GBPEUR touched a high of 1.2524 yesterday after reaching the low of 1.2439, this morning markets have opened at just under 1.25 and strong German CPI data this afternoon could support the euro further today.GBPUSD closed trading close to where it had opened yesterday, achieving a high of 1.5716 and low of 1.5672 – close to a two-month low of 1.5630. Strong technical support is in place at 1.5577 and with strong resistance in at 1.5778 we can expect the pair to trade around 1.57 unless any major unexpected news emerges today.
Further indication of the BoE willingness to extend the QE program came in the form of a statement by MPC member Ben Broadbent on Monday. He explained the threat of an “extreme outcome” to the Eurozone crisis has made capital more expensive, weakened investment and the UK’s supply capacity. Most importantly he said the MPC would respond to any such extreme outcome by providing more stimulus to the UK economy.
Spencer Dale, the central bank’s chief economist, said in a radio interview that monetary policy is “highly stimulatory” and its effects will continue to flow through the economy.
EURUSD made a slight drop overall in the session, moving in a tight range of 1.2622 to 1.2524, the European markets closed at 1.2536 and overnight it tested the support at 1.2500 before rebounding up to the current levels around 1.2570. Traders expect this pair to continue its volatile downward trend as the uncertainty around Europe builds.
As mentioned yesterday, the Spanish government announced a €19bn bailout of Bankia in the form of sovereign debt which may act as collateral. The Spanish main stock index hit a 9 year low after the news was published and 10 year sovereign bond yields hit 6.5% and are fast approaching the 7% danger level considered to be “unsustainable” by analysts.
The Spanish government are looking to raise €20-30bn from an ambitious plan of privatizations, which is expected to be approved before the summer. Units currently targeted include rail operators, state lottery organisers and water utility providers.
Greece’s Conservatives have regained a lead before elections on June 17. This increase in support for the pro-bailout party lifted riskier currencies and triggered a short-covering rally in the euro. At the same time the EFSF has disbursed €18bn to the country’s four largest banks as agreed in their previous tranche. This will enable the banks to once again borrow from the ECB.
JPMorgan raised its 2012 forecasts for the US dollar Monday, predicting a rise against all major units except the yen based on Greece’s lurch towards a euro exit and China’s ongoing slowdown. It lowered forecasts for AUD and now sees it at $0.96 against USD in Q2 and Q3. USD/JPY was maintained in the high 70s for the medium term.
The Governor of the National Bank of Poland, Marek Belka, said yesterday that the country is seeing a slowdown in economic growth, but it is “not dramatic.” Belka said during a presentation at the Central Reserve Bank of Peru that Poland’s GDP is “cruising” at 4% growth. He also added, however, that “the economy is slowing down.” GBPPLN is currently trading at 5.473, the Zloty has weakened nearly 7% in just over a month from 5.061 seen in April.
Japan’s Overall Household Spending YoY for April was published just above the 2.4% consensus. Unemployment figure for the same period was also marginally worse than the 4.5% consensus. Retail sales for the same period materialised at 5.8% against the 6.3% consensus and 10.3% previous.
Australian HIA New Home sales MoM in April were released early this morning and demonstrated an increase on the 3% previous, which contributed to the rate dropping from 1.5970 down to 1.5870 overnight. Sterling is expected to continue to test the resistance in place at 1.60 during the coming sessions.
Swiss Consumption data for April from UBS was also released earlier today at 1.41 versus the previous 1.22. The market did not really react to the news though and GBPCHF continues to trade close to 1.50, having traded in a tight range of just 30 pips for the last 12 hours.