Expectations for Fed action grow

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Morning Comment          

Current mid-market inter-bank spot rates (as at 07:40 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

Eurozone industrial production fell by 0.8% in April, a further indication of slowing activity. The figure was better than had been feared and an upward revision to March data also helped to offset the bad news. Ahead of this weekend’s election, there have been notable outflows of cash from Greek banks. Moody’s downgrade for Spain only brought its rating in line with other major agencies so there was little reaction to this news. 

In the States, there was a sharper than expected decline in producer prices in May while a second successive fall in retail sales added to speculation that the Fed will soon provide additional growth stimulus, possibly as early as next week. 

There were no UK data releases but the pound ended the day lower, apparently suffering from safe haven flows ahead of this weekend’s Greek election together with expectations of the Bank of England moving back to a more dovish stance. 

Overnight, no surprises from the Reserve Bank of New Zealand as interest rates were held steady at 2.5%. Market surveys suggest no change in rates until at least Q1 next year. 

Ahead today, inflation figures from both the Eurozone and US dominate the calendar. Any further signs of moderating inflation in the States will increase calls for Fed action next week. Tonight’s Mansion House speech from UK Chancellor Osborne looks set to focus on splitting retail and investment banking operations. 

Technical  

£-usd 

The pound re-tested the recent 1.5600 high yesterday but failed to push to a fresh 2-week high leaving the 1.5665 retracement level well out of reach. This morning’s break of 1.5500 support leaves sterling vulnerable to further downside pressure and if 1.5475 also gives way we would look for declines towards 1.5435 initially then possibly on towards 1.5405/1.5395, 1.5345 and 1.5270. Resistance now at 1.5505, 1.5570, 1.5600 and 1.5665. 

£-eur  

Faltering momentum studies noted yesterday warned against being overly confident of extending the gains if the previous two days. The subsequent one cent loss on the day was therefore maybe only a surprise in the extent of the decline but the move shifts the focus back on the strong support level at 1.2260. If this gives way, we could see additional losses towards another strong level at 1.2165. Resistance today at 1.2365, 1.2420, 1.2480 and 1.2500/10. 

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