Analysis

27th July 2010

 

 

Sterling / Euro

 

Sterling closed marginally down on the day against the single currency, having hit a high over 1.2010 at about mid-morning.

• On a day with very little data out, sterling found strength in the morning session but stumbled in the afternoon to close relatively flat on the day.
• The euro found support yesterday afternoon as Hungary's monetary council issued a statement saying that it may have to increase the interest rate.
• The better than expected stress test results helped the euro to gain on Monday, although gains were muted as investors speculated that the stress tests were not strict enough to support a rally.
• The single currency is still finding support after positive data from the eurozone's manufacturing and service industries last week.
• Today the pair is likely to trade within a relatively tight range today as there is a lack of economic data from either region.

 

 

Sterling / US Dollar

 

Sterling hit a three month high against the dollar on Monday, extending gains from Friday's bullish GDP figure.

• Figures on Friday showed that the UK economy had expanded almost twice as fast as expected in Q2, growing at 1.1%, suggesting the economy was on a better footing than expected.
• Higher risk currencies and global stock markets rose on Monday after benign European bank stress test results late last week helped to prompt demand for riskier assets.
• However, the market is sceptical about sterling's rally as the UK economy is still to feel the full force of deep cost cutting and tax rises later this year.
• Sterling has opened up again today, as better than expected new home sales figures from the US yesterday helped boost investor risk appetite.
• This afternoon the market will be looking towards consumer confidence data out of the US at 15.00 BST.

 

 

Euro / US Dollar

 

The euro edged up against the dollar on Monday, despite speculation that the European bank stress tests were not a fair test

• Better than expected stress test results, where only 7 of 91 banks failed, combined with strong economic data from the eurozone pushed the single currency up against the greenback yesterday.
• Fears of a eurozone debt crisis and its impact on European banks drove the euro below 1.19 last month, its lowest level since 2006, however this month we have seen it recover to above 1.30 this morning.
• Yesterday, technical analysts said the euro may still push towards 1.3125 against the dollar. To do that, however, it would need to sustain a move above 1.30.
• Bullish new home sales data from the US yesterday helped to boost investors risk appetite, giving the euro a boost and lowering demand for safe-haven investments such as the US dollar.
• This afternoon the market awaits consumer confidence data from the US, which if better than expected could give the euro the boost it needs to stay above the 1.30 level.

 

 

Rest of the World

 

Australian Dollar

 

Sterling eventually succumbed to strong demand for riskier assets yesterday and dropped slightly, but this morning has seen a return to positive territory.

• The aussie was down early against the pound, but rallied as the North American markets opened. Strong demand for riskier assets, pushed by stronger than expected new home sales in the US, led the aussie to rise marginally.
• This morning the aussie has given up its gains from yesterday as resistance at one month highs reached last week still appear to be intact.
• Most investors are holding steady on the aussie as tomorrow morning's inflation numbers will go a long way to helping decided whether the RBA will raise rates.
• Any number above the current expectation of 1% could lead to heavy aussie buying in anticipation of a rate rise.
• Expect the aussie to stay fairly range-bound today as resistance levels are unlikely to allow any strengthening of the currency until tomorrow's inflation report.

 

 

New Zealand Dollar

 

The pound managed to lose over a cent against the kiwi as strong demand for riskier assets gave the kiwi strength.

• With strong equity markets yesterday, sterling fell towards one month lows at the 2.11 level.
• Investors are now pricing in what seems to be a certain rate rise on Wednesday evening.
• With no major data out today, expect the kiwi to follow equity markets and risk sentiment.
• Tomorrow morning expect the New Zealand business confidence survey to go largely unnoticed as the interest rate decision will be the focal point of the day.

 

 

 

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