we can't see a reason why foreign exchange traders would be buying euros before it goes lower.

Foreign Exchange - Pounds Sterling and Euro Exchange Rate Outlook

The US Dollar Exchange Rate had a good day yesterday despite equities stabilizing. The euro rate started the day at 1.2600 and closed the trading day at 1.2541. In the evening, it fell further to 1.2454, although both the Asian session and early European session are seeing it retrace those losses this morning. A 50% retracement would take the euro up to 1.2568. We imagine some traders are watching the 62% Fib level at 1.2594, too. We can draw a resistance line that gives us 1.2610 for the US morning. Instead of expecting these levels to break, we should expect a wall of stops.

Even if the euro exchange rate manages to spend the US day above the new lowest low just established, the hourly trend contains two big downmoves of nearly 100 points each and those are hardly ever reversed - it would take quite a shock to do that. Let’s note that the channel bottom today is 1.2290… and goofy as that may seem, it has a higher probability than an upside breakout over 1.2600 as we can't see a reason why foreign exchange traders would be buying euros before it goes lower.

Sterling is not exactly rising in a robust manner but after making a new low on Monday at 1.3954, is trading sideways in a range around 1.4050. This smells fishy. Tomorrow we expect a rate cut of 50 bp and announcement of the amount and other details of BoE quantitative easing. What if the BoE doesn’t cut but just announces it is buying Gilts? The pound could jump upward, perhaps as far as 1.4500. Remember, currencies get rewarded when central banks do bold and brave things. It all started with a Reserve Bank of Australia cut last fall - the Australian Dollar rose on the news, which normally would be seen as perverse. It’s not perverse in crisis conditions, though.

Besides, the UK keeps reporting fresh data that is either not too bad or beats forecasts, or is actually pretty good.

The dollar/yen rose to 99.49 in Tokyo, nearly the round number 100, reportedly on a political scandal, according to the NKS. An aide to the Democratic Party leader, Mr. Ozawa, was arrested for taking illegal donations. Ozawa is not resigning but in any case, this high-level scandal can stall the government in getting various initiatives rolling to rescue the economy. Considering that Japan has the worst outcomes in all of G7, this is probably correct. Normally, domestic politics don’t much affect the yen. Prime ministers can resign and the yen barely burps. But this time the unpopularity of the Aso government and weariness with government incompetence and bureaucratic nonsense can discourage business and the consumer even more, if that’s possible.

Pounds to US Dollars = 1.4120
Pounds to Euros = 1.1236
Euro to Pounds = 0.8895
Pounds to Australian Dollars = 2.1901

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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