Following on from last week, the Pound revisited the significant support level at 1.2500 versus the Euro while the UK currency also recorded a fresh 22-month low against the U.S Dollar amid suggestions that the economy is edging closer towards a recession while projected drop in consumer prices will lead to an interest rate cut over the coming months.
Reports on Friday showed that the UK economy failed to expand in the second quarter while retail sales rose by the weakest annual rate in 17-months after house prices slumped and Bank’s tightened lending.
The Pound has fallen more than 7% in value against the Dollar since July 11th and the UK currency may extend its decline to $1.8300 in the build up to the next BoE rate announcement after the market closed below the so called Fibonacci support level on Friday at $1.8620.
The level represents a 61.8% retracement of the Pound’s rally from the low of $170.49 in November 2005 to the high of $2.1161 in November 2007, based on a series of numbers known as the “Fibonacci Sequence”.
Despite the unexpected surge in oil prices over the past couple of trading sessions and speculation that the Pound’s dramatic downside move has been too rapid to sustain, a number of key indicators suggests that Sterling could retreat all the way to 1.8300 over the next two weeks.
In terms of economic data, the Pound is unlikely to find much support this week as the Market Holiday on Monday means that economists will have to wait until Thursday for the first UK release as the Nationwide House Price survey is expected to highlight the escalating slump in the market.
The Dollar rose for a second consecutive day against the Euro yesterday and also rose to a new high of 1.8409 versus the Pound amid speculation that a 30% drop in oil prices will help bring the U.S economy back from the brink of a recession.
The Dollar also made gains against the majority of the major currencies after the biggest decline in crude costs in over three years while the Chairman of the Federal Reserve, Ben Bernanke, said that policy makers must act should inflation remain high “in the medium term”
Data Released 26th August
GER 09:00 Ifo Index (August)
U.S 14:00 Case Shiller House Price Index (June)
U.S 15:00 Consumer Confidence (August)
U.S 15:00 New Home Sales (July)
U.S 15:00 Richmond Fed Index (August)
U.S 19:00 Minutes of Fed Meeting (August 5th)
written by Adam Solomon
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