Pound Sunk By Declining Home Prices; Dollar, Yen Gain As Global Growth Outlook Dims

DailyFx · August 17, 2009, 6:10am

The pound remained under assault as a drop in home prices, global growth concerns and the extension of the quantitative easing program are all adding weight. Rightmove LLC reported that home prices in the U.K. fell by 2.2% which was the biggest decline in eight months.

[B]Talking Points
• Japanese Yen: Finding Support On Risk Aversion Not Positive GDP
• Pound: House Prices Fell By Most In Eight Months
• Euro: Trade Balance Surplus Widened On Rising Exports
• US Dollar: Empire Manufacturing on Tap

[/B][U][B]Pound Sunk By Declining Home Prices; Dollar, Yen Gain As Global Growth Outlook Dims[/B][/U]

The pound remained under assault as a drop in home prices, global growth concerns and the extension of the quantitative easing program are all adding weight. Rightmove LLC reported that home prices in the U.K. fell by 2.2% which was the biggest decline in eight months. The early release would add to the current bearish sentiment that begun when the BoE extended their asset purchase program by £50 billion. The GBPUSD has broken below support of the 50-Day SMA at 1.6458, which had held since March. Therefore, we could see a test of 1.6000 where we will also find Fibo support at 1.6034-38.2% extension of 1.4395-1.7044.

The Euro has also seen an extension of its losses from Friday despite an encouraging trade balance report. The trade surplus for the region widened to 4.6 billion from 1.9 billion as exports rose by 7.5 billion. However, the seasonal adjusted reading missed forecasts of 1.3 billion with a reading of 1.0 billion, tempering expectations of future growth. The single currency continues to see its fortunes dictated by risk sentiment and with global equity markets under pressure we could see continued losses for the euro today. Rising exports adds to signs that the regions economy is emerging from a recession as we saw second quarter growth from its two biggest economies in Germany and France. However, the struggles of regional stalwarts like Spain and smaller developing nations may limit the potential for the broader economy. The 50-Day SMA at 1.4088 has been a key support level and a break below could open the door for a test of 1.4000.

Asian equity markets set the tone to start the day dropping over 3% despite the Japan’s economic recession coming to an end. Japanese GDP rose for the first time in five quarters but missed expectations of 1.0% with a print of 0.9% as domestic demand fell 0.7%. The main source of growth has been government spending and concerns are that it will be hard pressed to have a sustainable recovery without domestic growth returning as the impact from stimulus efforts dissipates. Yet, the Yen rallied on the flight to safety as the growth data added to prevailing concerns that a global recovery may not be sustainable without a rebound in labor markets and consumer demand.

The dollar rally continued overnight as Chinese growth concerns added to the dimming optimism that was generated by the dip in U.S. consumer sentiment. Probably the two most important engines of future global growth are the Chinese economy and the U.S. consumer and with both still not back to pre-recession levels, the scope of a recovery will be limited. We are definitely starting to see a pull back in risk appetite which continues to be a supporting factor or the greenback. Asian and European equity markets saw significant losses and Dow futures are trading lower by over 150 points. Adding to concerns is the closing of several U.S. lenders by regulators as we are starting to see the slumping commercial real estate market and weak credit card receivables have an impact. The Empire manufacturing report due today may generate some optimism as it is expected to improve to 2.20 from -0.55 which would be the first positive reading since April, 2008. Nevertheless, the prevailing pessimism should be supporting factor throughout the day and possible the week.

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