Euro consolidates despite more negative news

Morning Comment   

Current mid-market inter-bank spot rates (as at 07:45 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

Events surrounding the Eurozone continue to dominate FX markets. Yesterday saw an early recovery but selling emerged once more following claims from ratings agency Fitch that Spain would miss its budget deficit target by a considerable margin this year and next. They also see an increasing probability for a third LTRO. Meanwhile, Spanish and Italian bond yields continued to climb and Fitch followed up on earlier comments by downgrading 18 Spanish banks. There was a knee-jerk reaction lower in the euro on the downgrade news but it should really have been of little surprise to markets. Cyprus may well be the next nation to look for EU aid. Although small in relative terms, yet another country joining the ever growing queue increases the pressure on the region as a whole. 

In the UK, manufacturing production was weaker than consensus but the wider measure of industrial production came in as expected.  

All told, yesterday was more of a day of consolidation with expectations of coordinated central bank action increasing. The Fed meet next week and may well inject liquidity via swap lines or another ‘operation twist’. 

Ahead today, Eurozone industrial production is expected to decline at a faster pace. In the States, producer price inflation is expected to fall from a year earlier although the reading excluding food and energy is seen edging slightly higher. Analysts expect retail sales in the US in May to have been weak. 

Technical  

£-usd 

The pound closed at its highest level in two weeks yesterday but held short of testing last week’s 1.5600 high let alone the 1.5665 retracement level. Upside momentum is building however so if this initial resistance at 1.5600 gives way we can expect to see pressure on 1.5665. Only through this second level suggest a stronger rally towards the 200 day moving average at 1.5755, the 50% retracement of the recent decline at 1.5785 or the 200 week moving average at 1.5805. Support today at 1.5490/85, 1.5455, 1.5435, 1.5405/1.5395 and 1.5345 protect the 1.5270 from the beginning of the month. 

£-eur  

It has taken sterling 2 day to recoup 2/3rds of the losses from the last 3 ½ weeks but whether it has the legs to tackle 1.2500/10 then the 1.2575/80 high from mid May remains open to question amid faltering momentum studies. Support today at 1.2410/1.2395, 1.2375/70, 1.2345, 1.2310 and stronger 1.2260 level.

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