The Pound surged over a 100 pips to as high as 1.6880 after positive earnings from Barclays and HSBC helped add to prevailing optimism. Barclays, U.K.’s second biggest lender, saw profits of 10% while Europe’s largest bank HSBC posted an unexpected profit.
Talking Points
• Japanese Yen: Found Resistance at 95.00
• Pound: Higher On Bank Earnings And Manufacturing
• Euro: Manufacturing PMI Higher, German Retail Sales Falls
• US Dollar: ISM Manufacturing On Tap
Pound Higher On Barclays, HSBC Earnings And Expansion in Manufacturing, Will BoE Add To QE?
The Pound surged over a 100 pips to as high as 1.6880 after positive earnings from Barclays and HSBC helped add to prevailing optimism. Barclays, U.K.’s second biggest lender, saw profits of 10% while Europe’s largest bank HSBC posted an unexpected profit. The country also saw its first expansion in the manufacturing sector as the PMI gauge rose more than expected to 50.8 from 47.8 in July.
The positive bank earnings and manufacturing orders reaching their highest level since November 2007, has raised expectations that the worst is over for the U.K. economy. The question this week is whether the BoE will add to its quantitative easing program when they convene at this week’s policy meeting. The quarterly inflation report due out on Wednesday may be the most market moving event for the week as it could reveal the central bank’s intentions before their formal announcement as an increase in prices could tie their hands. The GBP/USD is threatening to break above resistance at 1.6840-50.0% Fibo of 2.0161-1.3519 which would leave potential to 1.7500. However, if the level holds and the MPC looks to add to their asset purchase program then a sharp reversal could follow. Yet, retail traders remain decidedly short the pair which is a contrarian signal increasing the odds f further gains.
The Euro failed to break above 1.4300 for a second time during overnight trading, where the initial failure led to a sharp reversal which was aided by an unexpected drop 1.8% in June German Retail sales. The major question throughout the global economy is whether consumers will start to increase their consumption as a recovery develops or will the shock of the credit crisis leave them retrenched for sometime. The lack of domestic growth will threaten the sustainability of any recovery and will raise the odds of a double dip recession. The singe currency would regain its footing as it found support like the pound on increased risk appetite and improving manufacturing activity. Indeed, the Euro-Zone composite manufacturing PMI final reading was revised to 46.3 from 46.0 which was the highest in almost a year. Despite soaring equity markets and bullish fundamental data the EUR/USD has failed to reach above 1.4340-the 6/3 high which remains a key level to watch.
The dollar is continuing its decline from the end of last week as we continue to see optimism fuel risk appetite. HSBC’s unexpected profits helped reverse European equity markets and push U.S. futures deeper into positive territory. Today’s ISM July manufacturing reading may add to the prevailing sentiment as an improvement to 46.5 from 44.8 is expected. We may be seeing equity markets approach oversold levels especially considering that we saw a sharp 1.2% decline in personal consumption in the second quarter, However, that failed to deter bulls and it is hard to argue with the trend at this point. Therefore, we could see continued greenback weakness today and with the week end’s Non-farm payroll report expected to show an improving labor market, several pairs are at risk of a breakout.
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Forex Weekly Trading Forecast - 08.03.09
To discuss this report contact John Rivera, Currency Analyst: [email protected]
