Market News

As you know, the MPC vote from the December meeting is released at 09:30. If any of the nine member panel voted for a rate cut, it would be taken a firm indication of a possible cut early in the New Year, a negative for sterling.

We also have US GDP at 13:30, bound to cause some volatility in the dollar. Expectations for growth range from 4.1% to 4.5%.

From Reuters:
Interest rates in the United States and the euro zone are set to rise twice during 2006, as the Fed’ brings its rate cycle to an end and the European Central Bank tightens cautiously for fear of choking the economy.

In Japan, rate hikes — when they eventually start — will probably come in even smaller steps. There are signs that the Bank of Japan’s ultra-loose monetary policy has finally paid off in the shape of better growth and, perhaps as early as the current quarter, an end to deflation.

The first step would be for the BOJ to end its policy of flooding the banking system with cash. Rate hikes may then follow, but only very cautiously — the median in the survey showed the overnight call rate edging up only very marginally by the end of 2006 to 0.10 percent.

GBPEUR – Support 1.4720 then 1.4660
Resistance 1.4800/15 then 1.4875

GBPUSD – Support 1.7520 then 1.7500, 1.7455
Resistance 1.7600 then 1.7685 – 17700

Sterling failed to recover from early weakness brought about by the EU budget rebate and comments from MPC member Charles Bean. We have public finance figures out at 09:30 this morning, followed by PPI in the US at 13:30. Tomorrow’s release of the last MPC vote could give sterling further direction for the remainder of this week. It’s likely that all none members voted for “no change”, so any votes for a cut will be taken as a negative, placing further pressure on the pound.

GBPEUR – Support 1.4650-60 then 1.4600
Resistance 1.4750, then 1.4775

GBPUSD – Support 1.7575 then 1.7500
Resistance 1.7700 then 1.7745, 1.7810

DATA: UK Public sector net cash requirement 09:30
US PPI 13:30

The Euro is slightly firmer against sterling this morning after news of the EU budget deal is digested. Briatain made concessions that are seen as sterling negative, hence te GBPEUR rate being down 40 pips today. An MPC member (Charles Bean) also hinted in a Sunday Times interview at an early 2006 rate cut. The vote of last week’s MPC meeting will be released on Wednesday at 09:30, so this could impact sterling if its shown that any of the nine member panel voted for a cut at this month’s meeting.

The Aussy and New Zealand dollars continued to fall last week, after comments by an NZ bank governor saying that the currency was overvalued. A strong currency is not always desirable, as it can make exports look expensive to the outside world

The Japanese Yen has rallied massively over last week on hints that the Bank of Japan may raise interest rates soon, from the zero percent they have been for several years.

GBPEUR – Support 1.4700 then 1.4650
Resistance 1.4750 then 1.4800

GBPUSD – Support 1.7610 then 1.7500
Resistance 1.7745 then 1.7800

We have seen a serious move on cable and eurodollar the last few sessions. Dollar weakness ahead of today’s Federal Reserve meeting this evening is the main theme, with worries that the Fed’ may signal a softening of the long series of interest rate rises. Any sort of statement suggesting that these rate hikes will be moderated during 2006 could send the dollar sharply lower. Remember, the whole dollar rally has been based on sharply higher US rates, and if this story evapourates, the dollar is likely to fall.

The UK Consumer Price Index at 09:30 could impact sterling.

GBP EUR – Support 1.4800 then 1.4705
Resistance 1.4875 then 1.4910

GBP USD – Support 1.7675 then 1.7500
Resistance 1.7781-95 then 1.7825

DATA: UK CPI 09:30
US Retail Sales 13:30
US Business Inventories 15:00
Federal Reserve Decison 19:15

Shockingly poor manufacturing data gave sterling a knock yesterday. October output was down 1.0% versus expectations of a 0.2% gain. Cable found support precisely at our 17315 level, and GBPEUR at the 1.4700 support. This leaves a technical “cloud” hanging over sterling from here, and we need to regain yesterday’s highs before we can safely expect further upside. At the moment, it looks like both pairs are consolidating after the news and could go lower.

There is very little in the way of data today.

