Sterling Spread Betting Markets Look Well Supported
This morning’s statement by the new Office for Budget Responsibility didn’t really produce any surprises on either the growth front, or the deficit front.
While leaving the growth forecast for 2010 unchanged, they took an axe to the previous governments forecasts for 2011 to 2014, which the market never took that seriously in any case, as they were way too optimistic.
The growth projections for 3.25% to 3.75% for 2012 to 2014 were cut to a much more realistic 2.6% to 2.8%.
What it doesn’t do is change the challenges facing the new government in terms of finding the line between cutting the deficit and maintaining growth.
Nevertheless, the measures taken so far have been fairly well received by the markets with gilt yields falling to 3.5% and Sterling continuing to gain ground against a basket of currencies.
Since the volatility around the beginning of May the Pound has settled into making progressively higher levels against currencies like the Euro and the Yen despite the warnings by Fitch last week about the terrible state of the UK’s finances.
Economic data this week could well be supportive, especially if the inflation data continues to remain stubbornly high. Year on year CPI and RPI data, due out tomorrow, is expected to come in at 3.4% and 5% respectively, while Bank of England Monetary Policy committee member Andrew Sentance has suggested that rates may need to rise if inflation remains stubbornly high.
These comments have supported Sterling today ahead of a very busy week of data.
We also have unemployment data on Wednesday, expecting a figure of -20k for May, retail sales on Thursday, (MoM) May at +0.3%, and the public finances, PSNBR for May, on Friday, expecting £18bn, followed by the emergency budget next Tuesday.
The Sterling index looks like it could be about to post a golden cross on the 50 and 200 day moving averages which is a potentially bullish signal. It is important to note that this signal works better in some markets than others. It should not be taken as a significant buy signal as it hasn’t had the same success rate, with respect to Sterling, as with other markets over the last 10 years, like EUR/USD for example.
What it does show, however, is that in the near term Sterling could be starting to build up some form of base for a recovery back towards the 84.00 highs of the middle of last year.
Trend line support from the March lows at 76.10, around 78.00 should also act as a significant level of support.
Against the Euro this Sterling strength is borne out well with the recent break below 18 month lows around £0.8400/20.
While the Euro continues to trade below this key level at £0.8400/20, the level of £0.8165/70 should remain the next target. This level equates to a 50% retracement of the up move from the 2007 lows at £0.6535/40 to the 2008 highs at £0.9800/05.
As for Cable, the key resistance remains around the $1.4780/85 highs which has acted as support in March and April.
A break above the $1.4780/85 area could well signal a test towards $1.5010 which is the downtrend line from the 2010 highs at $1.6455/60.
The current up trend from the lows at $1.4230/40 has trend line support at $1.4380, and while this level holds we can expect to see the Pound continue to make gains towards the $1.5000 area.
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Article approved by CMC Markets. CMC Markets is authorised and regulated in the UK by the Financial Services Authority, registration no. 173730.
Note - Spread Betting carries a high level of risk to your capital and you can lose more than your initial investment, it may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
'Sterling Spread Betting Markets Look Well Supported', Feature by D. Jones, last update: 14-Jun-10
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