BoE QE Announcement Pushes GBP/USD Spread Betting Market Lower

February 10, 2012 | Posted by Robert

Greece’s announcement that it had reached a debt deal yesterday was greeted with a certain amount of cynicism amongst EU policymakers and spread betting investors. This was particularly truthful as they appeared to offer no real evidence as to the veracity of the claims that a deal had been done.

Last night’s meeting of EU finance ministers adjourned and asked for the following three conditions to be met before they would consider ratifying the deal the Greeks said had been done.

The deal must be ratified by the Greek parliament in Sunday, which Mr Juncker seems to think is pretty much a done deal; however this seems to be a big assumption to make.

The Greeks must also find another €325m of savings in respect of the changes to pensions demanded by the troika, and provide written evidence of said savings.

Lastly EU ministers wanted assurances from Greek leaders on their willingness to implement the deal in full especially with the prospect of an election in April, given the reticence amongst certain parties in Greek politics to support the measures.

It seems that EU policymakers remain concerned that the deal could get unpicked if there is a change in government in April, not an unreasonable assumption to make.

The Eurogroup will then meet again next Wednesday to finalise the deal and authorise the release of any funds.

When all this has been done and the PSI is also agreed, the Eurogroup and the IMF also got its necessary assurances, then the deal would be approved. In short in a hardening of attitude, Greece’s creditors have stated “no disbursement without implementation”.

As if to remind Greece’s politicians of the stakes being played for, finance minister Venizelos said that Greece was at a crossroads and that the country had to make a decision on the euro by 15th February. The decision being whether to stay in the euro or leave!

The announcement that an agreement was close to finalisation was predictably greeted by the Greek trade unions with a call for a 48 hour strike, starting today, while the Greek labour minister resigned in protest.

Certainly the economic data out of Greece yesterday seems to suggest that the economy is imploding with industrial production falling 11.3% and unemployment rate pushing above 20%, and youth unemployment above 45%.

It is also important to remember that the German parliament will also have to vote to release the German contribution to the bailout, an important factor given that the German finance minister wasn’t convinced that the deal as is, was sufficient.

In other European economic data out today German CPI is expected to remain at 2.3% year on year. Meanwhile, the French economy is expected to reverse some of the improvements seen in the November manufacturing and industrial production numbers, with December industrial and manufacturing production expected to slide 0.8% and 1% respectively.

Yesterday’s decision by the Bank of England to pump another £50bn into the UK economy, despite recent improvements in economic data saw the pound slide back and it would appear that concerns about inflation appear to have been dismissed.

Today’s PPI figures for January are expected to continue to show a slowing of inflationary pressures with input prices expected to fall from 8.7% to 6.8%.

In the US, the December trade balance is expected to show further deterioration with a deficit of $48.1bn, higher than November’s $47.8bn.

EURUSD

 
The single currency continues to find support at higher levels but the progress remains slow, and a little strained.

The key level on the upside still remains at the 1.3340 area which is the 100 day MA, while behind that there is also the 1.3435 area which is the 50% retracement area of the same move.

It needs a move back below the 1.3200 area to retarget the twin lows this week at 1.3025/30 area.

Only below 1.3020 retargets 1.2870/80.

GBPUSD

 
In GBP/USD spread betting, the pound continues to hold below the 200 day MA at 1.5938 and could well be building up a head and shoulders reversal on the 4 hour charts with neckline around the 1.5770 area. The right shoulder is still forming so it may not play out.

Only a close above 1.5940 would signal further gains towards 1.6000. That seems unlikely given the rather bearish close yesterday, which suggests a slide back below 1.5780 could well see further losses towards 1.5650.

EURGBP

 
The 0.8340 level acted as support yesterday for a push up beyond the 55 day MA at 0.8390. The key level remains at the recent range highs and the highs so far this year at the 0.8420/30 area. A break could well see 0.8500 quite quickly.

The 0.8340 area needs to break on the downside to signal a return towards the January lows at 0.8220. It would require a break below the September 2010 lows at 0.8200/05, to target the 2010 lows at 0.8065.

USDJPY

 
Having pushed above the 2% level rising US 10 year yields continue to push the US dollar higher towards the 200 day MA at 78.10, which remains the key barrier to a US dollar turnaround towards 80.00 after last month’s failure at that level.

The key support remains above the 76.50 level and expect to see further range trading in the absence of a break above the 200 day MA.

Equity market calls

 
FTSE100 is expected to open 18 points lower at 5,877.

DAX is expected to open 17 points lower at 6,772.

CAC 40 is expected to open 11 points lower at 3,414.

FTSEMib is expected to open 120 points lower at 16,534.

Spread betting carries a high level of risk to your capital and it is possible to lose more than your initial investment. Spread betting may not be suitable for all investors. Ensure you understand the risks involved and seek independent advice if and where necessary.

Forex trading news by Michael Hewson, Analyst, CMC Markets.

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