GBP EUR – Support 1.4700/05 then 1.4650
Resistance 1.4778 then 1.4808

GBP USD – Support 1.7315 then 1.7247
Resistance 1.7430 then 1.7453

Other pairs of interest at the moment have been GBPJPY, which is trading at high levels, with Yen weakness the predominant theme, and recent Sterling strength adding to the move. This looks like a good time to be buying JPY.

GBPZAR (second chart) is also worth a look, with the Rand trading close to muti-year higher versus Sterling. Good for anyone looking to bring money back over from S.A.

As expected Gordon Brown slashed his growth forecasts yesterday, from his initial predictions of 3.0% -3.5%, down to just 1.7%. “No growth Gordon” has now cemented his reputation for fundging his numbers! High oil prices and a sluggish Euro-zone economy were cited as reasons for the flop. Sterling was not affected by the pre-budget report, as the market was already pricing in 1.7% growth, so the reaction was for “sharply unchanged” markets, to steal a phrase from AFX news.

Cable has been the market to watch this week, and as predicted in recent updates, a decent correction is now setting in, with 1.7450 having traded this morning. There will be a couple of US data items this afternoon that could have an impact, these being listed below.

GBP EUR – Support 1.4740 then 1.4700
Resistance 1.4800 then 1.4830

GBP USD – Support 1.7380 then 1.7315
Resistance 1.7495 then 1.7517

DATA: Non-farm productivity 13:30
Factory orders and Consumer confidence 15:00

The ECB hiked interest rates by 0.25% to 2.25% last week, as was widely predicted. The Bank of England meet this Thursday, and are almost certain to leave UK interest rates unchanged. Then next week the FOMC meet, which should see another 0.25% added to US rates, so a busy ten days ahead for the central banks.

Sterling’s strength has persisted, despite a gloomy assessment of UK economic growth from the Organisation for Economic Co-operation and Development. The report also said that despite weak growth, there would be no justification for allowing interest rates to fall next year, as inflation remained a threat. This is the comment that has helped sterling over recent days.

Gordon Brown will deliver his pre-budget report this afternoon. His previous growth forecast of 3% will have to be severely revised (most economists are now saying 2005 growth will be around 1.7%), but no doubt he will move the goal posts and still manage to claim substantial success in managing the economy.

GBP EUR – Support 1.4740 then 1.4700
Resistance 1.4800 then 1.4830

GBP USD – Support 1.7250 then 1.7200
Resistance 1.7320 then 1.7380

DATA: UK PMI services (09:30)
EMU Retail Sales (10:00)
US ISM non-manufacturing and Leading Indicators (15:00)
UK Pre-budget report (15:30)

Sterling continued to rally against the Euro yesterday, and the dollar remained firm as US manufacturing figures met expectations. We have a quieter day today, with non-farm payrolls the only big piece of data, at 13:30.

GBP EUR – Support 1.4738 then 1.4700
Resistance 1.4795/00 then 1.4830

GBP USD – Support 1.7260 then 1.7200
Resistance 1.7315 then 1.7349

DATA: Non-farms at 13:30

We have bundles of data out today, including UK PMI (09:30), the ECB meeting at 12:45, US Jobless claims at 13:30, ISM manufacturing at 15:00…etc…etc..

Sterling had a bounce yesterday after a report from the Organisation for Economic Co-operation and Development downgrading UK growth prospects to 1.7% from earlier estimates of 2.4%. You may be thinking this should be bad news for sterling, but the OECD concluded that despite the weak growth, the Bank of England would not need to cut interest rates. Indeed, they also upped their inflation target by 0.1% to 2.1%, suggesting that inflation remains firm, while growth is slowing. This leaves the BOE little room for manaouvering to the downside on interest rates. The UK slowdown is being blamed on falling consumption due to the gradual end of the housing boom. Inflation is still higher due to oil prices and rising import prices.

GBP EUR – Support 1.4650 then 1.4632
Resistance 1.4700 then 1.4741

GBP USD – Support 1.7250 then 1.7140
Resistance 1.7349 then 1.7400

DATA: EMU PMI (09:00)
UK PMI (09:30)

ECB Meeting 12:45 – A 0.25% rise is already priced in. If there’s no rise the Euro should fall sharply.

Jobless Claims (13:30)
US ISM (15:00)