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Daily News from Senior FX Analyst – Samuel Allen

Last Friday’s non-farm payrolls figure came in slightly weaker than expected which highlighted the fragile state of the U.S lead economic recovery. “The U.S. employment report was disappointing, and leaves a close call whether the Fed will take more steps tomorrow,” said Lee Hardman, currency economist at Bank of Tokyo, referring to the
Federal reserves injection of additional capital to the markets.

Ben Bernanke has famously said that he would be willing to air drop 100 dollar bills over America if he thought it would help. Many economists estimate that the Federal Reserve could introduce up to $2 trillion into the economy over the medium term. There is likely to be a good market for this debt, Hong Kong has just posted its Forex reserves at $260.7 billion, Hong Kong are only the seventh largest holder of foreign currency reserves after mainland China, Japan, Russia, Taiwan, South Korea and India.

Another very slow scheduled data week will probably be reflected in the Foreign exchange markets. Sterling has continued its well established trend against the USD this morning, another lack luster attempt to break above 1.6 resistance level just didn’t have the fundamental advantage or momentum to break above. Foreign exchange professionals are also watching the global stock markets due to the high correlation between the GBP/USD rate and the S&P 500.

Stock markets in the UK have seen a good initial push with a rise of just over 1.5%, the rise has been lead by engineering support firm Babcock who have seen their shares plummet during the economic crisis, some healthy profit figures later this week could help them outperform their market price. Overall the FTSE is still in an uptrend and consolidation around 5500 looks likely.

The Euro has strengthened due to Germany’s export sector continuing to pull the country out of the economic doldrums, according to data released this morning by the Federal Statistics Office, Destatis. Exports rose 3.8% against a preliminary estimate of €86.5 billion ($113.87 billion), only €2.2 billion behind the record high registered in October 2008. Imports, meanwhile, reached their highest-ever monthly level of €72.4 billion, an increase of 1.9% from May. GBP/EUR responded by dropping back to its sturdy support level of 1.200 where buyers again entered the market and maintained the upward trend established since October 2009.