Intraday Market Thoughts

Sterling and euro in spotlight ahead of rate meetings

by Ashraf Laidi
May 5, 2011 6:44

Sterling awaits services PMI and rate meeting, euro to focus on ECB press conference, Swiss franc and yen still gain on safety flight as Aussie dollar and precious metals slide.

Central bank rate meetings are set to be the focus of European markets today with the Bank of England expected to leave interest rates unchanged at 0.5%. Forty five minutes later the European Central Bank is expected to leave its interest rates unchanged at 1.25%, after increasing them last month.

Particular attention will be placed on the ECB post-meeting press conference for clues as to the timing of the next ECB rate increase in light of last week's higher than expected 2.8% euro zone flash CPI number. Some commentators have suggested June with respect to the timing of the next hike, something the tone of Trichets press conference may shed some light on.

Before these meetings though we have the small matter of UK April services PMI data which is expected to slip back slightly from March's 57.1 to a reading of 56, however it could spring a surprise on the back of a possible pre Royal Wedding boost to the hotel and restaurant sector.

Certainly the pound could do with a welcome surprise given recent disappointing PMI and housing data over the past couple of days. Cable continues to find support between 1.6430/50 level, but a break below could well target 1.6270 and 55 day MA.

EUR on the other had no such problems, hitting its highest levels since March 2010 against a basket of currencies, solely on the basis of higher yield expectations. The Euro index has run into some resistance however at 114.30, the 61.8% Fibonacci retracement of its 2009 peaks at 121.80 to its lows last year at 102.10. This resistance level could put a short term cap on any potential upside in the short term.

EURUSD finding resistance around 1.4940, with support around 1.4750. A fall below 1.4750 suggesting a deeper correction towards 1.4520. EURGBP finding resistance at 0.9040, with support around 0.8940.

CHF continues to make fresh highs against the US dollar, while the yen could well be pushing back into intervention territory after hitting its highest levels against the US dollar since late March, pushing towards the 79.90 area which is 61.8% retracement of the up move from 76.25 to 85.50. This decline in the US dollar hasnt been helped by a sharp decline in US 10 year bond yields to their lowest levels since the end of March.

Sliding gold, silver and copper prices have seen the Aussie dollar pull back from its recent highs above 1.1000 and last nights Australian retail sales numbers for March suggest that for the moment, rising inflation and prices are starting to crimp consumer demand with the currency sliding back from post float record levels. The Aussie dollar could well slide back to the 1.0670 area which is trend line support from the 29th March lows at 1.0250.

By KM - Staff


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