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Will Pound Test Yearly Lows?

Last updated 3/10/2010 5:44 AM ET (GMT -5) 4 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• German Trade Data falls sharply in January, Greece may seek EU aid if spreads don't tighten
• UK MP/IP misses badly at -0.9%, -0.4% respectively
• Equities flat in Asia and Europe
• Oil at $81/bbl
• Gold at $1124/oz.

Overnight Eco

• AUD Home Loans -7.9% vs. 2.1% eyed
• AUD Westpac Consumer Sentiment 0.2% vs. -2.6%
• JPY Core Machinery Orders -3.7% vs. -3.8%
• NZD Overseas Trade Index 5.7% vs. 1.2%
• EUR German Final CPI 0.4% vs. 0.2%
• EUR German Trade Balance 8.7B vs. 16.4B
• GBP Manufacturing Production -0.9% vs. 0.3% eyed
• GBP Industrial Production -0.4% vs 0.2%
• GBP NIESR GDP Estimate n/a

Event Risk on Tap

• USD Federal Budget Balance expected at -198.3B

Price Action

• USD/JPY very tight range near 90.00
• AUD/USD remains relatively strong at 91.50
• GBP/USD takes out 1.4900 in early London trade on weak MP/IP
• EUR/USD back to 1.3550 as eco data hurts

The divergence between European and Asian Pacific risk FX continued for the second day in a row in the currency market as both euro and pound slumped against the dollar while Aussie pushed higher.  The strength in the AUD/USD was driven by better than expected Chinese Trade Balance data which printed in line at 7.6 Billion but saw exports rise by 45% versus forecasts of 35-40% growth. The news suggests that global economic activity continues to expand and bodes well for the Aussie which remains the primary proxy for the recovery trade amongst the major currencies.

The eco news was not nearly as kind to cable which plunged below the 1.4900 level once again  in the wake of very weak UK Manufacturing and Industrial Production data. MP fell by -0.9% versus 0.3% forecast ,while IP contracted by -0.4% versus expectations of 0.2% gain. Part of the  decline was blamed on the unusually severe winter weather conditions that plagued UK during the past several months, but irrespective of the one off events, the overall picture for the UK manufacturing sector remains lackluster despite the sharp decline in exchange rate of the pound.

With speculative sentiment so negative, cable is now in danger of  testing its yearly lows at 1.4800 if risk aversion flows accelerate over the next few days. The pair found some support at .14900 from bargain hunters and some sovereign wealth fund buying from the Middle East, but it remains vulnerable to further selloffs if the economic data continues to surprise to the downside.

Meanwhile the EUR/USD drifted below 1.3550 in the wake of weak German Trade Balance data which saw exports slide by -6.3%. As we noted earlier,” Today’s data undermines the euro bulls argument that lower exchange rates will spur export demand driving Eurozone growth in 2010. However, its too early to tell if the downside surprise in January is simply a one off seasonal occurrence or the start of a larger more troubling trend.  In either case, the Trade Balance data was not helpful to the single currency which has been battered by concerns over sovereign debt problems of Greece, Portugal and Spain. “

In North America today the calendar is once again nearly barren with only the Wholesale inventories report on the docket.  Trading may be quiet, but the focus could shift to the fixed income markets as currency traders watch US short term yields with great interest. Last night a WSJ article noted that the Fed could begin a gradual alteration of the language - for instance saying “some time” instead of  “extended period” or policy will be “highly accommodative” rather than rates will stay “exceptionally low”. Such a change of posture could send US short term rates higher and continue to fuel the rally in USD/JPY.   

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Comments (4)

jamierm79

March 10, 2010 at 06:02 AM ET

anybody have fews on buying the iraqi dinar as an investment?

silver

March 10, 2010 at 01:33 PM ET

SCAM!!!!!!! Don't waste your money my son bought some four years ago and it is worth less than what he paid for it and the hype is always its soon to be revalued. He has been on an emotional rollercoaster thinking it going to make him rich. REMEMBER if it sounds to good to be true it probably is. And this is a total SCAM!!!!!!!

jamierm79

March 10, 2010 at 06:03 AM ET

views!!!!

alexjbrandt

March 10, 2010 at 06:33 AM ET

uh, you might be better off with oil :P

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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.