Currency Forecast - Sterling Vs. American Dollar - 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. Bank of England members were hung up on the idea that increasing QE could help to stoke higher inflation in 2010.
The latest developments inside the Bank of England have shifted the balance of the debate towards the possibility that the UK is now winding down the liquidity splurge as economic 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. In last week's update we wanted the pound to hold 1.62 into the end of the week. It managed that easily, and has since added another four cents. That puts us within range of the 2009 highs. Firstly we have 1.6741 to capture. That was a an important high in late June and early September, and as such may pose resistance. If we can get above there the next target will be 1.7043, the high of the year.
Currency Forecast - Sterling Vs. American Dollar - 15/10/09
Sterling is enjoying its largest one day gain against the Dollar in 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 UK jobless figures yesterday. The dollar had been creeping higher over the last week as Fed' chairman Ben Bernanke made noises about higher interest rates, even though those noises were basically saying that higher rates are a long way off. Nevertheless, markets took this as an excuse to buy the dollar.
The Fisher comments sparked some further interest in the pound today, 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 unexpectedly. That is what we are seeing today.
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 is much improved as long as we can sustain today's gains into the weekend. In last week's update we said that sterling needed to capture 1.6126 to effectively reverse the slide. That box was ticked this morning, so we could be heading back towards the high 1.60s in due course. That's as long as we don't slide back below 1.5800 again.
Currency Forecast - Sterling Vs. American Dollar - 05/10/09
The pound continued its descent last week, trading as low as 1.5770, but clinging on to end the week almost unchanged. The dominant theme remains one of general US dollar weakness due to high investor risk appetite, offset by investors' lack of appetite for sterling, leaving the GBP/USD rate to drift lower. Sentiment towards the pound improved marginally as traders started to look forward to this month's Bank of England meeting on 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.
We're moving our technical outlook from negative to neutral. We need to recapture 1.6125 to signal a short term trend change. That level worked as support in Aug'/Sep', and has been working as resistance since we broke below it. Support levels, once broken, usually turn into resistance and vice versa. On the downside we seem to have found support around the June low, but a daily close below there (1.5770) would signal a continuation of the short term downtrend.
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