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Better UK GDP Provides No Lift to the Pound

Last updated 2/25/2009 6:04 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Japanese exports fall 46% in January
• UK Government to insure 500B of toxic assets
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Overnight Eco

• JPY Trade Balance much worse 364B yen vs. 489B forecast
• AUD Wage Price Index better at 1.20% vs. 0.90% expected
• EUR German Final GDP as expected at -2.10%
• GBP Revised GDP -1.5% bit better than -1.6% expectations

Event Risk on Tap

• USD Existing Home Sales expected at 4.74M

Price Action

• USD/JPY anti yen rally continues pushing the pair past 9700 as exports sink
• AUD/USD bid well above 6500 as M&A activity helps
• GBP/USD loses 1.4500 after GDP better but still weak
• EUR/USD churnc in a wide 1.2800-1.2900 range driven by EUR/JPY flows

The Q4 revision of UK GDP proved to be better than the dour consensus estimates of -1.6% printing at -1.5% but offered little help to pound bulls today as the pair sold off towards the 1.4500 handle in the aftermath of the release. Although the results were nominally better than forecast skepticism abounded in the currency market that these figures will not mark the lowest point in the UK economic cycle.

As we wrote earlier, “While the data was hardly positive, it suggested that the aggressive fiscal and monetary policy moves by UK government officials along with rapid depreciation in the pound exchange rate may be helping to stabilize the economy. Granted, the latest string of positive economic surprises could simply be a pause before another leg down, Nevertheless,  UK data continues to underpin cable for the time being with 1.4400 acting as near term support. Meanwhile EUR/GBP, our favorite way of expressing pound strength traded back towards the 8800 handle after rallying on month end demand for the pair yesterday. Once the seasonal skews disappear we continue to believe that the pair could target 8500 should  UK data continue to show further signs of stabilization.’

In Asia USD/JPY continued its relentless journey higher running through the 9700 handle as the pair now clearly trades on weak Japanese economic news rather than any safe haven and repatriation flows. The latest piece of dour data was the release of Japanese Trade balance figures which  showed that exports fell more than 46% from January levels.  

The Japanese economy is in a tailspin while both fiscal and monetary officials appear hapless in the face of the worst contraction in GDP since World War II. The pair now looks to be destined to test the 100 barrier as stops at that level are likely to be run. The question forward however is whether 100 will prove to be the end of this counter trend rally. For the time being nothing appears to stand in the way of yen bears, however, if US begins to experience difficulties financing its massive new spending outlays, yen's status as a safe haven could return in a hurry.

In North America today the calendar only carries US Exiting Homes Sales which  are expected to uptick  bit from the prior month’s level. The EUR/USD continues to trade in a broad 1.2800-1.2900 range  and remains a side show to the EUR/JPY flows. Tomorrow will bring German unemployment data and it will be interesting to see if the pair will  maintain its bid in the aftermath of what promises to be very ugly labor demand numbers.

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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.