Forex Markets Looking for Direction – Where Do We Sell the Pound?

The euro got an early-morning boost when the German GDP Season Adjusted (Q/Q) came in a tick better than expected at a positive 0.3%.  Most of the other German numbers were negative but the market did not want to focus on the negative.

Looking at all of Europe, Industrial Production fell 0.6% and the economy contracted by 0.2%.  In Greece, where the troika is administering the economic blood-letting, the most recent GDP showed – extended to an annualized number – there will be a negative 6.2%. Since the austerity programs have been introduced to the Greeks, in return for bail-out money, the Greek economy has contracted by over 20%.  Contrary to the IMF projections, the austerity programs results in negative numbers that are consistently worse than forecast.

Other European GDP numbers lagged the positive number from Germany.  The French GDP for the 2nd quarter would result in an unchanged yearly number.  The Italian quarterly number fell to a negative .07% and Spain had a negative 0.4%.  Both Italy and Spain are now in a recession. Yields on Italian and Spanish sovereign debt has been rising as the economies slow.  Last Tuesday week, Italian 2-year notes were yielding 3.51%, and the Spanish 2-year, 4.32%.  In Greece yesterday, they sold €4.06B of 90 day bills which yielded 4.43%.  Contrast this to .27% in the US, .13% in the UK and a negative .04% in Germany for 2-year notes.

Aware the risk is increasing with the Italian and Spanish debt, LCH. Clearnet, the clearinghouse for European debt, Monday raised the margins, and the commissions on existing Italian and Spanish debt; this will make it harder for Italy and Spain to sell their paper.

There were several other meaningful reports yesterday.  The German ZEW Survey of Economic Sentiment fell from a negative 19.3 to a negative 25.5.  Clearly, there are some Germans bearish on the economy.

In the US we got the Retail Sales number, a positive 0.8%.  Coming after two months of negative 0.4% reports, there initially, was some excitement.  After examining the numbers, some of the experts think seasonal adjustments by the Census Bureau resulted in the surprise number.

In Britain, the (Y/Y) CPI was up to 2.6%, higher than the last 2.4% increase and above the Bank of England’s target of 2.0%.  It is doubtful this number will influence the BoE who claims the CPI will come down later in the year.  Looking at the GBPUSD chart, the pound has been gaining against the USD for eight days. 

Our COT Report shows the Specs to be modest shorts in the pound.  We note the MACD has turned higher, a friendly sign.  Should the market clear 1.5760 there should be some short covering but fundamentally we do not see the attraction with a long pound position.  We will be watching for a spot to short the pound for a move back to the 1.55 area.

GBPUSD Daily 14 August 2012, Cash Back Forex Brokers Online

Written by CashBackForex.com