Relief rally as Spain secures bank bailout funds

Please look out for updates and market reaction immediately following key data releases on our Twitter page http://twitter.com/#!/no1currencyintl 

Morning Comment          

Current mid-market inter-bank spot rates (as at 07:15 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

Initial market movement on Friday saw bond yields in Spain and Italy on the rise once again. However, all the talk was of a potential weekend bailout request from Spain which kept the euro under pressure for the majority of the day before a late short covering rally into the weekend. ECB member Nowotny was in dovish mood, seeing increased downside risks to growth and possible lower rates although he does not expect to see additional asset purchases or a third LTRO. 

In the UK, producer price inflation came in below expectation son both headline and core readings although a separate report on consumer inflation expectations for the coming 12 months rose from 3.5% in February to 3.7%. 

In the States, the trade deficit narrowed as both imports and exports fell, the latter for the first time in 5 months. 

Over the weekend, anticipated weak data from China following the surprise 25bp rate cut was well founded as inflation, retail sales and industrial production all declined. However, data was not as bad as many had feared and strong trade data helped risk sentiment. 

The big news however was reserved for Spain. Global markets rallied sharply at the Asian open following news that Spain had negotiated a €100bn bank bailout which came with none of the preconditions on austerity that has accompanied previous aid packages. The difference here is that the bailout is for a banking system rescue rather than sovereign aid. Either way, markets have reacted positively but someone somewhere has to pay so it’s maybe wise not to get too carried away by the relief rally, especially with Greek elections looming this coming weekend.

A quiet start to the week on the calendar and very little in the way of major releases from the UK for the remainder of the week. Tomorrow we get production figures along with the latest NIESR GDP estimate and trade data is released on Friday. Highlights elsewhere will be Wednesday’s German inflation data and US retail sales, inflation releases from both the Eurozone and US on Thursday and the University of Michigan confidence survey on Friday. 

Technical  

£-usd 

The pound is back on the front foot but needs to clear last week’s 1.5600 high then 1.5665 to suggest a stronger correction to the sharp fall last month is on the cards. Above 1.5665 opens up the 1.5760/1.5805 zone. A further positive is the two consecutive weekly closes above the bull trendline drawn from the January 2009 low which currently sits at 1.5380. Initial support today is at 1.5470 where the gap higher of the weekend would fill. Below here, bears would look towards 1.5410/1.5380, 1.5325 and 1.5270. 

£-eur  

Sterling has gapped lower over the weekend from 1.2360 but the 1.2265 level has held firm so far. A sustained break here is needed to further dent bullish confidence and set sights on 1.2190 and more importantly the strong 1.2170/60 area. Resistance today at 1.2345/60 then 1.2390, 1.2420/25 and 1.2500/20. 

Analysis of further currency pairs, forward contract pricing, and information on limit or stop loss orders is available at any time on request.                                          

Telephone 0131 476 7371

<<Back