The main event in the UK yesterday was the UK budget and it was, by and large well received by the markets, despite its austere nature, with sterling benefiting across the board. Without going into detail some of the initial comment from organisations such as the OECD and ratings agency Fitch, bodes well for the retention of the UK’s coveted Triple A rating.Time will tell whether it will be enough, but the signs are good.
Today we have the publication of the Bank of England minutes which should give some insight into any ongoing concerns the committee has about the current high level of inflation, and any doubts about whether it will continue to come lower.
On top of that we also have the Federal Open Market Committee rate decision which is likely to be a non-event given the nature of recent economic data and especially in light of yesterday’s awful existing home sales data which came in at -2.2% for May against a market expectation of a 6% rise. Today’s new home sales is not expected to be any better, with expectations of a 16% decline for May, in which case the current low rates mantra looks set to continue with Thomas Hoenig remaining the sole dissenter.
Risk appetite has certainly taken a knock over the last 24 hours as the markets strive to figure out whether we are in “double dip” or “recovery” mode, with both the S&P500 and the Dow closing back below their 200 day moving averages so soon after crossing above them.
There is also glut of European data out this morning in the form of manufacturing and services data for the Euro area and Germany, as well as consumer confidence data as well.
The single currency badly needs some positive numbers to regain some traction above the recent support around 1.2250/60, and hold above the key 1.2135/45 support area.
EURUSD – the single currency has remained under pressure over the last 24 hours sliding below 1.2300 to re-test the key support level in the short term around the 1.2250/60 level. A move below here could well be a precursor to a test back towards the 1.2135/45 level which remains a pivotal level in the near term.
The key day reversal posted this week as well as the failure to get above 1.2500 has sown doubts about whether the recent rally of the last few days may have come to an end. The long term outlook remains for a weaker Euro and a test towards the 2005 lows, around 1.1650.
GBPUSD – the pound fell back pre budget towards the key 1.4680/90, but was able to hold above it. This area remains the key barrier to further declines towards 1.4500 and the trend line support around 1.4440. There is also the trend line support from the 1.4230 lows of the 20th May at 1.4425/35, which should continue to support in the event we break below 1.4500. The key support level remains down at 1.4230/50.
The positive budget reaction saw a subsequent rally back above 1.4780 to 1.4860.
The key to further sterling gains lies above the trend line resistance around 1.4925, a break of which could well target further gains towards 1.5000.
EURGBP – the failure to take out key resistance above 0.8400 this week has since seen the euro slip back and the downward pressure has subsequently seen the euro break below the support at the 0.8320/30 area and the market should now see a test back towards the lows at 0.8210.The twin lows at 0.8210, remain a key support, but the all important 0.8170 area remains the primary objective.
USDJPY – the broad range continues with respect to the dollar here as the currency bounces like a ping pong ball between 90.20 and 92.20/30, with the 91.20 acting as a broad pivot. A break below the recent lows on renewed risk aversion could well see a return towards 89.30.
The US dollar needs to get back above 90.70/80 area to re-target the longer term resistance around the 92.20 area, a break of which would then target the 92.80/90 June highs.
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