Disappointing US data increases QE3 speculation

Current mid-market inter-bank spot rates (as at 07:55 GMT)

Major sterling

Major US$

Sterling emigrate

Other sterling

Euro crosses

Data / Events due today

Fundamental

Another quiet morning yesterday with only UK retail sales data and a Spanish bond auction to share the headline. Retail sales were disappointing with only a 0.1% month on month increase as poor weather discouraged consumers. Despite the weak data, sterling was firm on the day as general risk trends improved.

Spain had to pay significantly higher yields in 2, 5 and 7 year bond auctions and the 10 year yield once again rose above the critical 7% level. As expected, Germany ratified the bailout for Spain. Euro Finance Ministers now hold a conference call today on the subject.

In the States, initial jobless claims were disappointing with last week’s surprise fall being more than reversed as claims rose to 386k. Tentative signs of recovery in the housing market were dealt a blow as existing home sales slumped by 5.4% in June while leading indicators also fell sharply. The only US data to show improvement was the Philadelphia Fed manufacturing survey but despite the improvement from -16.6 to -12.9, the print was well below expectations of the stronger recovery and the employment component worryingly hit a near three year low. All in all, the data has done nothing to deter those looking for the Fed to pull the trigger on QE3. This has allowed risk sentiment to continue improving on the notion that additional stimulus will help both the local and global economy.

A quiet end to the week with UK public finances the only release of note. Net borrowing is expected to decline by around £4.5bn from May levels.  

Technical

£-usd

The pound has taken full advantage of a softer dollar to post a fifth successive higher low. The advance saw a brief but unsustainable test above 1.5720/25 overnight, stopping well short of testing the stronger 1.5750/85 zone. Only beyond here would suggest 1.5850 and 1.5910 come under threat. Support today at 1.5680, 1.5635, 1.5605, 1.5580/65 and 1.5525/20.

£-eur 

Following three days of sideways trading, we finally got a break out in sterling. The move to the upside was in spite of waning momentum and we still view this with caution. For now, the lower end of the 1.2830/75 resistance band has contained gains and we will monitor supports at 1.2790/70 and 1.2735 for signs of fatigue. Below this latter level could be the catalyst for a dip towards 1.2690 then 1.2635 and 1.2580/75. Conversely, above 1.2875 brings 1.3000/25 into play.

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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