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FX Technical Strategy

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Pounds to ounces

Wed, Nov 19 2008, 06:41 GMT
by Lloyds TSB Financial Markets Economic Research Team

Lloyds TSB Financial Markets


Market overview

As volatility remains exceptionally high, the current strategy continues to be cautious and flexible. From a trend perspective, it is suspicious that the euro dollar has failed to extend below 1.2332 given the external opportunities for this to occur (weaker equities, persistently soft commodities). However, the bias for the moment favours this scenario for a test of 1.2135. This could be an important week for this trend. Failure to break lower will encourage some reduction in dollar longs and revert the risk once again for a counter trend retracement. This will happen in a major way at some point, but for the moment, the broader strategy favours the dollar and yen.

The key mover last week was sterling. The break of 1.5270 was a very important signal and hence remains a pivotal level for a sterling recovery. Whilst sterling has rebounded from an oversold position in recent days, a return to 1.45 and 0.8600 is expected against the dollar and euro.


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