECB should cut interest rates. 

Today’s EU Summit is set to be an informal affair with discussions on how to boost growth but there is potential for increased division, particularly between Merkel and Hollande, rather than compromise. As such the mini recovery in the euro, and risk in general, ground to a halt yesterday and the dollar is back trading on the front foot. 

Another relatively quiet calendar but the big headlines will come from the Bank of England MPC minutes. Following last month’s shift to a less dovish outlook, data releases have been weak and the Eurozone crisis has escalated so there is a risk the minutes will swing back once again. Meanwhile, retail sales for April are expected to fall after the sharp rise in March on a combination of declining confidence and poor weather. 

Technical  

£-usd 

Unable to break above the 200 week movi8ng average at 1.5862, the path of least resistance is now being tested with the pound now back below 1.5770 and threatening the recent 1.5735 low. Below here, we can see potential back towards 1.5645/05 and 1.5540/90. Resistance today at 1.5810, 1.5850/65 and 1.5950. 

£-eur  

After filling in the two week old gap at 1.2350, the pound has recovered against a broadly weak euro. Initial hurdle to clear to extend the recovery sits at 1.2460 then 1.2485/90 and 1.2520/25 ahead of the recent 1.2575/80 highs. Support today at 1.2405/00, 1.2365/40 and 1.2265. 

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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