Market Commentary 22/07/09
Key Themes
The main themes deciding market direction currently are: -
The continuing strength of equities. This has stemmed demand for the USD.
China holding record reserves of USD. Could lead to USD weakening as China seeks to balance its foreign currency reserves.
Ongoing concerns over the UK economy and the government handling of it. This is leading to market concerns that there may be a sterling crisis ahead.
In the News
In delivering testimony to the US congress yesterday, Federal Reserve chairman Ben Bernanke expressed views that US unemployment was set to remain high until 2011. So it is not the right time for “exit strategies” such as raising interest rates or withdrawing the huge stimulus used to boost the American economy.
Sterling lost ground after government released figures that showed its borrowing rose another £13bn in June. The cash eaten up by interest payments on Government debt will more than double in the next four years as investors take fright at Britain’s ballooning budget deficit. Almost 9p of each £1 in tax will be needed to pay the interest on the debt.
Tuesday Technical Trading
GBPUSD – Slipped back against the USD towards the 1.64 level on the back of poor economic views. Next resistance is at 1.6320 and then 1.6270
EURGBP – EUR moved higher against GBP on the back of sterling weakness comfortably holding above 0.8600 confirming the 3 month trend higher
GBPCHF – Moved lower and once again and is now to test support at 1.7470
GBPJPY – Slipped back against the JPY. Now looking to test recent lows at 152.50
EURUSD – Posted a new recent high at 1.4270 but sold off in the US session as money flowed back into the USD. AT the close of European trading it was trading below the 1.42 level
Data released today
Wednesday 22nd July
9.30am GBP MPC Meeting Minutes
Records – The breakdown of the MPC members votes with regard to how many voted to increase, decrease or hold current interest rates
Why Note – It provides in-depth insights into the economic conditions that influenced their vote on where to set interest rates, and offering clues on the outcome of future votes
Usual Effect – If the record is more hawkish than expected this is seen as a good sign for the GBP
3.00 pm USD Fed Reserve Chairman Testifies
Usual Effect – If views expressed are more hawkish than expected this is seen as a good for USD
Market Sentiment and Consensus
EURUSD
This week – expected higher as long as it doesn’t trade below 1.3963
Today – expected to trade in the range of 1.4163 to 1.4245
GBPUSD
This week – expected flat in the range of 1.6222 to 1.6481.
Today – expected lower as long as it doesn’t trade above 1.6461
EURGBP
This week – expected higher as long as it doesn’t trade below 0.8535
Today – expected higher as long as it doesn’t trade below 0.8631
