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Sterling slips on UK PMI report |
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Tuesday, 06 February 2007 |
- Sterling slips on UK PMI report
- Japanese Yen strengthens on G7 speculation
This seems to be the age of withholding evidence, after Big Brother’s
producers requested a warrant from the police before they’ll hand over
potentially racist footage and the fact that for four years American
authorities have withheld permission for anyone to see clear evidence
that US pilots were incorrectly instructed to attack British troops in
Iraq, The days of ‘It’s a fair cop guv’ are long gone it seems. The
markets were seeking evidence to assess the likely path of interest
rates in the UK, US, EU and the Far East. The only evidence yesterday
was a series of reports which outline the health of the service sector.
The German, Eurozone, US and Canadian reports were all positive and
showed accelerated growth when compared with last month’s reports. The
UK Purchasing Managers Index however, showed the slowest pace of growth
in 4 months and that caused a flurry of downgrading of bets on another
interest rate hike from the Bank of England this week. The Monetary
Policy Committee will make their decision on UK rates on Thursday and
the markets are pricing no more than a 25 percent chance of an interest
rate hike when they do. As for today, the only significant data was the
British Retail Consortium’s sales report, which was very positive for
the Pound at 3.1 percent growth month on month, and the Eurozone retail
sales and German Factory orders data later in the day. But the rest of
the week is chockablock with news and numbers, with plenty for traders
to get their teeth into. Just perhaps as members of the cross party
Liaison Committee will be doing to T Blair today...Bon appetite.
Matters away from the forex markets are holding sway with the Canadian
Dollar at the moment. Oil, a major Canadian export, had fallen from $60
per barrel to $50 but bounced back by $5 last week. This improves
Canada’s yield from its exports and goes some way to explaining the
short term strength in the Canadian Dollar. Sterling against the CAD is
at the most overbought level it has reached since the extreme highs
seen in January 2003. Not only that but (this bit may be boring but it
is significant) traders watch Fibonacci retracement levels based,
believe it or not, on the work of a 12th century mathematician. One of
the key levels at which an exchange rate will stall and most likely
fall back arrives at 61.8 percent of the previous movement. GBPCAD
reached a high of C$2.5470 in January 2003 and fell all the way down to
C$1.9754 in February 2006. If your calculator works like mine, a 61.8
percent retracement of this move arrives at C$2.3286, marginally below
the high we saw just a couple of weeks ago. Having failed to break and
hold above that level, GBPCAD should now fall back to C$2.26 and it is
so overbought that it would be a brave trader who would bet heavily
against such a move. I think it would be a brave migrant who would do
so as well.
The US Dollar will be very closely watched this week even though there
are not too many US data releases. However, the drop in Friday’s
non-farm payroll data and speeches due tomorrow from the Federal
Reserve Chairman and two other members of the Fed’s interest rate
setting committee, have conspired to strengthen the USD slightly as we
start the week. I have written about the heavy USD buying which takes
place whenever the Pound approaches the top of the 14 year long trading
channel at $1.98 and above but there are significant USD selling levels
around $1.95 and $1.94 as well and these rates are likely to be tested
significantly in the coming days. US Dollar sellers need to look at
these as potentially the best levels we are likely to see for a while
to come. A rebound back to the top end of the range is likely as long
as the Fed is not talking of higher interest rates in its rhetoric.
However, if the market decides to drop GBPSD below $1.94, it could
easily fall sharply to $1.92 or even push on to test the
psychologically significant $1.90. However, unless this happens, the
gentle upward slope of GBPUSD will eventually hit $2.00 but we can only
speculate as to when that may happen.
I hate war for its consequences, for the lies it lives on and
propagates, for the undying hatreds it arouses, for the dictatorships
it puts in the place of democracies, and for the starvation that stalks
after it. I hate war, and never again will I sanction or support
another.
Harry Emerson Fosdick
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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