Pound Hits a 12 Day High

Last updated 6/24/2009 5:01 AM EST (GMT -5) 0 Comments - Add your comment

Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Moody's no credible alternative to USD AAA rating secure
• Market eyes FOMC later in the day
• Equities gain Asia and Europe as commodities rebound
• OIl at $68.79/bbl last
• Gold quiet at $927/oz

Overnight Eco

• JPY CSPI -3.0% vs. 2.8% eyed
• JPY Trade Balance 0.22T vs. 0.15T expected
• NZD Westpac Consumer Sentiment 106 vs 96 last
• EUR Current Account deficit widens to -5.9B vs. 4.7B forecast
• EUR Italian Sales -0.4% vs. 0.0% forecast

Event Risk on Tap

• USD Durable Goods Orders -0.9% anticipated
• USD New Home Sales 360k expected
• USD FOMC Interest Rate Decision

Price Action

• USD/JPY trades in very narrow 95.00-9560 range as 9500 holds for now
• AUD/USD takes out the 8000 handle to the upside as commodity prices rebound
• GBP/USD massive buying from Middle East spurs a run to 1.6600
• EUR/USD - above 1.4100 but rally capped at CA data wider than expected

The pound hit a 12 day high today in early European trade coming to within a few points of the 1.6600 figure, fueled by strong buying from the Middle East that suggested the pair might make a run at its 2009 highs of 1.6666 in the near future. EUR/USD on the other hand was much more subdued trading quietly above the 1.4100 mark on a night when the European calendar was very light and market’s focus rested squarely in the FOMC meeting announcement later today due at 16:15 GMT.

In economic news EZ Current Account widened to -5.9B versus -4.7B forecast marking the 14th straight month of negative results. The data however, was better than the gap recorded the month prior of -6.5 Billion and suggests that the deficits have stabilized after hitting their peak in January of -16.01 Billion. The news had little impact on trade with the pair treading water at the 1.4100 handle.

The rise in risk currencies, caught many market observes including yours truly by surprise, especially in light of the fact that equity market flows have been consolidative so far this week. The series of upside surprises from the EZ including IFO, PMI and consumer confidence readings may have had a positive impact on sentiment, but the data was hardly earth shattering and suggests stabilization rather than any serious evidence of pick up in economic growth.

Instead, the rally so far this week appears to be driven by technical rather than fundamental factors and could simply indicate a broader range of 1.3800-1.4200 for the euro and 1.6200-1.6600 for the pound. Still the price action must be respected and certainly for time being the dollar bears have the upper hand. One factor that may have helped to drive the buck lower tonight was the jump in commodities as oil and copper rebounded indicating that the recovery trade shows few signs of quitting just yet.

In North America today the market will take a look at Durable Goods and New Home sales, but the true focus is likely to be on the FOMC meeting later in the day. As our colleague Kathy Lien noted “ If the Fed stresses the improvements in the economy over the need for an extended period of easy monetary policy, we could see risk appetite drive the EUR/USD higher. If they stress the risks to the recovery and the need for interest rates to remain low over the improvements in the economy, the EUR/USD& nbsp; could give back its gains.”

FX Upcoming

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.