Date: Monday 12 Jul 2010
The pound will be in the spotlight today and this week with a number of economic announcements starting with the release today of the delayed UK final Q1 GDP data, and current account figures.After Friday’s poor PPI and trade data any disappointment here could well heap further pressure on the pound and exacerbate the losses seen on Friday. The final revision of GDP is expected to come in unchanged from the previous reading around 0.3% despite speculation about the reasons for the delay from June 29th, and possible problems with the quality of the data.
Political instability in Japan has hurt the yen over the weekend after weekend elections made it less likely that the new Prime Minister will be able to take steps to reduce the size of the Japanese public deficit, and also put his own position under some threat after his party lose their majority in the upper house.
In Europe the focus remains on the impending bank stress tests with all manner of speculation as to the size of “haircuts” that will be levied against various sovereign state assets.
Despite the recent recovery in the Euro concern remains about the viability of certain European countries to raise money independently in the bond markets after Greece scrapped a one year bill auction due to high borrowing costs, but intends to go ahead in an attempt to sell 6 month bills this week.
This rally in the euro is more a symptom of US dollar weakness than any change in perception about the single currencies fortunes, as concern remain about the recovery in the US, after two weeks of economic data that have given rise to fears of an extended period of low rates in an attempt to stave off the risk of a double-dip recession.EURUSD –the single currency continues to find support and make new highs but has as yet been unable to break above the key down trend line from the 1.5142 highs in December, which now comes in at the 1.2720 level. A break of 1.2750 would target a move towards 1.3000. However with momentum starting to look a little stretched we could well see a move back towards support around 1.2550, a break of which would re-target last weeks lows around 1.2480.
GBPUSD – Friday’s poor PPI data has undermined the pound in the short term and the failure to break above resistance around the 1.5230/50 area, has seen the pound slip below its support at 1.5080. This area should now act as resistance in the short term.
This break has seen the pound head towards the next support around 1.4980, a break of which could target a test towards the 1.4850/80 area.
EURGBP – the single currency continues to grind relentlessly higher but has as yet failed to get above the old June 2009 lows around 0.8400. This was the long term support, the break of which targeted the move below 0.8170 last month and this level needs to hold to re-target the recent lows. A break and close above here could well target a sharp move higher towards 0.8460. The euro should find support around the 0.8320/30 area.
USDJPY – twin lows around 87.00 have so far supported the dollar and the fact that it has managed to remain above 88.00 combined with some political instability won’t help the yens cause. The risk remains for yen weakness and a test towards 89.20, s break of which would re-target the 90.00 area. A drop back below the 88.00 level would re-target the downside risk of a move back towards 86.80.
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