FX afternoon update - Sterling remains under pressure after GDP

By Michael Hewson

Date: Friday 26 Feb 2010

This morning’s revised UK Q4 GDP figures while on the face of it seemingly positive; don’t really hide the fact that the economy is still vulnerable to further shocks in 2010. Once the detail is examined closely all the other figures were revised lower including the peak to trough decline of 6.2% instead of 6%, with a decline in 2009 of 5% instead of the previously reported 4.8%.
US GDP figures also surprised on the positive side coming in at 5.9% against an expectation of 5.7%. Although this was tempered by lower than expected Chicago PMI employment data, as well as negative US existing home sales data for January with a decline of 7.2% against a market expectation of a 1% increase which saw the US dollar slip back in late afternoon.
The Euro was also buoyed by a rumour that Germany was considering buying Greek bonds through state owned lender KfW Group.

EURUSD - the key 1.3485 Fibonacci support level has remained intact on a daily close and this afternoon the Euro has broken above channel line resistance at 1.3620 from the 25th January highs of 1.4195. This could see the Euro push up towards 1.3750, before re-testing the lows.

GBPUSD - cable will continue to suffer against the dollar especially if the Sterling index support around 78.00 gives way. A concerted break below 1.5180/90 would target a move towards the larger 1.4980/1.5020 support zone as well as 1.4850 which is the 61.8% Fibonacci retracement of the up move from 1.3500 to 1.7045. We did overshoot today towards 1.5150 but the market has since rebounded, as such we need to see a close below the trend line for our lower pound scenario to unfold.
The pound needs to get above last week's lows at 1.5350 in the first instance, to re-target the 1.5540/70 resistance area.

EURGBP - the cross has broken a key resistance level, after breaking above the 200 day MA at 0.8825 yesterday. This technical break now brings the January highs around 0.9040/50 into focus.
As long as the Euro can stay above the 200 day average currently at 0.8830 then further upside is possible.

USDJPY - the dollar continues to be undermined by risk aversion and yen strength for now. While below 89.30/40 the risk for a move towards 88.25 remains the risk.

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