Intraday Market Thoughts

Sterling under pressure ahead of construction PMI

by Ashraf Laidi
May 4, 2011 8:08

Pound at 6 month lows ahead of usually market-moving Key construction PMI, Portugal agrees bailout terms, Safe haven flows boosts Swiss franc and yen, but gold and silver slide.

Sterling has slid to its lowest levels against a basket of currencies since October last year after yesterdays manufacturing PMI data for April fell short of expectations, to its lowest level for 7 months.

This fall more or less guarantees, if any were needed, that the Bank of England will keep rates unchanged at tomorrows meeting of the MPC committee, as fears about anaemic UK Q2 GDP growth continue to grow. Todays release of April construction PMI is unlikely to change that perception with expectations of a decline to 55.9 from Marchs 56.4 reading.

Even though shop price inflationary pressures continue to remain elevated with food price inflation jumping by 4.7% from 4% the month before, it appears that the central bank will continue to ignore these factors in their deliberations. As a result the pound has slipped back towards its post GDP support level of 1.6430. A break below this support could well target a deeper down move towards 1.6260 and the 55 day MA. Against the euro yesterdays break through the 0.8940 2010 level could well presage further sterling losses towards the 2010 extremes at 0.9150.

As for the single currency it has been somewhat sidelined despite further inflationary data showing that producer prices for March rose by 6.7% year on year, above expectations of 6.6%.

News that Portugal appears to have come to an agreement about its EU/IMF bailout package also helped underpin EUR, with a package of 78bn over three years. EURUSD support stands at around 1.4750/70, a break of which could see 1.4650, while a break above 1.4900 targets 1.5000.

USDX continues to remain under pressure particularly, against the Swiss franc which continues to make record highs on an almost daily basis on safe haven capital flows. US economic data due out later today is not likely to change the story with respect to US dollar weakness with the April ADP employment report due out later this afternoon.

On the other side of the safe haven story weve seen some correction in the recent rises in gold and silver prices, amid reports that some heavyweight investors have been booking profits after the recent hike in CME margins came into effect last night. A fall below $1,500 could prompt further falls in gold towards trend line support at $1,466 from the lows this year at $1,308, while silver could fall towards the 55 day MA at $38.50 if it falls through the $40 mark.

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By KM - Staff


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