Pound Falls As U.K. GDP Confirms Recession, Will Thanksgiving Holiday Bring Volatility?

The second reading of U.K. GDP confirmed that the economy is in a recession as the initial print of a 0.5% decline was confirmed. Yet, the personal consumption component was revised lower to 0.2% from 0.1% which was the biggest decline since 1995. The Pound would weaken on the news dropping over 80 bps from its session high of 1.5444. The Sterling before the release was starting to pare its losses from the Asian session which saw it fall to as low as 1.5305. The continuation of declining domestic growth for the U.K. may lead to a prolonged recession as it also saw demand for its goods decline. Indeed, exports fell 0.3% for the third quarter as the credit crisis has weighed on global demand. There was hope that the weakening Sterling would bolster foreign demand. The BoE is expected continue their aggressive easing policy in order to soften the landing of the economy which will remain a weighing factor for the Cable. However, recent price action has seen some technical support and according to our Senior Currency Strategist Jamie Saettele “significant resistance does not begin until 1.60”

After a brief breakout yesterday the Euro has returned back below the 1.300 price level which may signal that the 1.2400 – 1.300 range is still intact. This may present an opportunity to for trades to employ range strategies in their trading as the single currency may continue to trade sideways for some time. President Trichet acknowledged in an interview today that it appears the region will contract in 2009 and signaled that further easing is ahead from the central bank. However, the MPC leader would also make the case the growth would return in 2010 which was the same outlook that the OECD put forth in its forecasts yesterday. The prospect of growth on the horizon may limit the scope of the ECB’s easing which may become a supportive factor following the expected rate cut in December. Indeed, German import prices falling 3.6% in October provided further evidence that inflation is no longer a concern for the central bank which has acknowledged that prices will drop below its 2% target by next year. Yet, rhetoric ECB member Nowotny that the central bank should remain cautious and keep the powder dry demonstrates that the MPC will remain measured in its approach.

John Rivera,

Currency Analyst

Gold down 1 pct on firmer dollar, profit taking

Gold fell 1 percent on Wednesday after the U.S. dollar bounced against the euro and prompted selling from investors, whose appetite for safe-haven assets was somewhat restored after bullion regained $800 an ounce. Gold rallied to a six-week high around $830 on Tuesday after the Federal Reserve announced a new program to support consumer debt securities, but profit taking erased some of the gains.
The price has rebounded more than 19 percent since hitting a 13-month low of $680.80 in October but it is still below a record of $1,030.80 hit in March. The dollar edged up against the euro as skepticism lingered over whether the latest U.S. measures to boost consumer lending would ease concerns about the financial crisis. Weaker equities also prompted some investors to cash in gold to cover losses. But some analysts said gold could find support around the current levels on demand from investors.

Finotec Analysis Team

26 November 2008

U.S. crude ends down nearly 7 pct on weak economy

U.S. crude oil futures fell almost 7 percent on Tuesday on worries about declining demand after a government report showed the U.S. economy shrank by more than estimated during the third quarter. Oil prices also felt pressure as U.S. stock prices fell after the weak economic data, following a two-day rally on Wall Street. The focus in the oil markets is again on softening demand in the wake of a weak GDP. Profit-taking also cut down energy futures' values, ahead of weekly inventory data due out on Wednesday, in which analysts forecast a build in crude supplies.

Rodian Rahnayev

26 November 2008

Upside seen capped for euro/dollar

Liran Kapeluto (22 August 2008)

EUR/USD: "$1.4981 caps the topside, heavy below initial resistance $1.4949.

" USD/JPY: "Bull trend violated momentarily, but only a break of 108.03 yen Fibonacci retracement would open the door toward the 107.27/21 to 106.55/39 support zone. Resistance now at 109.53."
GBP/USD: "Momentum failed to sustain above $1.8787, likely to test $1.8606, pressure on $1.8513 is still high.

EUR/USD: "The euro surprised us and closed above its key 9-day moving average yesterday (this is currently located at $1.4817 today). However with longer term momentum still negative and the market still indicated to be in a downtrend, we continue to view gains are corrective and vulnerable to fail on the upside (maximum upside risk $1.4932/downtrend location)".

EUR/JPY: "Prices should hold above 160.00 today, although a weekly close below 161.40 yen might add to bearish pressure next week, as it should if we hold below 162.65 today. Late this month we continue to expect a drop to 158.00, and further out a slide to 152.00. Below here and the long term picture gets seriously interesting."

UK Economy Freezes Sending the Sterling Lower

Sagiv Perez (22 August 2008)

The prices are about to break the upper band of the standard error challenge since mid April.

The prices broke the MA 20 and 50 lines and are continuing higher.

The MACD is after a bullish cross when the fast line broke the zero line upward and histogram is signaling a rising buying ratio.

The momentum broke the zero line upward.

The RSI is in a bullish trend pointing upward

The Bollinger band are widening signaling for a continuation of the trend

This Week Uncertain for the Dollar after Strong Gains

Last week saw the Dollar make large gains against the majors. It achieved a near 6 month high against the Euro on speculation U.S. consumer spending would keep the world's biggest economy out of recession. Data last week revealed that Euro zone growth slowed in Q2 making future rate hikes unlikely. Tuesday’s economic statement in Germany will give helpful indicators regarding the Euro economy.
Meanwhile Sterling traded near a two year low against the Dollar on the back of weak employment figures and tumbling property prices. Negative UK economic data fuelled speculation that there would be an imminent interest rate cut.The pound fell almost 3 percent against the dollar last week, after Bank of England Governor Marvin King said the housing market faced ``a significant adjustment'' and banks limited loans for homebuyers.
The strong dollar also pushed commodities lower. Last week Gold traded at the lowest level since Oct.26th at $772.98 an ounce. Crude, as high as $147.27 on July 11 has declined 22% as the slowing world economy has curbed demand.
This week the Dollar is showing initial signs of weakness. With US inflation and Government housing results out this week, speculation is growing that the Fed will refrain from raising rates. If these results are confirmed we could well see more downside for the Dollar. Gold, typically an alternative investment against the falling dollar could go higher. In addition, Storm Fay in the Gulf of Mexico is causing a recovery of Crude prices after last week’s dismal showing.

Euro Risk For Short Term Bulls at 1.5611

Written by Jamie Saettele, Technical Currency Strategist

Risk on EURUSD longs can be moved to 1.5611 (for short term traders) and 1.9648 on GBPUSD. The AUDUSD has rallied as expected and risk there can be moved to .9475 (roughly breakeven).