- US consumer confidence data is focus of the day
- Sterling may be in the calm before the storm
Just when UK personal debt is at an all time high and we have an out
of control alcohol problem in the UK, Super Casinos are due to appear
in a warehouse near you. I predict a lot of ex-government ministers
getting positions on the boards of the gambling houses at some stage in
the future.
I'm sure there is no link though.In the markets, as Sterling remains
well supported, helped partly by The Confederation of British
Industry's distributive trades survey's which hit +30 in January - a
2-year high - and partly by the National Institute of Economic and
Social Research which says that UK inflation will fall back to
reasonable levels but much slower than the Bank of England has
forecast. However, in spite of these twin plusses and an upbeat
property price report from the Land Registry, Sterling failed to gain
strength and that suggests it may well be rather vulnerable to any
negative data in coming sessions. As we’ve repeatedly stated we feel
that the risk / reward ratio on the Pound is far more more heavily
geared toward a risk of a fall than a continuation on the upside - so
beware.
Toady has little to do with the UK and everything to do with US
consumer confidence. There is a growing feeling that the next wave of
US data will be very positive for the US Dollar and that may well
herald a drive lower in GBPUSD and EURUSD. As mentioned yesterday, we
will start to see the first flurry of that wave later in this week so
remember that early worms avoid the birds or whatever that saying is.
And finally, Gordon Brown is doing a fantastic impression of a pot
calling the EU kettle, black. Everyone in business will know just how
wrapped up the UK is in red tape and yet Gordon is telling the EU to
cut its bureaucracy. Funny how bureaucracy and hypocrisy rhyme isn't
it. Good luck to the England cricket team who are up against it again
this morning chasing 319 to beat NZ and restore a smidgen of
respectability in their tour of misery.
South African Rand buyers are achieving the best exchange rates
since October 2006 and an exchange rate that is testing the very upper
end of a trading range which has capped this pair for 4 months. GBPZAR
is also technically the most overbought it has been since the end of
December and that was a prelude to a fall of 70 cents.
GBPZAR is a very volatile currency
pair at the best of times and this volatility is only enhanced by
recent uncertainty over the future path for UK interest rates;
speculation which is matched by the uncertainty over the forecasts for
South African interest rates. We will get South African money supply,
consumer credit and trade data over the next few days but most analysts
are expecting the South Africa Reserve Bank to keep interest rates on
hold when they meet next month. Obviously, any change to this
perception will add to the volatility and weaker data will allow the
Rand to also weaken. However, the forecasts for the data are rather
more encouraging than that and, having tested the top of the recent
trading range, a short term correction lower is the most likely
scenario this week.
R14.30 provides strong resistance which
hasn't broken this quarter, I am sure I don’t need to tell Rand buyers
this and I certainly don’t think traders will need to be told twice.
The US Dollar has reversed over 40% of the 5 cent rally from $1.92
in the last few days. This correction lower in the Pound appears to be
temporary and should target $1.9420 to $1.9570 if support at $1.9665
breaks today.
We
have long held the view that $2.00 may be the very top of the market
with a 10% fall from here possible by year end, as it becomes evident
the US Fed will not be cutting interest rates anytime soon. We actually
think the next move by the Fed will be an interest rate hike which will
make a massive move higher in the GBPUSD exchange rate from its current
levels extremely difficult.
What makes the outlook very
interesting is the massive 60 cent variance in analyst’s forecasts as
to where the Pound will sit against the US Dollar at the end of the
year. Will it be $2.20 or $1.60 - we think it will be $1.80 so we
strongly recommend US Dollar buyers protect themselves against this
eventuality.
"Cricket civilizes people and creates good gentlemen I want everyone to
play cricket in Zimbabwe; I want ours to be a nation of gentlemen."
Robert Mugabe
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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