- Sterling remains strong on higher UK interest rate speculation
- BOE Governor Mervyn King speaks tonight
Does it warm your heart to know you are paying for the ‘greenest’
Olympic games ever? Does it fill your chest with pride to see looters
damaging and stealing from containers on the Devon beaches while the
Police ignore them? Are you overwhelmed by emotion to hear that Milton
Keynes is 40 years old? No? well avoid the TV news today and stick to
heads down, nose to the grindstone, graft then otherwise you’ll just be
depressed.
Or you can join us in the financial
markets in anticipating this evening’s speech from the head of the Bank
of England, Mervyn King when he addresses the Birmingham Chamber of
Commerce. Now that may sound about as exciting as a beige cardigan but
his views on the future prospects for the UK economy will be voiced on
the day before the release of the minutes to the last Bank of England
Monetary Policy Committee meeting and will be heard in that context.
They will also be heard in the context of today’s CBI industrial trends
survey and at a time when the markets are quite optimistic about the
prospects for the UK economy.
The rest of the day is pretty quiet other than Eurozone industrial
orders at 10.00 GMT and then the Canadian data later on, which I’ve
covered below. Tonight will be interesting for Aussie Dollar watchers
because we get Australian inflation numbers and that is key for the
Reserve Bank of Australia who are keen to maintain Aussie interest
rates at current levels if they can. And finally, it is probably no
surprise that Nelson Mandela was named as the most admired hero in a
poll of politicians; a man with integrity and honesty is bound to stand
out in such company.
I covered the Canadian Dollar yesterday because it is so affordable at
the moment for the private individuals amongst you who are planning a
move to Canada or our corporate clients buying Canadian Dollars. Well
guess what, it became even more affordable overnight after a shove
through the top of the trading range which has dominated the GBPCAD
exchange rate for the last year. Oil price fluctuations and nervousness
ahead of today’s data were enough to weaken the Canadian Dollar a tad
and the simultaneous inflow of funds into the Pound from international
investors seeking higher UK interest rate yields, were enough to shift
this exchange rate. However, whilst traders are nervous ahead of the
Canadian inflation and retail data today, there is a feeling that these
numbers will be rather better than last month and a bout of profit
taking is highly likely before or around 12 - 1.30pm today when the
data figures are released. I guess if anyone had said C$2.30 was
available a month or two ago, we would all have grabbed it with both
hands. Well, two months later, here it is and I would expect a lot of
traders will be happy to do just that as long as they think it won’t
last here. To ensure you don’t miss out on this opportunity, we
recommend you give your FX Consultant a quick call soon to discuss the
most appropriate trading strategy for you.
The Pound is currently at a two and a half year high against the Euro
as a consequence of traders expecting higher UK interest rates from a
highly resilient UK economy, whilst at the same time they are less
convinced over higher EU interest rates. Surely it must carry on rising
then! Well maybe and maybe not. There are some negatives in this
equation; on the long term charts GBPEUR is the most overbought it has
been since mid 2004, just before it fell 12 cents. In fact, whenever it
has been this overbought, the fall immediately afterwards has been at
least 10 cents. What is more, GBPEUR is pressing against the 38.2
percent Fibonacci retracement level from the 2000 high to the 2003 low
and that is hugely significant because it hasn’t broken this level at
all since it fell in early 2003. It failed at this same level twice in
2004 before dropping back to €1.41 in a matter of months. What I am
saying is that there are precedents for the market’s behaviour in
exactly this same circumstance in the past and I would be very wary of
expecting a rise in GBPEUR without some form of sizable drop preceding
it. Given the fantastic opportunity the GBPEUR exchange rate is
offering at the moment, we recommend our Euro buyers to contact your FX
Consultant before the rate corrects and the opportunity is missed.
Neither a wise man nor a brave man lies down on the tracks of history to wait for the train of the future to run over him.
Dwight D. Eisenhower
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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