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Pound Soars As BoE Less Dovish - EUR/GBP to Break .9000?

Last updated 10/21/2009 5:47 AM ET (GMT -5) 7 Comments

Overnight Eco

NZD Visitor Arrivals 3.8% vs. -0.5% last
AUD MI Leading Index 1.1% matching prior
AUD New Motor Vehicle Sales jumps to 2.9% vs. 0.1%
NZD Credit Card Spending declines -2.3% vs. 0.1% gain last
GBP MPC Meeting Minutes less dovish than expected
GBP CBI Industrial Order Expectations n/a

Event Risk on Tap

USD Beige Book

Price Action

USD/JPY remains above 90.50 but 91.00 contains upside for now
AUD/USD back towards .9300 as Chinese data leak helps
GBP/USD runs through 1.6500 as MPC data less dovish than thought
EUR/USD above 1.4950 but 1.5000 still unclaimed

Risk FX recovered its losses tonight after rumors swept the market that Chinese Industrial Production will print much better than the consensus forecast. The leak that China’s IP will come in at 14.1% versus 13.3% eyed helped fuel a rally in Asian and early European sessions as traders positioned themselves ahead of the official release of data due at 2:00 GMT tomorrow.

As we noted earlier, “China remains the absolute key to the recovery trade as it has now becomes the locomotive for global growth…If Chinese data does surprise to the upside it could prove to be the catalyst for further gains in high beta FX. The EUR/USD has struggled over the past several days as option barriers at the 1.5000 level have so far repelled any and all attempts to penetrate it. However, should Chinese data surprise to the upside the 1.5000 figure is very likely to fall as risk appetite will explode.”

Meanwhile the pound continued to outperform the rest of the majors breaking through the 1.6500 handle by midmorning London trade. The release of the MPC minutes proved to be far less dovish that the market feared. Although the UK monetary authorities voted 9-0 for keeping quantitative easing at 175 Billion GBP, there was little indication that the members were willing to expand the program further. The QE issue will be discusses much more extensively at the next meeting on November 4th, however given the underlying improvement in UK fundamentals - the MPC noted that resilience of employment was “encouraging” for spending – the prospects of additional QE measures appear unlikely at this time.

The markets will get a good glimpse at consumer demand tomorrow when UK Retail Sales are released at 8:30 GMT. The consensus call is for 0.6% rise but if the number beats, cable could continue its recovery rally especially against the euro. EUR/GBP has come within a few pips of breaking the .9000 barrier and should it do so, it would open the way for possible move to .8800. We are bearish EZ data into the end of the week, expecting the IFO report to disappoint as higher exchange rate pressures begin to weigh on the region’s industrial sector. Therefore this turn in the EUR/GBP appears to be real suggesting that the pair may have made an intermediate term high.

In North America today the calendar is barren save for the Fed Beige Book due at 16:00 GMT. One possible catalyst for trade could be today’s EIA Oil numbers due at 14:30 GMT. We noted yesterday that the recent rise in oil is an underestimated threat to the recovery story given its direct impact on discretionary spending so today’s numbers could be key if they surprise to the upside. Overall however, we may need to wait until the end of the week before getting a better handle on directionality as eco calendar becomes much more active.

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
USD	18:00	2:00	USD Beige Book

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Comments (7)

October 22, 2009 at 03:51 AM ET

Hi Boris: Is the comment for EUR/GPBP for real? Support is strong for the EURGBP and the pair may be should heading to a new high (above .9416). Please let me know.

bschlossberg

October 22, 2009 at 03:55 AM ET

This is not a comment by me so I have no idea

October 22, 2009 at 04:55 AM ET

Sorry Boris... I throught it was your comment because of your picture in the article!!! By the who wrote this? Can that person give us the resoning behind of this article related to the EUR/GBP pair?

bschlossberg

October 22, 2009 at 05:06 AM ET

I did NOT write this ;"Support is strong for the EURGBP and the pair may be should heading to a new high (above .9416). " Show me the link where you saw this.

October 22, 2009 at 07:46 AM ET

I know you did not write this Borias.. I read it somewhere and it contrasts with this article!!! Sorry I couldn't find the link as requested. Your stance for EUR/GBP is down to .8800 levels?

bschlossberg

October 22, 2009 at 08:07 AM ET

The Retail Sales did not help my view, but I think the other leg of the cross faces a serious headwind. Given the high exchange rates PMI and IFO could miss tomorrow and that could drive the pair back to 9000

October 22, 2009 at 12:09 PM ET

Gotcha Boris!!! Thanks for the quick responses!!! Outstanding!!!

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.

currency		trade idea
CAD/JPY Long term Opened 2/10/2012		Long from 77.6500 Stop at 76.65 Target at 78.9
GBP/CHF Medium term Opened 2/8/2012		Short from 1.4470 Stop at 1.4602 Target at 1.4352
AUD/CAD Medium term Opened 2/6/2012		Long from 1.0740 Stop at 1.0655 Target at 1.085

Pound Soars As BoE Less Dovish - EUR/GBP to Break .9000?

Boris Schlossberg

Director of Currency Research, GFT