British Pound (GBP) LIVE: Sterling Advances vs EUR in Wake of Falling EZ Inflation Numbers

Updated: The GBP is an underperformer on the first Friday of April. With US Non-FarmGBP exchange rate uptrend Payrolls coming out in support of the commodity dollar complex we are seeing the UK currency suffer against the likes of the AUD, CAD and NZD. The unit is stable against the USD and EUR.

Those hoping for the pound sterling uptrend to re-establish itself will be disappointed. The deterioration in the GBP-CAD uptrend (image at righ) is representative of the malaise being seen by many of the CAD crosses.

Keep in touch with our Live Coverage Here. For the archived material for the day in question please scroll through please scroll down. 

By Rob Samson
Todays Pound Sterling Forecasts

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    15:06: The British pound remains the only currency with a long positioning

    Markets await the latest instalment to the International Monetary Market (IMM) non-commercial positioning data series. It is used to visualise the flow of funds from one currency to another. It is usually viewed as a contrarian indicator when it reaches an extreme in positioning.

    It is interesting to note that last time around, "the British pound was the only currency with a long positioning, as investors see the possibility for a rate hike as early as 2014. Needless to say that the next BoE meeting (6 February) and the quarterly inflation report (12 February) should be crucial for long GBP investors," says a note from Swissquote Bank.

    13:54: House price rises to prompt a BoE interest rate rise

    Bank of America Merrill Lynch say rising house prices will ultimately see the Bank of England take action on interest rates:

    "We think the BoE’s FPC may be able to rein in the housing market only moderately, leaving the onus on interest rates to tighten monetary policy."

    Blaming the Help to Buy scheme for house price rises is simply wrong point out BofA:

    "The BoE suggesting the government curb its Help to Buy schemes might have relatively little impact on the housing market, since they have only accounted for around 30k out of a total circa 800k housing transactions since their introduction last Spring."

    "Raising interest rates – which would help curb the housing market too as an ancillary impact – becomes a valid tool for them to use."

    BofA see the first rate rise in February 2015.

    13:34: ECB to act in face of deflationary pressure

    Euro bulls take note. Markets are increasingly turning to the deflationary environment in the Eurozone and speculation on action at the ECB grows.

    "The trough in inflation remains uncertain. The risk is the tough is lower than expected and a downside surprise gets embedded into weaker inflation expectations. In our opinion, the set of data to emerge over the last month justifies a further easing of the policy stance on 6 February. It is a question of timing. If not February, the easing will be in March, accompanying downwardly revised ECB staff inflation forecasts." - Mark Wall at Deutsche Bank.

    12:45: GBP/USD testing key 1.6450 zone

    "The GBP/USD also ratcheted lower over the last 24 hours, but as of writing, rates are testing key support in the 1.6450 zone. Like its mainland cousin, the pound also carved out a 4hr Doji candle during today’s early European session, and bears may be hesitant to enter new sell trades ahead of the weekend while that support zone holds. On the other hand, a confirmed break below would open the door for a continuation down toward 1.6400 next." - Matt Weller at GFT.

    11:47: EUR/GBP testing falling support

    Analysts at ICN Financial meanwhile predict some relief for the euro ahead:

    "The pair is testing the support of the Falling Wedge at 0.8205 which is the first protection barrier for our general positive expectations, which initially depends on stability above 0.8160. Therefore, the upside move remains in favour waiting for the breach of 0.8285 to confirm the upside move toward 0.8365 then 0.8410."

    11:15: GBPUSD's weakening short-term technical configuratio

    Luc Luyet at MIG Bank:

    "GBP/USD confirmed yesterday a weakening short-term technical configuration by moving below its previous low at 1.6475 (27/01/2014 low). Monitor the test of the support at 1.6451. Another support lies at 1.6396 (see also the rising channel). Hourly resistances are given by 1.6526 and the declining channel (around 1.6569).

    "In the longer term, the break of the major resistance area between 1.6381 (02/01/2013 high) and 1.6466 (10/12/2013 high) favours a bullish bias. However, given the overall overbought conditions, a break of the major resistance at 1.7043 (05/08/2009 high) is unlikely in the next weeks. A key support stands at 1.6305 (25/12/2014 low)."

    10:33: How will the Emerging Market problem be resolved?

    The new meme at present is the Emerging Market 'problem' - we are not at 'crisis' levels yet as markets believe a solution will be found.

    But how will the situation be resolved?

    Reassuringly, Matt Spick - Research Analyst at Deutsche Bank - says he doesn't know:

    "We don’t know how EM imbalances will be resolved. One of the tricky parts about forecasting crises is that the exact mechanism can be different each time. A collapsing currency puts FDI, inflation, and corporate FX mismatches at risk. But defending the currency through increased interest rates threatens loan quality."

    "There are many ways that an emerging market crisis might play out. We see interest rates as a key weapon to fight inflation and currency weakness, but a rising rate cycle brings risks of credit losses.

