Pound Approaches 1.6700 As Risk Trade Remains in Place

Last updated 12/2/2009 5:48 AM ET (GMT -5) 0 Comments - Add your comment

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Japan's banking minister Kamen - Japan shoudl seek joint intervention to weaken yen
• Gold holds above $1200/oz.- new record
• Asian and European equities up slightly
• Oil at $77.48/bbl last
• Gold $1215/oz. last

Overnight Eco

• JPY Monetary Base 3.8% against 4.7%
• GBP Construction PMI 47. vs. 46.9 eyed
• EUR PPI 0.2% vs. 0.1%

Event Risk on Tap

• USD Challenger Job Cuts
• USD ADP Non-Farm Employment Change expected at -145K
• USD Beige Book

Price Action

• USD/JPY rallies to 87.40 as Japanese policymakesr continue to jawbone
• AUD/USD trades in line with equities targetiung .9300
• GBP/USD rallies strongly on EUR/GBP flows and supprtive housing data
• EUR/USD holds steady at 1.5100

A relatively quiet and event free night in FX with high beta currencies continuing to grind higher as equities and Asia and Europe proved supportive while gold set yet another record high. Cable continued its relentless march higher trading towards the 1.6700 figure by mid morning London trade after UK PMI construction data showed further signs of stabilization in the housing sector.

UK Construction PMI printed at 47.0 vs. 46.9 eyed as it remained below the key 50 boom/bust barrier for the 22nd month in a row. However the data has shown clear signs of leveling out over the past six months as record low interest rates and ultra easy monetary policy by the BoE helped to cushion the fall in housing activity.

Despite pound’s impressive gains today we remain skeptical of this rally which may be distorted by corporate flows in EUR/GBP. UK economic data this week has been mixed at best with both consumer confidence and manufacturing PMI readings missing the mark. If tomorrow’s PMI services data surprises to the downside pound could be vulnerable to a sell off once the corporate demand on the crosses goes away.

Meanwhile in Eurozone the PPI data printed a bit hotter than expected at 0.2% versus 0.1% eyed, but the year over year numbers continue to remain well in a negative territory. Nevertheless, the mild uptick in prices on month over month basis suggests that the ECB may assume a more hawkish posture at its next press conference this Thursday. Some market analyst expect the ECB to tighten the rules for its unlimited tender offering by making the interest rate adjustable rather than the flat1% it charges currently.

The removal of extraordinary measures would signal that the ECB is clearly ready to return to a more normal operating environment as it becomes more confident in the economic recovery in the region. A clear source of comfort for Mr. Trichet and company is the improving labor picture in Germany which saw its unemployment rolls decline for the fifth month in a row.

Employment will also be the focus of attention in North America today as traders get a glimpse of the ADP numbers due at 13:15 GMT. Although in the past, the ADP forecasts have diverged strongly from the NFP readings on an absolute basis, the market will likely key on the directionality of the data. The ADP is projected to print at -149K vs. -203K the period prior and if it comes anywhere near those expectations the risk trade should remain supportive into the US open.

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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.