Euro’s latest rebound emerged on stabilizing inter-bank liquidity but without any marked improvement on the sovereign front

Today’s FOMC minutes (18:00 GMT) will reiterate that inflation is the last thing on the minds of the Committee.

London – 14th July 2010

EURGBP may be attempting to break its 4-month losing streak (longest since 1999) but is likely to fail as GBP unleashes a series of bullish econ data and traders begin to see beyond the pessimism of BP. Euro’s latest rebound emerged on stabilizing inter-bank liquidity but without any marked improvement on the sovereign front. Yesterday’s Portugal downgrade by Moody’s was seen merely as another Moody’s catch-up with similar downgrades from Fitch and S&P in May and April respectively. The question remains with Spain’s sovereign outlook, especially as all 3 agencies sticking to their negative outlook. The contrasting inflation picture is another negative for EURGBP, with Eurozone June CPI at 1.4% y/y vs. 3.2% for the UK. The failure of the 0.84 resistance (formerly 2-yr support) is a prominent manifestation of bearishness in the pair. Daily stochastics suggesting prolonged retreat, likely to call up preliminary support at 0.8240, followed by 0.8170-80.

GBPUSD Today’s release of 21K decrease in UK June unemployment and yesterday’s June CPI figures showing the core rate rising to 3.1% from 2.9% have helped GBP across the board, making it the day’s strongest performer. GBPUSD is likely to retest $1.5300-20, which is the 38% retracement of the High/low of Jul’09/May’10 and the 8-month trend line resistance. A break of the trendline would stand ready to test $1.5480-90. Today’s FOMC minutes (18:00 GMT) will reiterate that inflation is the last thing on the minds of the Committee (and less of a concern to the hawkish Robert Lacker), which is in stark contrast to the inflation-noisy MPC. Such contrast to present another boost for GBPUSD in the afternoon US session. GBPCAD Although CAD has emerged strong against USD and JPY on the back of Friday’s stellar June jobs figures, the loonie now faces considerable resistance against these currencies, with USDCAD supported at 1.0270 and CADJPY capped at 86.60. Considering GBP’s upside potentially extending towards $1.5320s, we see room for faster momentum in GBPCAD. The daily stochastics indicate the beginning of a bullish cross-over, suggesting prelim resistance at 1.5880, followed by 1.5990. Further supporting this view would be crude oil’s failure to breach its 200-day MA, currently standing at 77.40.

Ashraf Laidi

CMC Markets Chief Market Strategist