The Pound fell over 200 pips following a report that the BoE will announce additional quantitative easing at their upcoming policy meeting. Speculation is that another £25 billion will be added to the original £125 billion asset purchase program which is coming to an end.
• Japanese Yen: BoJ Raises Outlook For Economy
• Pound: BoE May Add To QE Measures
• Euro: Sentix Investor Sentiment Unexpectedly Fell
• US Dollar: ISM Non-Manufacturing On Tap.
[/B][U][B]Pound Falters On Growth Concerns and Potential For BoE to Add To QE Measures[/B][/U]
The Pound fell over 200 pips following a report that the BoE will announce additional quantitative easing at their upcoming policy meeting. Speculation is that another £25 billion will be added to the original £125 billion asset purchase program which is coming to an end. The MPC is expected to keep its benchmark rate at 0.50% on Thursday as downside risks remain for the economy. Indeed, growth contracted by 2.4% in the first quarter which was the most since 1958 which will limit the impact of the government’s efforts to promote growth. We may see support at 1.600 fro the GBP/USD with a possible test of 1.5801-the 6/8 low.
The Euro was also a victim of prevailing risk aversion as the EUR/USD fell back below the 1.4000 handle where it has started to consolidate. The Euro-Zoe Sentix investor confidence reading unexpectedly fell for the first time in three months to -31.3 from -27. Economists were expecting an improvement in sentiment to -25 as optimism had been building on the back of lower interest rates and incoming stimulus efforts. Concerns are growing globally that the depth of the recession will make it difficult for the labor market to find traction limiting the potential of any recovery. We could see a re-test of support at 1.3787-38.2% Fibo of 1.2884-1.4340.
The Yen has benefitted from increasing growth concerns and a rise the outlook for the regional economy from the BoJ. Indeed, the central bank in its “sakura report” raised its assessment for the region for the first time in three years. A rise in exports has fueled optimism that he region is finally stabilizing. BoJ Governor Shirakawa said “there are signs of a slowdown in the speed of deterioration, both in financial aspects and the real economy.” Several economists are predicting that Japan could be the first to emerge of the major economies as it benefits from Chinese domestic growth. The EUR/JPY fell below the 50-Day SMA 133.51 to trade below 1.33.00. The next level of support is at 131.42-the 6/23 low.
The dollar is receiving significant support as the flight to safety continues as fears grow that the scope of a global recovery will limited. We could see U.S. traders look to catch up on the prevailing risk aversion which could accelerate greenback strength throughout the day. Additionally, Vice-President Joe Biden admitting the Obama administration missed judged the recovery and the level of unemployment may harpoon investor confidence. The only release on the economic docket is ISM non-manufacturing which is forecasted to rise to 46 from 44. A rise in the sector that accounts for over 70% of GDP could offset some concerns and limit dollar support. We have started to see the dollar strength begin to wane and the positive data could spark a reversal in sentiment. Conversely, a weaker than expected print would justify building fears and add to prevailing dollar strength.
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To discuss this report contact John Rivera Currency Analyst: <[email protected]>