UK Data Boosts Sterling Spread Trading Markets
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Forex Analysis from Michael Hewson, Market Analyst, CMC Markets
1 November 2010
UK Forex Spread Trading News
Like the US Dollar over the past few weeks, Sterling has been in the spotlight on the forex spread trading markets over possible further steps towards “quantitative easing”.
This came after Monetary Policy Committee member Adam Posen called for an additional £50bn to be injected into the economy to help support the recent rise in growth and help prevent a slip back into a “double dip”.
His calls were also echoed by the Institute of Directors, and this served to undermine Sterling for the best part of October until last week, when UK Q3 GDP defied the doomsayers and came in double expectations at 0.8%.
This good news gave the Pound a welcome boost across the board as Sterling short positions got quickly covered. In the process most of the losses in October were pared back, after rebounding off trend line support from the all-time Sterling index lows in 2009.
This positive data undermined the somewhat pessimistic calls and makes the likelihood of the Bank of England easing monetary policy at this week’s monthly meeting much less likely in the short term.
The recent October manufacturing PMI data provided a further blow to the monetary doves, coming in above expectations at 54.9, against an expectation of 53.
This unexpected rise suggests that the manufacturing sector continues to do fairly well as we head into Q4. This has provided an early boost to hopes that overall GDP growth in Q4 will show further resilience as we head into year end, when economic conditions could well slip back as the VAT rise and spending cuts start to bite.
The Pound has also shown early signs of reversing its recent run of losses against the single currency, posting a number of technical warning signs on the weekly and monthly charts, similar to the Sterling index.
The monthly EUR/GBP chart shows a gravestone Doji having failed at trend line resistance from the £0.9801 2008 highs and also posted a bearish engulfing week on the weekly charts which suggests that further Sterling gains could be forthcoming in the near term.
Near term resistance on EUR/GBP can be found at £0.8770/80.
This week’s Bank of England rate meeting, combined with October construction PMI data on Tuesday and service sector PMI data Wednesday, could well presage further Sterling strength. In the event these figures show similar evidence of slightly better readings they may make Adam Posen's calls for further QE less relevant in the short term.
The key levels to watch for on EUR/GBP are £0.8770/80 and £0.8910, with 77.85 on the Sterling index.
Meanwhile resistance for the GBP/USD forex rate is currently at $1.6105 which caps a possible move to towards trend line resistance at $1.6320, from the August 2009 highs at $1.7045.
Spread betting, CFDs and FX are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.
Article provided / approved by CMC Markets UK plc / CMC Spreadbet plc which are authorised and regulated in the UK by the Financial Services Authority, registration numbers; 173730 and 170627 respectively.
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Spread betting, CFDs and FX are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.
Article provided / approved by CMC Markets UK plc / CMC Spreadbet plc which are authorised and regulated in the UK by the Financial Services Authority, registration numbers; 173730 and 170627 respectively.
Apple, the Apple logo, and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.
'UK Data Boosts Sterling Spread Trading Markets' edited by DB, updated 02-Nov-10
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