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Daily News from Senior FX Analyst – Samuel Allen

The Euro has continued to strengthen after statements made by the European central bank concerning the results of the banks stress tests scheduled for release later this week. Against the pound a rise of almost 1% yesterday showed that the momentum was well and truly intact. The next technical support level is at around 1.1600 GBP/EUR which is the 200 day exponential moving average coupled with a 50% Fibonacci retracement level. All eyes are on the results of the tests which are scheduled for release on Friday 23 July at 1600 GMT.

The Canadian Dollar has shown signs of weakness recently due to rumours in the market that a much anticipated rise in their benchmark interest rate might be postponed at their next meeting which takes place in the early hours of Wednesday this week. Markets anticipate some good overnight moves on the back of the meeting with a rise in their rate adding strength to the Canadian Dollar, a rise to 0.75% is anticipated.

The Australian Dollar has benefitted from its high yield advantage over the pound for a long time now and this looks set to continue into the medium term. If the Bank of England starts to raise its interest rate in line with the higher inflation figures it might erode this advantage and the GBP/AUD rate might break above its 1.8 resistance once again. The minutes from the Bank of England’s June meeting will shed more light on this situation upon their release this Wednesday and the market will be watching closely to see whether Andrew Sentance has recruited any other board members to imitate his hawkish stance.

For much of this year the American Dollar has benefitted from the epidemic of risk aversion that has spread through the global markets. Just as no-one ever got sacked for buying IBM; no-one ever got sacked for buying the American Dollar in hard times. The global reserve currency of choice might be losing some of its advantage as risk appetite returns. The cable rate has risen from its low of 1.4200 GBP/USD in May up to the 1.5500 GBP/USD resistance level. A slight retracement yesterday has slowed this rise and with very little scheduled data released this week the technical traders might prevail and drive that retracement back to the 1.500 GBP/USD psychological support and 38.2% Fibonacci retracement level.