Daily Insight

Yesterday's UK data was modestly bullish for sterling, and the market is reacting predictably, with GBPEUR bouncing just ahead of the 1.4500 support (again!!). GDP was up 0.6% for the fourth quarter of 2005, against expectations of 0.5%. The MPC vote revealed that Stephen Nickel was once again alone in his opinion that interest rates should be cut. These two pieces of data therefore point firmly to no imminent rate cut, and Sterling is enjoying a little rally as a result. Whether this can be sustained in the face of accelerating Eurozone growth is yet to be seen. If expectations continue to grow for the ECB raising rates, the GBPEUR rate may still fall on EUR sterngth.

We could see some action on the dollar this afternoon with the release of jobless claims and durable goods orders at 13:30.

GBP EUR - Support 1.4550, 1.4500
Resistance 1.4600/10, 1.4680

GBPUSD - Support 1.7790-1.7810, 1.7700
Resistance 1.7935, 1.8150

BOE minutes were 8-1 in favour of no change, with one member, Steve Nickell voting for a cut, the same as last time. The GDP figures were decent, suggesting no rate cut in the short term.

GDP rose by more than expected in Q4 and at its fastest pace for a
year as services output rose sharply on the quarter

Unsurprisingly we are seeing a bit of consolidation after the major moves of Monday, with cable holding above the 1.7810 support, and GBPEUR sitting close to 1.4500.

Data for today includes the German IFO Business Climate survey at 09:00, followed by the minutes of the last Bank of England meeting at 09:30. If some members voted for a cut in rates we could see further sterling weakness against the Euro. UK Q4 GDP also comes out at the same time, and again, a disappointing figure could hurt sterling.

GBP EUR - Support 1.4500, 1.4475 then 1.4350
Resistance 1.4610 then 1.4680

GBP USD - Support 1.7810, 17745 then 1.7700
Resistance 1.7890, 1.7905 then 1.8150

The dollar sold off sharply on comments from Federal Reserve officials suggesting that the rate cycle is nearing its peak. This was already sidely expected, but the market took it as a green light to sell the greenback, so we saw cable and EURUSD rocket through the major resistance levels at 1.7810 and 1.2200/10 respectively. Both of these pairs have now recaptured the long term trend support, which means we could see further gains.

With US inflation under control, and interest rates unlikely to surprise, the theme is likely to return to the over growing US trade deficit, which is generally a big drag on the dollar. A weaker dollar helps to improve the trade balance.

The Fed' comments were compounded by ECB economist Otmar Issing's statement on Saturday that the "upswing [in the Euro economy] is continuing and strengthening". This increases the chances of further rate rises in the near term. Currency strategists surveyed since the statement have turned 53% bullish on the Euro from only 24% a week earlier.

The comments also helped the Euro against sterling, and as expected we are once again testing the 1.4500 support. My view is that we will break lower in due course.

We have CBI Industrial Trends at 11:00 in the UK.

GBP EUR - Support 1.4500, 1.4475 then 1.4350
Resistance 1.4610 then 1.4680

GBP USD - Support 1.7810, 17745 then 1.7700
Resistance 1.7890, 1.7905 then 1.8150

The dollar firmed on news that jobless claims fell to their lowest level since 2000. Initial claims were 271,000, down 36,000 on the previous week. On the other side of the coin, the "Phillidelphia Fed' " survey showed a slowing in manufacturing in the area.

Traders are currently pricing in a highly likelyhood of another quarter point rise in US rates at the Fed' meeting end of this month. The chanced of another rise at the March meeting is around 60%.

The new Bin Laden audiotape caused some dollar weakness for a while yesterday afternoon, but markets are now taking the treat of terrorism in their stride, and the dollar srugged off initial losses.

UK Retail Sales came out slightly below median estimates this morning, but showed a 4% year on year gain for December, indicating a strengthening retail environment.

Data is scarce today, with the University of Michigan's consumer confidence figure released at 14:15. This could help to give the dollar some direction. Analysts are expecting a rise to 92, from 91.5 last month

GBPEUR - Support 1.4500 then 1.4470
Resistance 1.4615 then 1.4680

GBPUSD - Support 1.7512 then 1.7485
Resistance 1.7600 then 1.7705

Euro-zone Industrial Production strengthened in November, suggesting that the economy is gaining momentum, with a 1.3% increase on the previous month, better than analysts had been expecting. This adds weight to a building expectation that the ECB will raise interest rates again in the near future, probably at the March meeting.

