GBPEUR/GBPUSD

Sterling continued to trade underneath $1.6400 against the USD throughout trading yesterday, however managed to trade back above the key level of 1.1575 against the Euro during the afternoon session.

Support at $1.6000 for GBP/USD seems to be holding well, however a break below this key support level would increase the chances of the market trading lower.

Both GBP/USD and GBP/EUR are trading in tight ranges this morning as we approach the G8 summit which is due to commence tomorrow - Focus will fall on the extent of possible debate on the dollar’s role as a reserve currency. Stock market sentiment, especially as the Q2 reporting season looms, will remain a prime driver today in a relatively light day of economic data.

Markets continue to remain plagued with doubts about the prospects of a global economic recovery, and there has been speculation that recent optimism may have been premature.

These concerns were partly alleviated by an encouraging outcome for Non-manufacturing ISM data which was released from the U.S. yesterday afternoon.

Data confirmed that leading economic indicators are continuing to recover, showing strong rises in new orders, business activity, and export orders - suggesting that the pace of contraction in the economy is beginning to slow.
This report complemented the rise in the ISM report for manufacturing in June which was published last week. This index rose to 44.8 from 42.8 in May is now well above its end year level of 32.9.

It is worth bearing in mind , that these indices are still below the critical 50.0 level that marks the boundary between growth and recession. What they show is that the pace of contraction is easing after two big drops in Gross Domestic Product (GDP) during the forth quarter of 2008 and the first quarter of 2009.

If future ISM reports continue their recent uptrend, it could potentially suggest an end to the recession later on in the year. Another report pointing in this direction is the leading indicators index, which posted strong back to back rises for April and May. Hopefully, this will soon translate into better data on the real economy i.e. labour market, housing, manufacturing and retail sales.

Sterling was also a victim of increased risk aversion in the approach towards the latest Bank of England Policy meeting scheduled at midday on Thursday afternoon - there has been speculation that the Bank of England could announce an extension of its QE programme beyond the current £125 billion target.
Due to the recent break below key support levels of 1.6400 against the USD and 1.1575 against the Euro, we are advising clients who are interested in purchasing these currencies to remain extremely cautious. Clients may wish to consider placing a protective stop order into the market, which could help protect against the possibility of any further potential downside movements.

Elsewhere, the RBA opted to keep interest rates in Australia on hold at 3.0% whilst leaving the door open for further potential reductions.

Data Released 7th July

FRN 07:45 - External Trade Balance ( May)

UK 09:30 - Industrial Production (May) - Manufacturing output

GER 11:00 - Industrial Orders (May)

Labels: daily-insight