As observed for several weeks, the underlying forces driving currency markets at present are biased toward US Dollar strength, Euro weakness and overall consolidation within the commodity linked currencies with underlying sentiment driving price action in the markets. These overall compounding factors have further encouraged profit-taking, boosting the safety-linked US currency, and alternative safe haven currencies such as the Japanese Yen and CHF.

The British Pound appears firmly tied to underlying trends in sentiment at present, with little by way of economic data to upset the relationship with speculators clearly driving ranges, a clear sign of overall profit taking. This points to continued losses as risk aversion continues to dominate financial markets. The current GBP/USD trend is detteriorating and it is highly advised that USD buyers look to cover any up and coming requirement or work protective ‘Stop Orders’ to avoid further downside movement with the GBP/USD which is now technically in a clear downtrend. GBP/USD has tested levels below 1.5500, yet the 1.5485 reached yesterday turned into a temporal bottom for the cross, we have seen 9 consecutive days of downward movement with the GBP/USD pair so it is likely we may see a short term correction.

Stock index futures are ticking firmly higher following the opening bell in Europe, hinting the recovery in risk appetite noted in Asia in the wake of better-than-expected Chinese PMI figures. This has caused the GBP/USD to make small gains in early trading as the appetite for riskier assetts weighs down on any advance with the USD. Chinese data will also dictate price action with the antipodean currencies such as the Australian and New Zealand Dollar. Given the strong dependence of the Australian economy on China, any strength in Chinese economic data is perceived to be a net positive for Australia. However, ironically, the stronger China data may only serve to ultimately weigh on the Australian economy some more, with China in the process of aggressively looking to raise rates in an effort to curb inflation.

Despite finding support earlier around 0.8380, the EUR/GBP remains vulnerable to the downside as it stretches to a 10 week low touching 1.1995 in overnight trading. The pair has since settled slightly finding support at 1.1925 yet seems to be in a holding pattern waiting for fresh impulse to continue its upward trend. Ongoing European debt woes have continually weighed on both currencies today, as investors increasingly look to hedge from further risk of default in periphery nations. With the possibility for further downside movement likely, immediate support is listed at 0.8330 (Daily Low Sep 17/20).

Today the Pound opens up firmly down from yesterdays positive rally which in the end proved short lived. The Euro has since found support from its recent sell off however downside risks remain following yesterdays set back from Standard and Poor’s rating agency which made a statement to suggest Portugals credit rating will be cut if their current debt plan could not be met. This should limit any short term correction with the EUR against its major counterparts and a further test of 1.20 (Psychological resistance) with the GBP/EUR is likely. Fundamentals overnight caused the spell of selling against the Pound after UK house prices fell for a fourth straight month suggesting the property market is still struggling with its recovery. Today sees the release of some key indicators including the November manufacturing ISM and CIPS PMI in the US and UK which should be supportive for the Pound.

Tom Trevorrow

Senior Trader
Tel: +0044 1736 335264
Email: tom.trevorrow@torfx.com