Oil price are on the up again, with brent crude currently trading around $64.00 per barrell, its highest level in four months. The uptrend in oil prices is still well intact despite the lull in price action we have seen over the last few months, and a continued rise is likely to have knock on effects on world economies.

Sterling fell against the Euro on the Industrial Production figures, and we are once again approaching the crucial 1.4500 level. We are still of the view that this market is likely to break lower.

Sterling also fell against the dollar, and we are close to testing last week's low at 1.7512.

GBP EUR - Support 1.4500 then 1.4470
Resistance 1.4615 then 1.4680

GBP USD - Support 1.7512 then 1.7485
Resistance 1.7600 then 1.7705

Look out for EMU CPI at 10:00 and US jobless claims at 13:30

Yesterday's UK CPI was slightly weaker than expected, increasing the case for a cut in interest rates. Sterling duly sold off on the initial reaction, but this didn't last, and one gets the feeling that the interest rate cut is now widely expected.

US manufacturing and industrial production was very much in line with expectations, producing a notable lack of reaction from the dollar.

This morning sees the release of UK employment data at 09:30, followed by EMU Industrial production at 10:00, and US CPI at 13:30. There is therefore potential for volatility across the major paris today.

GBP EUR - Support 1.4520/35 then 1.4500
Resistance 1.4600, 1.4615

GBP USD - Support 1.7600 then 1.7512
Resistance 1.7690/00 then 1.7725

UK CPI came in at 2.0% Vs 2.1% forecast...The main downward impact came from lower petrol prices.

The data means that inflation is under control, increasing the Bank of England's scope for cutting interest rates, resulting in weaker sterling.

UK ODPM house prices data for the year to November rose 2.5 pct after a 1.8 pct increase year-on-year to October and was slightly below the market consensus of a 2.6 pct annual rise.

UK PPI in unadjusted terms rose to a record 17.2 pct for the year to December from 13.6 pct year-on-year to November, with fuel prices rising 56.3 pct during the year the key driver for the increase. 'The data indicate that firms continue to struggle to pass higher costs through to consumers, with profit margins being squeezed as a result,' Commonwealth Bank economist Joseph Capurso said in a market note.

Today's important data will be the Empire manufacturing survey at 13:30 and US Industrial Production at 14:15.

GBP EUR - Support 1.4560 then 1.4520
Resistance 1.4605 then 1.4685

GBP USD - Support 1.7638 then 1.7575
Resistance 1.7750 then 1.7809

Despite the better than expected US deficit, the dollar failed to build on Thursday's rally, and ended the week on a weak footing. This could be symptomatic of a change in market sentiment, with good news being absorbed, and bad news driving price.

Plenty of data both sides of the pond this week, starting with UK Producer Price Index and House Prices this morning (09:30) and some important US data tomorrow.

Sterling managed to hold above the crucial 1.4500 level, with ECB president Claude Trichet giving the Euro a jolt with negative comments about Euro growth. This has hit market expectations of a further rate rise, and therefore hurts the Euro. Prior to these comments it looked like the Euro was ready to break 1.4500, with good fundamental reasoning, as interest rate expectations converged (UK down, Euro up).

GBP USD - Support 1.7700 then 1.7512
Resistance 1.7809 then 17900

GBP EUR - Support 1.4600 then 1.4515
Resistance 1.4650 then 1.4680

Sterling had a dip on yesterday's weak Trade Balance figures, which showed the UK deficit for November rising to new highs at £5.966Bn. We remained weak against the Euro, but recovered against an even weakner dollar so that cable finished the day flat, having bounced precisely from our support level at 1.7512. This leaves what's known as a "doji" candle on the daily chart, which generally has bullish connotations.

There is plenty of data to throw a spanner in the works today, starting with UK Industrial Production at 09:30, then the BOE and ECB announcements at 12:00 and 12:45 respectively, topped off by US Trade Balance and Jobless claims at 13:30. Expect a volatile session!

GBP EUR - Support 1.4520 then 1.4500
Resistance 1.4585 then 1.4600, 1.4647

GBP USD - Support 1.7618 then 1.7512
Resistance 1.7700, 1.7727 (last week's high) and 1.7740 (trend resistance)

The dollar continues to drift higher as we await a string of data releases on Thursday. In the meantime, with Wednesday being another dataless session I would expect more of the same.

Sterling has also been drifting higher against the Euro, but this morning we are trading lower ahead of UK Trade Balance figures due at 09:30.

