FX Morning update - Sterling and Euro regain some ground

By Michael Hewson

Date: Wednesday 03 Mar 2010

The pound has recovered above 1.5000 overnight after this week’s earlier falls took it sharply lower against a basket of currencies. It has been boosted overnight by figures showing that the Nationwide consumer confidence figure for February rose to 80, its highest in two years, from a figure of 73 in January.
Traders continue to focus on the narrowing gap in the opinion polls between Labour and the Conservatives, while the Euro is holding above 1.3450 on hopes of a Greek bailout.
In Athens yesterday there were more strikes over possible austerity measures, yet we have the market speculating about the Germans giving guarantees to a Greek bond auction next week. Indeed the Greek Prime Minister has indicated that Greece should be able to borrow at the same rates as Germany, which seems rather fanciful given the circumstances, warning of catastrophic consequences if they are unable to do so. There is no appetite amongst Germans for any type of guarantee while Greece is unable to implement further austerity measures, and even if they do agree an extra €4.8bn worth, implementing them is a whole different ball game. As if to outline the problems facing Greece the biggest public sector union has called another strike for March 16 against any further measures. The markets will be taking a close look at the details outlined today by the Greek Prime Minister of the planned new cuts, which could include deeper cuts to civil servant pay, freezing pensions and hiking consumer taxes, ahead of Friday’s planned meeting in Berlin with Angela Merkel.
It seems highly unlikely that there will be a bail-out, certainly Angela Merkel is reluctant to countenance one, and once the markets realise this the Euro is likely to fall further. Even if there is a bail-out Germany can't bail out Spain or Italy, and they could well be next.

EURUSD – yesterday’s spike below 1.3450 was very short-lived but nonetheless is symptomatic of the nervousness permeating the markets. The overall scenario of a lower Euro remains the key drag on any rallies and only a move above 1.3700 would promote a little anxiousness amongst Euro shorts and a possible move towards channel line resistance from the 1.5145 highs at 1.3900.

GBPUSD - The key level on a daily close remains 1.4850 which is the 61.8% Fibonacci Retracement of the up move from 1.3500 to 1.7045. A break below here would re-target 1.4400, the 22nd April 2009 lows.
The pound now needs to sustain the overnight recovery back above 1.4980/1.5020 to try and stabilise in the first instance, in order to re-target the 1.5270 resistance area.

EURGBP - the November and December 2009 highs at 0.9150 are the key barriers to further Euro upside here. This week’s rally stalled at this level and remains the key barrier to further sterling losses. Euro dips should some buyers around 0.8980 and 0.9020.

USDJPY – we have seen a drift towards 88.50 overnight and while below 89.50 the target remains for a drift towards 88.25

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