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  • IFX Market Report for 28/05/2012

    Daniel Fountain
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    UK

    GBPUSD opened trading on Friday at 1.5676 and saw little movement throughout the day reaching a high of 1.5686 before eventually closing at 1.5644. With sterling closing the session below the 1.5700 level and posted a fourth consecutive weekly loss against the US dollar, weighed down by broad risk aversion and increasing speculation the BoE could resume its bond purchases. The pair remained steady over the weekend and opened the markets this morning at just over 1.57. With strong support now built around 1.5533 the pair could remain range-bound between there and the top resistance at 1.5762 until the questions over QE are answered.Gilts advanced for a fifth week, 2yr,5yr & 10yr yields dropped as government reports showed GDP shrank more than initially estimated and retail sales declined. UK bonds rallied as minutes of the Bank of England’s meeting showed the MPC decision to halt its £325bn QE program was “finely balanced.”

    GBPEUR opened trading on Friday at 1.2458 hitting a small drop to the low of 1.2426 before a steady recovery over the 1.25 mark, hitting an afternoon high of 1.2530 before settling at 1.2498 at the close. This morning markets have opened back around 1.2460.Technical long term support remains at 1.2345 and the resistance is as high as 1.2639 now. A close above 1.25 will confirm sterling is still on course to progress during the near term.
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    WORLDWIDE

    Today is a non-trading day in the US so the markets may be a little subdued due to the lack of data and liquidity.

    The euro had its biggest weekly loss since December against the US dollar as Greece’s pro-bailout party gained in the polls and is now leading the race ahead of left wing party Syriza. Ultimately concerns over a Greek exit have dramatically decreased.

    Greece’s New Democracy, which supports the European Union’s bailout plan, was placed first in all six opinion polls this weekend as campaigning continued for next month’s general election. Antonio Samaras, the leader of Greece’s New Democracy party explained the consequences of a euro exit, saying Greek incomes, bank deposits and property values would lose at least half their value within days, while food prices would rise by a quarter.

    On Friday EURUSD opened at 1.2582 and fell to the day’s low of 1.2499 before closing at 1.2515. Over the weekend the euro continued to weaken, with the pair posting a low of 1.2496, this morning the pair has recovered slightly to trade around 1.2590. We expect a rally towards the resistance at 1.2630 during the days session.

    Interestingly, on Friday afternoon EURUSD traded lower than GBPEUR, this was the first time since June 2010 that the two pairs have crossed over.
    Spain have this morning revealed they may fund their takeover of Bankia with sovereign debt, technically meaning that they are using ECB funds.

    The Swiss franc saw the biggest loss against the US dollar last week, falling 2.1% to 95.95 centimes per dollar. It was the biggest weekly loss since November, CHF also touched the weakest level in two months versus the euro on May 24 amid speculation the central bank may take action to discourage investment in the nation through taxing deposits.

    Brazil’s real rose 1.8% against the US dollar to 1.9874 after the central bank sold currency swaps through auction for four consecutive days to stem the decline against the greenback.

    Bank of Japan policymakers agreed to ease monetary policy in April to ensure the economy resumes a recovery, but signalled a pause by complaining of a “misunderstanding” in markets that they will keep offering monetary stimulus automatically until 1% inflation was in sight. GBPJPY has dropped from 131.64 to 124.18 in less than a month. So the need for stimulus this month is greater than when they last intervened.

    NZDUSD declined to the weakest since November at 0.7642, The kiwi’s losses were limited as Moody’s cited the government’s deficit and debt trajectories in affirming its AAA rating.

    Daniel Fountain / 27.05.2012

    Editor, Hotel Designs

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