GBP/USD plummeted by a little over 150 pips from around the 1.58 level finding support at 1.5647 posting a fresh 8 day low after dovish BoE minutes with the MPC disclosure at 9.30am that Miles and Posen wanted to enlarge the QE asset purchase programme by 75bn. This has opened the door to further expansion as early as May with the likelihood being of another injection of 25 billion. With the differing views on the economy it doesn’t provide Sterling with positive sentiment. Where now for cable? We’ve been hovering in range bound activity between the 1.55 and 1.60 levels recently. My view is that we’re more likely to see a downtrend on this pair testing the 1.55 support level rather than breaching the 1.60 level. If you’re a buyer of USD I’d look at staggering market orders at 1.5750/1.58/1.5850 and on a toppish view 1.59.
GBP/EUR has also come under pressure posting a 2 month low at 1.1823 in Wednesday trading. This downward momentum has continued this morning. A despairing fact, GBP is the worst performer year to date and month to date out of a group of G10 currencies, behind USD and JPY. With the volatility in markets and the EUR proving stubborn I wouldn’t wait for GBP/EUR to get to 1.25. It may well indeed get there in time however if you can achieve 1.19/1.20/1.21 I’d look at securing some of your exposure on a Forward Contract or Time Option to protect yourself against currency fluctuations.
Out this morning we’ve had IFO current assessment (Feb) and Expectations (Feb) figures posting 117.5 and 102.3 against expectations of 116.4 and 102 respectively. These figures give us an overview of current conditions and business expectations in Germany. EUR strengthened on the back of this release pushing GBP/EUR lower. Tempering this figure was the UK release of BBA Mortgage approvals coming in better than expected at 38.1k against a consensus of 36.2k. It’s a leading indicator of the UK housing market. Sterling has staged a small fight back against the EUR. We’re light on data until the US session now with the release of initial jobless claims, continuing jobless claims and the Housing Price Index (MoM) (Dec).
EUR/USD has pushed through the 1.33 level after a pullback below the 1.30 level last week. It surged through the 1.33 level on the back of the aforementioned release of IFO data. I find it quite extraordinary that the EUR is performing so strongly. Just because we have a Greek ‘deal’ doesn’t, in my opinion, mean much and doesn’t inspire any confidence. We’ll be back in perhaps a year with the imposed austerity measures having not been met and we’ll be discussing it all again. A weakening of the EUR will occur and I’m a little perplexed as to why we haven’t seen it yet. End of year we’ll be down to 1.20/1.22 on EUR/USD. Some are calling it down to 1.15 however I think that is a little too far. With elections in Greece coming up, and perhaps, more significantly, elections in France in April I can see political events being a main mover for the EUR in the coming months.
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