Date: Wednesday 14 Jul 2010
Strong earnings out of the US continue to boost risk appetite, with Intel the latest company to drive the appetite for risk, after reporting one of its best quarters ever.This has driven investors to shake off the shackles of caution, and push the US dollar to 2 month lows against a basket of currencies, which in turn has given the beleaguered single currency some welcome respite.
The euro has continued to find support, shrugging off Moody’s downgrade of Portugal by two notches, which didn’t really add anything that the market didn’t already know about the problems in southern Europe. The only risk overhang would appear to be the forthcoming European bank stress tests as the single currency continues to make new highs after yesterday’s decision by China to buy €400m worth of Spanish 10 year bonds yesterday boosted sentiment, while Greece’s successful return to the bond markets also helped.
Sterling has also risen, after core inflation rose back up to 3.1% in June after dipping to 2.9% in May from 3.1% in April, despite credit ratings agency Standard and Poor’s casting doubt on the growth forecasts of the Office of Budget Responsibility.
The pound was also helped in the afternoon by monetary policy committee member Andrew Sentance reiterating the case for a gradual tightening of monetary policy. The pound remains in the spotlight today with unemployment data for June expected to decline by 20k. This would be down from drops of 30,900 in May and 32,000 in April. The claimant count unemployment rate is anticipated to be stable at 4.6% in June, while the ILO unemployment rate for the 3 months to May looks set to remain unchanged at 7.9%.
In the US, June retail sales are expected to show another decline, of around -0.2% though not as steep as the May figures which declined 1.2%.EURUSD – the single currency has again pushed higher as it looks to break above the key 1.2750 level. A successful breach would target the inverse head and shoulders price target objective around 1.3200.
A failure to overcome the 1.2750 resistance could well see the Euro fall back towards the support around 1.2550, a break of which would re-target last weeks lows around 1.2480. To continue the upward momentum of recent days these lower support levels need to hold to push above yesterday’s highs.
GBPUSD – the S&P comments saw the pound dip below 1.5000 briefly, however the sticky inflation numbers along with the Sentance comments have pushed the pound back above 1.5080/90 towards the recent range highs around the 1.5230/50. As with earlier this week the 1.5080/90 level will continue to act as a form of pivotal support as well as resistance if the market breaks below it. A break of 1.5230/50 would then target 1.5310 trend line resistance from the 17th November highs at 1.6880.
EURGBP – yesterdays UK inflation numbers saw a dip towards 0.8320 however with no follow through the euro has recovered back to the resistance around 0.8400. While the euro continues to hold below the old June 2009 lows around 0.8400, then the bearish scenario remains intact but only just for now. The euro should continue to find support around the 0.8320/30 area, a break of which would target 0.8250.
USDJPY – despite another attempt to get through the 88.00 support level yesterday the dollar turned tail and has headed back towards this weeks highs around 89.15/20. While above this support level and the recent political instability the odds favour limited downside. The risk remains for yen weakness and a re-test towards 89.20, a 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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