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UK Retail Sales Data Weighs on Pound; Commodity Bloc Outperforming

UK Retail Sales Data Weighs on Pound; Commodity Bloc Outperforming

2011-03-24 11:47:00
Joel Kruger, Technical Strategist
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The Euro has come under some pressure in recent trade with a confluence of events all factoring into the selling of the single currency. The resignation of the Portuguese Prime Minister, a widening of peripheral bond spreads, a downgrade by Moody’s of several Spanish banks, and much weaker Ireland GDP numbers have been the primary drivers of the price action. Nevertheless, the Euro has also found some solid bids on these dips, with reported Middle Eastern and sovereign demand propping the intraday setbacks.

Relative Performance Versus USD Thursday (As of 11:30GMT)

  1. NZD +1.08%
  2. CAD +0.54%
  3. AUD +0.39%
  4. EUR +0.33%
  5. JPY -0.02%
  6. CHF -0.13%
  7. GBP -0.31%

While PMI data out of the Eurozone was on the whole quite mixed and failed to materially factor into price action, the same could not be said about UK data, after the much weaker than expected retail sales result opened the door for a heavy round of selling in the Pound. The UK currency was the hardest hit as a result in European trade and continues to be well offered following Wednesday’s less hawkish than expected Bank of England Minutes. Also seen weighing on the Pound were comments from Moody’s underlying concerns over the UK’s AAA status.

Some currencies however, have been moving in a different direction, with the antipodeans very well bid and actually tracking higher despite any Euro weakness, with surging commodities prices and a rebound in US equities helping to fuel bids on the commodity bloc. The subsequent release of some higher China PMI data along with reassuring comments from the RBA Financial Stability Review helped to keep the Australian Dollar well bid, while a better than expected New Zealand GDP release was seen driving the relative bids in Kiwi. Also seen propping the Australian Dollar were reported positive M&A flows relating to AXA and AMP. The Canadian Dollar has definitely been the marginal laggard in recent sessions on the commodity bloc, but is still outperforming against the other major currencies, on the back of higher oil prices and near record gold prices.

Looking ahead, the key release in North American trade comes in the form of US durable goods orders due at 12:30GMT. On the official circuit, Fed Duke is slated to speak on the topic of money supply. US equity futures and commodities prices are tracking sideways into the European open and consolidate their latest gains. US equity futures and commodities prices are tracking moderately higher into North American trade.

ECONOMIC CALENDAR

Uk_Retail_Sales_Data_Weighs_on_Pound_body_Picture_5.png, UK Retail Sales Data Weighs on Pound; Commodity Bloc Outperforming

TECHNICAL OUTLOOK

Uk_Retail_Sales_Data_Weighs_on_Pound_body_eur.png, UK Retail Sales Data Weighs on Pound; Commodity Bloc Outperforming

EUR/USD: The market has stalled out for now ahead of the key November 2010 highs by 1.4280 and is in the process of a correction. At this point, the pullback can only be classified as short-term corrective weakness and ultimately, only a break back below 1.3750 would be required to negate this structure. In the interim, look for a fresh higher low to carve out somewhere ahead of 1.3800 in favor of the next upside extension towards 1.4280.

Uk_Retail_Sales_Data_Weighs_on_Pound_body_jpy2.png, UK Retail Sales Data Weighs on Pound; Commodity Bloc Outperforming

USD/JPY: The latest violent drop-ff to fresh record lows by 76.35 has been intense, with the market threatening a fresh longer-term downside extension below 80.00. However, given the nature of the move, we would not at this point categorize the downside break as anything significant that alters the medium-term outlook. For now, the sidelines are the best place to be and we will look to see where the market closes this week to gain a clearer perspective. A weekly close below 79.75 might open a retest of the 76.35 spike lows, but any additional declines below 76.00 are seen limited. A weekly close back above 81.20 on the other hand, would take the immediate pressure off of the downside.

Uk_Retail_Sales_Data_Weighs_on_Pound_body_gbp2.png, UK Retail Sales Data Weighs on Pound; Commodity Bloc Outperforming

GBP/USD: The 1.6300 handle continues to be a difficult obstacle for bulls, with the market unable to hold above the figure for any meaningful period of time. As we had warned in the previous daily analysis, the market has once again rejected trading above the figure to set up a bearish reversal day exposing deeper setbacks towards 1.6000 over the coming sessions. Ultimately, only back above 1.6400 delays.

Uk_Retail_Sales_Data_Weighs_on_Pound_body_swiss1.png, UK Retail Sales Data Weighs on Pound; Commodity Bloc Outperforming

USD/CHF: The latest break to fresh record lows below 0.9000 (0.8910) is certainly concerning and threatens our longer-term recovery outlook. Still, we do not see setbacks extending much further and continue to favor the formation of some form of a material base over the coming weeks for an eventual break back above parity. Look for a daily close back above 0.9100 to relieve immediate downside pressure, while back above 0.9370 will officially confirm reversal prospects and accelerate gains. Only a break and weekly close below the recent record spike lows at 0.8910 ultimately delays outlook.

FLOWS

Middle Eastern, hedge fund, real money, semi-official and sovereign demand for Eur/Usd all noted. A UK clearer has led sales in Cable for a second day while a ACB has emerged to buy into dips. Bids by a US prime name seen in Nzd/Usd with momentum types jumping in too.

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Written by Joel Kruger, Technical Currency Strategist

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