FX afternoon update - Sterling buoyed by unemployment data

By Michael Hewson

Date: Wednesday 17 Mar 2010

After last nights dovish statement by the FOMC the US dollar has continued to come under pressure with sterling being one of the main beneficiaries. The pound was also helped by better than expected employment data with the unemployment rate showing its biggest fall since November 1997 to 4.9%. Economists had been expecting a rate of 5.0%. The claimant count unemployment total also fell 23,300, confounding economists' expectations of an 8,000 rise.

The release of UK public finance data tomorrow will re-focus the markets attention on the state of the UK’s finances, with the market expecting a monthly figure of around £14bn, which should make for extremely choppy trading over the next few days, and limited upside potential, as we look towards next weeks budget.

The pound rose against both the dollar and the Euro as it looked to squeeze the record short positions that have accumulated over the last few weeks. The sterling rate index broke above its 2 week highs of 77.43, touching 77.85, while cable hit 1.5385 and EURGBP went below 0.9000.

This afternoon's US PPI figure showed that inflation is currently not a concern for the moment, and reinforces last nights Fed decision to leave rates low for an "extended period".

The Euro continues to find upside progress against the dollar somewhat protracted slowly edging up day by day, but with no real conviction or impetus as the market tries to see past the "smoke and mirrors" of political rhetoric surrounding a bail-out plan for Greece.

EURUSD - US dollar weakness pushed the Euro above 1.3800 briefly earlier this morning, however the Euro gains proved short-lived after insufficient momentum pushed it back down again, from highs of 1.3816.
A move and close above 1.3800 is still needed to precipitate a move towards 1.4000. We should also keep an eye on the 50 day MA at 1.3870 if a break occurs as this could stall any rally.
The market needs to break back below the support at 1.3710/20 to re-test this weeks low at 1.3640, and trend line support from the lows around 1.3430.
The key downside support remains at 1.3485 on a daily close, with interim support around 1.3710/20.

GBPUSD – today's positive unemployment figures built on last nights sterling gains, hitting highs of 1.5380/85, just short of trend line resistance at 1.5390, from the 1.6460 January highs. There is also resistance at 1.5420 which is 38.2% retracement from the January highs to the March lows at 1.4780.
Trend line support from the lows at 1.4780 comes in at 1.4935, while the key downside level on the cable remains at 1.4850, the 61.8% retracement of the up move from 1.3500 to the highs at 1.7045. A break below here would re-target 1.4400, the 22nd April 2009 lows.

EURGBP – the Euro continued its overnight falls, dropping through the support at 0.9020, after today's positive sterling numbers. After making a low of 0.8953 it has since rallied back but could find progress difficult to sustain back through 0.9020. Behind that the triple highs at 0.9150 remain the key barriers to further Euro upside here.

USDJPY – the yen has been pretty much sidelined today unable to make much in the way of gains after last nights Bank of Japan meeting saw the bank extend its bank lending program making credit more easily available.
This action should have weakened the yen, but it still seems pretty strong and has drifted off today's highs at 90.70/75. Yen repatriation by Japanese exporters still appears to be weighing. A break below 90.20 could see a drift down towards the bottom of the cloud at 89.30. Any rallies to the upside should continue to be capped while the highs around 91.15, and the 200 day moving average at 91.75 weigh on the market.

« Go back to news channel

Email this article to a friend

or share it with one of these popular networks:

• DIGG
• FACEBOOK
• STUMBLEUPON
• MIXX
• YAHOO BUZZ
• DELICIOUS
• REDDIT
• NEWSVINE