- Sterling bounced but for how long?
- Quiet data day in prospect.
70 inmates have fled Ford
Open Prison in a year including murderers and violent criminals; now I
know we are short of cells but this is plain silly. And someone who is
apparently not a murderer, OJ Simpson, is appearing on US television
explaining how he could have committed the murder that many think he
should have been convicted of anyway. The world gets weirder by the
day. And Britain is apparently the credit card fraud capital of the
world which when we have no idea who is in the country, is hardly
surprising. Anonymity breeds contempt. What we do know is that the
financial markets were very lively yesterday. (its an awful link I
know). Yesterday I mentioned the rise in government borrowing which may
become really dire just as G Brown evacuates No 11 and I mentioned the
positive housing market data which boosted the Pound but we are fast
approaching some significant levels on GBPUSD and GBPEUR and the minor
positive data is probably not enough to push Sterling up through these
resistance barriers. Today is rather too light on data releases for
there to be any heavy upward moves and so we should trade sideways for
the bulk of the day. However, factors outside the forex market will
have their effect; oil is sliding, commodities are mixed, Japanese
interest rates are set to rise rather more slowly than many had hoped
and david Blaine is planning a new stunt. That last one won’t trouble
the markets but I thought you might like to know that there is someone
out there desperate for headlines.
The New Zealand Dollar has
gathered some strength in recent days after improvements in retail
sales which followed a drop in petrol prices. Kiwi consumers are still
very positive about the future and there is little chance that spending
will fall when wage price inflation is picking up and petrol prices are
still declining after a 25 percent drop in the cost of crude oil
prices. This will ensure that interest rates remain on hold or even
rise from the current 7.25 percent level and that will drag even more
funds into New Zealand from international investors who can borrow at
0.25 percent in Japan. And to exacerbate the problem still further, the
Bank of Japan is expecting to raise its interest rates “moderately” and
“gradually”, so the ‘carry trade’ where money is borrowed here and
invested at higher interest rates elsewhere, is still going to feature
in the forex markets for many months to come. Initially,
NZ$2.80 is a sensible target for GBOPNZD but I am still watching and
expecting a move down to NZ$2.74 in the coming weeks and with the
momentum and direction indicators all pointing lower, I think my
forecast is about to come true.
GBPEUR bounced from the
bottom of its short term upward trend yesterday and the bounce could
take us another three quarters of a cent higher before it encounters
the much longer term downward trend that has capped the market since
2003. And that, as they say, is the rub. It would take a concerted
effort by traders to push this pair up through such an impressive
resistance level and there doesn’t appear to be that level of demand
for the Pound to make this happen. Certainly, the markets are expecting
another interest rate rise from the Bank of England but not until the
Spring and we will have another hike from the European Central Bank in
the interim. In fact, debt and housing are the major factors supporting
the Pound and these are, as anyone who lived through the 80s and 90s
will tell you, a double edged sword with plenty of downside risk.
Certainly, an economy built on housing gains and the sort of debt
levels
the British Public and the British government are saddled with, is a
very unsteady pack of cards and that is increasingly concerning for
international investors. Consequently, I think this current upward push
is an opportunity to grab some cheap Euros rather than the start of a
sizable Sterling gain.
Look your best--who said love is blind?
Mae West
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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