UK
GDP figures released yesterday morning sparked a new round of questions over the British economy. The quarterly figures showed a -0.7% drop against a consensus -0.2%, concluding a third consecutive quarter of economic contraction and the countries longest double dip recession in 50 years.Headlines so far have cited possibly risks to our AAA rating, a fresh round of stimulus, a rate cut and a U-turn on tax cuts by George Osborne. Understandably Sterling is not expected to rally this week.
In addition to a European slowdown part of the reason for the large decline was a vast drop in construction (-5.2%), the Queen’s Diamond Jubilee and of course the wettest three months on record.
Sterling is up 4% trade-weighted this year in spite of consistently disappointing economic performance and is even up against an index excluding the euro. Yesterday’s drop was surprisingly modest however future forecasts may change with this new information.
Economists remain dismayed at how the best employment recovery in years and significantly lower inflation can be so contradictory to GDP figures.
GBPEUR opened near the high of 1.2855 but then lost 0.6% following the data release to give some temporary distraction from the Eurozone crisis. Any extension of Sterling selling could open up key support of 1.2578 as a target.
GBPUSD reacted similarly, climbing to a session high of 1.5550 before falling 0.5% within moments after the same release. The pair recovered well before falling steadily and remains close to the support level of 1.5480 this morning. We have seen 1.5270 being talked about as a target next week however there are too many global headlines with the potential to distract for any real confidence on that number.
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WORLDWIDE
EURUSD showed some signs of a recovery through the course of Tuesday’s session, opening at the low of 1.2053 to touch a high of 1.2168. This respite could well be shortlived as pressure continues to mount in the Eurozone member economies and the risk averse choose the relative security of the safe haven US dollar.
Technical support levels are now at 1.2110 and 1.2040. The euro remains aggressively sold so while it seems far away should there be any glimmer of hope for Spain this pair will rally significantly, the next find resistance is at 1.2190.
This morning CITI Bank economists have predicted a 90% chance of Greece leaving the euro
Greece named a new privatisation chief yesterday in an effort to impress the visiting troupe of international lenders and said it was selling the loss making bank ATEbank which had been draining state funds.
IFO surveys in Germany saw disappointing figures across the board for Business Climate, Current Assessment and Expectations for July although this was barely noticeable in major euro pairs.
A plethora of property sector data from America indicated a receding industry with New Home Sales change reading -8.4% against where 0.8% was expected.
The Royal Bank of New Zealand chose to hold their base interest rate of 2.5% amid on-going concerns over Europe’s debt crisis and benign domestic inflation, potentially reinforcing the view that the central bank will hold the current rate until at least mid-2013.
