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GBP/USD Soars Above 1.4700 As Risk Seeking Continues

Last updated 3/24/2009 6:24 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• China urges for new reserve currency from IMF
• Geithner plan reverberates positively in the equity markets
• EZ PMI betetr at 40.1 vs. 39.2
• OIl at $53.5/bbl
• Gold at $942/oz

Overnight Eco

• JPY Monetary Policy Meeting Minutes
• EUR French Consumer Spending -2.0% vs. -0.9% forecast
• EUR French Flash Manufacturing PMIbetter at 36.3 vs. 35 called
• EUR French Flash Services PMI rebounds to 42.9 from 40.2 last
• EUR German Flash Manufacturing PMI 32.4 vs. 31.9 expected
• EUR German Flash Services PMI 41.7 vs. 41 forecast
• EUR Current Account -12.7B vs
• EUR Flash Manufacturing PMI 34.0 vs. 33.5
• EUR Flash Services PMI 40.1 vs. 39.2
• GBP CPI much hotter at 3.2% vs. 2.6%

Event Risk on Tap

• USD HPI expected at -0.7%
• USD Richmond Manufacturing Index

Price Action

• USD/JPY climbs all the way to 9850 as carry flows continue
• AUD/USD nearly hits 7100 as traders plow in to high beta currencies
• GBP/USD hotter CPI pushes cable to 1.4780
• EUR/USD softer but holds 1.3350 support

High beta currencies enjoyed a rally for the second night in a row boosted by further gains in equities and continuation in risk appetite. Carry flows were once again the dominant theme in Asian trade with USD/JPY rising to 98.40 while many the yen crosses reached their highest levels since last October.  The Nikkei followed through on the nearly 500 point gain in the Dow rising 272 points but the gains on the European markets were decidedly more modest with most indices barely above break even.  

Asian Markets Rise

On the economic front the  EZ PMI readings rose for the first time  since last September indicating that business activity in the region may be finally stabilizing. As we wrote earlier, “The region’s fiscal and monetary authorities have been far less aggressive than their US counterparts in stimulating the EZ economy and so far ECB President Jean Claude Trichet has resisted any attempts to move the central bank towards quantitative easing, insisting that the current plans in place will be enough to revive the moribund European economy. Today’s data while hardly inspiring does suggest that business activity in EZ's two most important economies may have found a bottom for the time being and could validate Mr. Trichet point of view. Still, the undeniable aspect of today’s reports is that EZ continues to suffer from a very sharp reduction in demand and even if the recovery come it is likely to be very slow and tepid.“

The euro however was a laggard most of the night rallying only because of EUR/JPY flows, but the pair held above 1.3550 support and unless it breaks the 1.3500 handle to the downside its uptrend remains in place.  One source of pressure for the unit  were reports  by German newspaper Bild that the an internal ministry report in Germany is forecasting a contraction of 4.0-4.5% in the economy this year..

Cable on the other hand  performed much better rising as high as 1.4780 in the aftermath of hotter than expected UK CPI data which printed at 3.2% versus 2.6% expected.  Still, the fundamental news in UK remains negative with MPC’s Balnchflower forecasting a doubling of unemployment rolls to a staggering 4M jobless. The currency market however is ignoring the gloomy forecasts for the time being.

The Geithner plan has sparked a flurry of risk taking activity across all capital markets and the high beta currencies are enjoying the ride.  With little economic data on the US calendar, North American session is likely to be driven  by the same risk dynamics that have dominated trade from the start of the week.  If DJIA could put in another positive session the high yielders and their yen crosses push higher as the day progresses.  

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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.