    "Whether or not there will be an EM shock is up for debate – we don’t pretend to know the answer. That said, it’s be better to be prepared."

    10:29: USD in a win-win situation

    "It appears the greenback is in a win-win situation versus the euro. It is either good US economic data (better than Europe anyway) or the flight to safety where the dollar has also the upper hand. A possible extra is that funds returning from emerging economies in troubles are likely to go into the dollar." - Jonathan Sudaria at Capital Spreads.

    10:15: Eurozone inflation data sends EUR lower

    Eurozone inflation came in below expectations - markets are now factoring in some form of stimulatory tone from the ECB next week to the detriment of the EUR.

    Consumer Price Index (YoY) (Jan) came in at 0.7%, below expectations for 0.9% and below the previous month's 0.8%.

    "A bare UK calendar leaves the door open for some weakness for sterling, especially if eurozone inflation figures provide some upside surprise. With plenty of sterling buyers in the market, it is likely that a poor reading will fuel a move that could potentially drive the GBP/EUR rate through 1.22 once again. A slew of US data will also be released, which leaves the opportunity for further downside in GBP/USD." - Sasha Nugent at Caxton FX.

    09:54: Key levels in EUR/GBP

    Luc Luyet at MIG Bank gives his views on the euro pound rate:

    "EUR/GBP is moving sideways in what looks like a short-term broadening formation. Hourly supports lie at 0.8210 (24/01/2014 low) and 0.8168. Hourly resistances stand at 0.8269 (30/01/2014 high) and 0.8306.

    "In the longer term, the technical structure remains negative as long as prices remain below the resistance at 0.8350 (13/01/2014 high). Monitor the support implied by the 61.8% retracement (of the 2012-2013 rise) at 0.8160. Another key support can be found at 0.8082 (01/01/2013 low."

    09:20: Sterling closing in on key support vs USD

    Despite the relative resilience shown by GBP vs the USD as of late, we could be about to witness a significant breakdown. The following analysis comes courtesy of Craig Erlam at Alpari UK:

    "Sterling is closing in on a key level of support, having been in a short term bearish trend over the last week. So far, this just looks like a textbook retracement and as a result, I still think the pair will continue to push higher in the coming weeks. Confirmation of this should come if the pair fails to break below 1.6435, where the 200-period SMA on the 4-hour chart intersects the 61.8 fib level. Also around this level is the ascending trend line, which dates back to 2 August, making this a significant level of support for the pair.

    "A failure to close below here should prompt a move back towards last weeks highs, around 1.6667, with the next level of resistance after that being 1.6745. In the same way that a failure to break below the trend line would be bullish, a daily close below here could be very bearish, prompting a retest of the descending trend line that the pair broke above, and retested, towards the end of last year." Pound Dollar Outlook

    08:27: Forecasting GBP outperformance in 2014

    More from Lien, this time on the positive forecasts BK Asset Management hold on the British pound:

    "As we said in our 2014 GBP outlook, housing, banking and global growth are the engines of growth for the U.K. economy in 2014. We expect sterling to continue to outperform most of the major currencies including the euro and Japanese Yen.

    "There are no additional U.K. economic reports on the calendar this week but next week's PMI numbers will determine whether sterling has the strength to hit new 2.5 year highs against the dollar and fresh 1 year highs versus the euro."

    08:26: UK housing market underpins the pound sterling

    "The British pound traded lower against the U.S. dollar today but compared to other major currencies, it remains one of the most resilient. Part of that resilience has to do with the overall strength of the housing market and economy. Mortgage approvals rose to 71.6k in December from 70.8k the previous month. This marked the strongest month of mortgage approvals in almost 6 years. Business lending declined but as long as the housing market continues to perform well, the U.K. economy should hold its own." - Kathy Lien at BK Asset Management.

    08:10: Month end fix to benefit the USD at expense of GBP

    The month end fix lies ahead, currencies will move as portfolio managers rebalance existing currency hedges. Barclays tell us what they are predicting:

    "Recent turmoil in major EM countries has weighed on global risk sentiment, putting equity markets in developed countries under pressure. In USD terms, the US equity market has posted the largest decline in market value, while Japan’s bond market outperformed the rest, helped by heightened risk aversion as well as JPY’s appreciation on the month (Figure 1). Given the relative underperformance of US equity markets, our month-end fixing model is showing a strong USD buy signal against EUR and JPY and a modest USD buy signal against GBP, CAD and AUD."

    Overnight Views: Draghi could put an extra bid into the pound sterling

    Jean-Pierre Dore at Western Union:

    "The British pound gave up close to 1 percent to the USD following the Fed decision and weaker-than-expected domestic money supply data that showed a cooling in business investment.

    However, sterling found some support in the 1.6400 region and now traders are looking ahead to next week’s ECB meeting and Bank of England (BoE) meeting, where Draghi is expected to strike a dovish tone which should put a further bid into the pound.

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