Market Forecast - Sterling Vs. Euro -26/10/09
The pound has enjoyed a strong rebound over the last week, sparked by comments from Bank of England member Paul Fisher, pushing the prospect of further quantitative easing ("QE") on to the back burner. The heat was further reduced after the minutes from the October Bank of England meeting were released on Wednesday, showing that all nine members of the committee voted to keep QE on hold.
That gave the pound another boost, giving us a four cent improvement since last week's low. Bank of England members were hung up on the idea that increasing QE could help to stoke higher inflation in 2010. This latest news has shifted the balance of the debate towards the possibility that the UK is now winding down the liquidity splurge as conditions gradually improve. UK Retail sales data for September were slightly lower than expected, but showed a 2.4% year on year increase, enough to keep sterling's rally on the rails.
The technical outlook has improved considerably. We may well have a low in place, and from here we do expect a period of consolidation to set in soon, but ultimately the pound looks set to trade higher over the coming weeks. We would only become concerned again if the market returns to 1.0800 or below.
Market Forecast - Sterling Vs. Euro -15/10/09
Sterling is enjoying its largest one day gain against the Euro in well over six months after bullish comments from Bank of England policy maker Paul Fisher noting that quantitative easing is working well. The scene was already set for some sort of rebound after better than expected jobless figures yesterday.
The Fisher comments sparked some further interest in the pound, and the rally gained traction as a full blown "short squeeze" developed over the course of Thursday morning. A short squeeze happens when speculators who have sold the pound in expectation of further declines are forced to re-buy the currency to close their bets and stem losses. This situation can develop with little warning when large numbers of traders are caught "offside" when a market turns.
There is still some debate over whether the Bank of England may extend so called "QE" at the November meeting, but traders will be focussing on next week's release of the October meeting minutes to get a real view of how that debate is looking inside the Bank of England.
The technical outlook improves if we can sustain this bounce into the end of the week, especially if we can capture the resistance levels at 1.10 and 1.1135. Calling the bottom for sterling is very much a case of trying to "catch a falling knife", or "fridge" as one trade put it last October. Not advisable! Direction will be easier to call when we have a tradable low in place. We are feeling more positive about today's rally, but sterling is not out of the woods yet.
Market Forecast - Sterling Vs. Euro - 06/10/09
Sentiment towards the pound improved marginally as traders started to look forward to this month's Bank of England meeting this Thursday, with the all important quantitative easing package expected to remain on hold at £175bn; but that sentiment is overshadowed by the expectation that there may be an extension in November, leaving a cloud hanging over the market in the meantime. That may make it difficult for sterling to stage any sustainable rally in the short term. Data flow was mixed last week.
The IMF upgraded its 2010 growth forecast for the UK (to 0.9% from 0.2%), but soft manufacturing data for September surprised to the downside as market watchers expected better figures off the back of higher exports. The Confederation of British Industry's retail sales figure was better than expected, and the final revision to Q2 GDP saw an improvement to - 0.6% from previously published -0.8%. Comments from ECB chief Jean Claude Trichet suggested that the Euro's strength was starting to impact their economic recovery.
"Excessive volatility and disorderly movement in exchange rates has adverse implications for economic and financial stability". The UK is Europe's largest trading partner, with the US coming second. The Euro has appreciated sharply against both sterling and the dollar in recent months, making European goods more expensive/less competitive to foreign buyers. At some point over the coming months the strong Euro will become a bigger story in terms of the threat it poses to the euro zone recovery.
However, until the ECB make more hawkish noises, markets are likely to focus on the Bank of England's outright endorsement of a weaker pound. On a 6-12 month view we see things rebalancing in favour of sterling, but in the short term the odds favour further downside. Clients with Euro requirements should look to cover half at these levels.
----------------------------------------------------------------------------------------------------------
Analysis provided by TorFX - Please follow this link for more Euro Currency Forecasts
© Future Currency Forecast.