GBPEUR - Support 1.4580 then 1.4500
Resistance 1.4615 then 1.4650

GBPUSD - Support 1.7600 then 1.7512
Resistance 1.7625 then 1.7700

The British Retail Consortium reported a 2.6% rise in UK retail sales over Christmas, well above the 1.5% expected. This should be positive for sterling. The survey had shown seven straight months of falls leading into November, which produced a 0.8% gain as shoppers geared up for Christmas.

French Manufacturing Output was up by 2.6%, pretty much in line with expectations, so no reaction seen from the Euro. Slight Euro weakness continues versus dollar and sterling.

Cable bounced off our first support at 17620 this morning, the underlying momentum remains positive, and price action since Friday's high looks corrective, so a good possibility of further upside here.

GBPEUR - Support 1.4550 then 1.4500
Resistance 1.4615 then 1.4650

GBPUSD - Support 1.7620 then 1.7480
Resistance 1.7730 then 1.7809

Non-farm payrolls came in at 108k Vs 206k expected, showing that the US economy added fewer jobs than expected during December. The dollar duly solf off, with both cable and EURUSD touching their respective long term trend supports (currently resistance) from below during the session. These lie at 1.2175 and 1.7730.

Sterling is having a little bounce against the Euro, on news that German Industrial Production dipped slightly more than expected in November.

We have TWO rate announcements on Thursday, from the BOE and ECB. Both are expected to result in a "no change" vote, but there is room for a surprise 0.25% cut in the UK. More likely this will be delayed until the Feb' meeting though.

GBPEUR - Support 1.4550 then 1.4500
Resistance 1.4615 then 1.4650

GBPUSD - Support 1.7620 then 1.7480
Resistance 1.7730 then 1.7809

DATA: US Consumer Credit

US jobless claims hit a five year low last week, with only 291,000 claims versus 326,000 in the previous week. Non-farm payrolls are expected to come in around +208,000 when they're released at 13:30 today.

Interestinly, despite the unexpectedly low unemployment rate, and positive ISM figures, the dollar failed to rally yesterday, which gives us an insight into the "mood" of the market. The Fed's clearly signalled intention to halt the long strong of rate rises is the primary focus, and we may see further dollar weakness.

GBPEUR - Support 1.4500, 1.4470 then 1.4350
Resistance 1.4567 then 1.4605

GBPUSD - Support 1.7450-60 then 1.7400
Resistance 1.7625 then 1.7725

DATA: German Industrial Production 11:00
US non-farm payrolls 13:30

Dollar weakness continued yesterday, but momentum appears to have dried up, so we could have a dull day today ahead of US employment data at 13:30. More to be said on the GBPEUR side, with UK Service Sector PMI at 09:30 and EMU Retail Sales at 10:00.

GBPEUR is challenging the 1.4500 support. A decisive close below here could lead to renewed selling of GBP, with the next major support down at 1.4350.

GBPEUR - Support 1.4500, 1.4470 then 1.4350
Resistance 1.4567 then 1.4605

GBPUSD - Support 1.7450-60 then 1.7400
Resistance 1.7625 then 1.7725

The minutes of the December Fed' meeting were released yesterday, revealing that only two further rate rises are likely. Inflation appears to be under control, and pressure for higher rates is moderating. The dollar reacted predictably, selling off sharply to 1.7500 and 1.2080. We could see further dollar weakness over the short term as markets continue to digest the news.

There isn't much in the way of data today, a couple of early EMU items, but nothing likely to have a major impact.

GBPEUR - Support 1.4520 then 1.4470
Resistance 1.4600 then 1.4650

GBPUSD - Support 1.7410 then 1.7315
Resistance 1.7535, then 1.7600

DATA: EMU PMI (services)09:00
EMU CPI 10:00

Not much has been happening over the break, except for a return of sterling weakness which has seen cable fall back to 1.7200, GBPEUR to 1.4550. The underlying reason for the weakness is twofold. Firstly, the market is pricing in the likelyhood of an interest rate cut in the UK early this year. Secondly, a strong of weak UK data (manufacturing, GDP) all points to a slowing UK economy and weak growth.

The dollar has been firm, with EURUSD now trading around 1.1875.

GBPEUR - Support 1.4520 then 1.4470
Resistance 1.4600 then 1.4650

GBPUSD - Support 1.7250 then 1.7200
Resistance 1.7315 then 1.7410