eur fundamentals

Euro, British Pound Break Higher - Further Gains Likely

Tuesday, 25 November 2008 21:39:02 GMT  |  Terri Belkas, Currency Strategist

The euro and British pound surged higher on Tuesday, breaking above key resistance points.

More specifically, EUR/USD managed to push above 1.30, a level that has prevented previous recovery attempts in recent weeks. Meanwhile, GBP/USD rallied above the 38.2% fib of 1.6671-1.4557 at 1.5361, which also provided support in the past on October 24, October 27, and November 11. The gains in the euro came despite the fact the final reading of German GDP for the third quarter fell in line with expectations at a rate of 0.5 percent, confirming that Europe’s largest economy is experiencing its worst recession in at least 12 years. Looking ahead to the next 24 hours, the second reading of third quarter UK GDP is anticipated to confirm that the economy is experiencing its worst slowdown since 1990-1991. Indeed, the advanced results showed that GDP fell 0.5 percent in the third quarter from the previous quarter, following a complete stagnation. This deterioration comes as the result of a combination of restrictive monetary policy in the UK through mid-2008 along with the collapse of the housing sector and weakening domestic and foreign demand. If GDP happens to fall more than forecasted, the news could weigh on the British pound as it would add to speculation that the Bank of England will cut rates aggressively next week. However, if the data meets expectations, there may be little reaction in the forex markets, allowing the British pound to continue its ascent toward 1.5850.

Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.

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