FX Technical Strategy

A day is a long time in the FX markets

Thu, Jul 24 2008, 07:00 GMT
by Lloyds TSB Financial Markets Economic Research Team

Lloyds TSB Financial Markets


Market overview

A day is a long time in the FX markets. Sometimes because nothing is happening and it feels like a week, others because sentiment can turn on a cent. At the start of the week it seemed clear that the dollar was building for another break into lows, but no less than a day later, equities are rallying, gold has dropped (led through platinum) and oil ignored a raft of bullish news to complete an interim top. Soft commodities continue to retrace and all of a sudden the market appears to be in a risk taking mood.

This is evidenced by the break upwards in sterling yen through 213.98, which completed a major reversal pattern. It has also taken the shine off the Australian dollar and although the New zealand dollar looks in worse shape, an extended correction seems likely.

Given the contrary mood at the moment, the formerly strong Eastern European currencies are reversing their gains, mainly against the dollar and sterling at a rate which implies a broader squeeze. In this environment, sterling should be the main beneficiary as sentiment has been so bearish across all currency pairs. This implies the much awaited break-out in euro sterling is not to be, but does point to 2.02 once again for cable.

Published on  Thu, Jul 24 2008, 07:05 GMT

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