Price action yesterday was dominated by negative comments from the Bank of England’s Posen, who gave a rather gloomy outlook on the UK economy. He couldn’t have been more dovish, citing the view that the BoE could buy private assets if purchases of gilts did not have the required effect. With inflation running at elevated levels this could not be worse for the currency. Whilst GBP and Usd are in a similar boat, EUR is not, and so EUR/GBP is the vehicle to express this bearish GBP view. With the whole world short EUR/GBP in expectation of this large LHS flow occurring tomorrow, we have had an impressive move higher with no real signs of it stopping.

Although sterling saw seven week highs of $1.5895 versus the dollar yesterday, aided by final Q2 GDP data and an upbeat CBI distributive trades survey as well as general market trends, it fell to a four month low versus the euro. The single currency briefly broke through Stg0.86p in late trading and while it has since backed off this level fresh attempts at the upside could be seen near term. Despite yesterday’s data, the UK economy remains under scrutiny given speculation that a slowdown in the economy in Q3 could see the Bank of England engage in fresh quantitative easing measures.

Another powerful day yesterday for euro, after an initial flush out to 1.3380, we exploded higher eventually vaulting the 1.3510 resistance level and extending to 1.3595. It is very hard to argue fading this move with month flows starting to dominate peoples thinking (should be broadly usd negative), so buying dips is still favoured.

We are advising buyers into the major currencies in particular the Euro to cover positions as the market is detteriorating. If you would like to discuss your requirement you can contact me on my direct line +0044 1736 335264.

Tom Trevorrow

Senior Trader

Tel: +0044 1736 335264

tom.trevorrow@torfx.com