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Euro Troubles Mount- Sterling Surges on BoE

Euro Troubles Mount- Sterling Surges on BoE

2011-05-11 14:40:00
Michael Boutros, Technical Strategist
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Euro_Troubles_Mount-_Sterling_Surges_on_BoE_body_Picture_2.png, Euro Troubles Mount- Sterling Surges on BoEEuro_Troubles_Mount-_Sterling_Surges_on_BoE_body_Picture_3.png, Euro Troubles Mount- Sterling Surges on BoEEuro_Troubles_Mount-_Sterling_Surges_on_BoE_body_Picture_4.png, Euro Troubles Mount- Sterling Surges on BoE

The sterling surged overnight after the Bank of England sounded hawkish remarks following the release of its quarterly inflation report. The central bank cited that inflation is expected to be “markedly higher” in the short-term, with “a good chance that inflation will reach 5% later this year and it is more likely than not to remain above the 2% target throughout 2012.” The report lifted prospects for interest rates, with Credit Suisse now pricing in a hike of 43 basis points for the next 12-months despite the bank’s warning that risk to economic growth remains “skewed to the downside.” The pound broke through trend line resistance dating back to May 3rd before encountering ceilings at the 1.65-handle. Relative strength indicates the move may be overbought at these levels and a correction is widely expected within the next few hours. Downside support is eyed at 50% Fibonacci extension taken from the March 29th and April 18th troughs at 1.6410, followed by former trend line resistance, now support, at 1.6350. Resistance holds at the 1.65-figure, with a breech eyeing targets at 1.6540 and the 1.66-handle.

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

1.6297

20-Day SMA

1.6466

10-Day SMA

1.6502

2011 High

1.6740

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

5/12

8:30

MEDIUM

Industrial Production (MoM) (MAR)

0.8%

-1.2%

5/12

8:30

LOW

Industrial Production (YoY) (MAR)

1.1%

2.4%

5/12

8:30

LOW

Manufacturing Production (MoM) (MAR)

0.3%

0.0%

5/12

8:30

LOW

Manufacturing Production (YoY) (MAR)

2.8%

4.9%

Euro_Troubles_Mount-_Sterling_Surges_on_BoE_body_Picture_5.png, Euro Troubles Mount- Sterling Surges on BoEEuro_Troubles_Mount-_Sterling_Surges_on_BoE_body_Picture_6.png, Euro Troubles Mount- Sterling Surges on BoE

The euro was the worst performer overnight, sliding more than 0.7% against the greenback. Concerns over the possibility of Greece needing additional aid, and rumors of a Greek-Euro decoupling continue to weigh on the single currency. Adding to the euro’s wall of worries is the delay of Finland’s parliamentary vote on the EU’s bailout package for Portugal, as the country’s second largest party remained undecided. The pair is expected to drift lower as sovereign debt fears rekindle and risk appetite softens. The euro remains range bound around the long-term 61.8% Fibonacci extension taken from the June 6th and January 10th troughs at 1.4345. A break below trend line support sees subsequent floors t at 1.4250, the 1.42-handle and 1.4150. Topside resistance is eyed at 1.4420, backed by the 1.45-handle and 1.4540.

Key Levels/Indicators

Level/Indicator

Level

50-Day SMA

1.4301

20-Day SMA

1.4560

10-Day SMA

1.4611

2011 High

1.4938

Upcoming Events

Date

GMT

Importance

Release

Expected

Prior

5/12

9:00

LOW

Euro-Zone Industrial Production s.a. (MoM) (MAR)

0.3%

0.4%

5/12

9:00

LOW

Euro-Zone Industrial Production w.d.a. (YoY) (MAR)

6.3%

7.3%

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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