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June 2016

Sterling range bound as traders and investors take stock

Published: Friday 10 June 2016

  • Sterling range bound as traders and investors take stock
  • Fitch to review UK sovereign debt rating

A very Happy Birthday to the Duke of Edinburgh. I sincerely hope I look as good at 95...or even make it to 95 for that matter.  
And a whipper-snapper 85 year old is also in the news; I mentioned the fact that George Soros had been lured back into trading because he sees risks to the global economy. He is known for 'talking his book' as they say but his latest comment; that the EU would disintegrate if Britain leaves, could certainly be right. Countries appear to be lining up to hold their own referenda if the Brexit camp wins in the UK and the rise of Euro-scepticism is being increasingly reported. That may serve to explain the narrow and uncertain range that the Sterling – Euro rate is trading within at the moment. However, technically, the pattern of this pair is what is known as a flag or pennant. Please don't glaze over just yet but after a fall in an exchange rate, a pattern like this usually emerges just before the market dives again. If you are a Euro buyer, you may want to cover your short term needs in case that happens. 
Other exchange rates on the move include the Sterling – NZ Dollar rate. After the Reserve Bank of New Zealand left their base rate on hold, this pair dived but found support on a trendline around 2.02 and settled there. This exchange rate is looking very oversold at this level, so a correction of some sort is overdue. NZD sellers beware of the bounce.
The Sterling – US Dollar rate is also 'rangy' as traders try to determine which way to go for safety ahead of the EU referendum. But the USD is also influenced by commodity markets. With oil recovering and talk of gold shooting up as investors flee uncertainty and embrace the intrinsic value of precious metals, the value of the currency that these commodities are traded in (the USD) will tend to weaken. So these opposing pull and push effects are making the USD pretty lethargic. $1.4350 and $1.47 mark the outer reaches of this range.
In a largely dull data diary today; there is an interesting bright spot. The ratings agency, Fitch is due to review its rating of the UK. It's interesting that they would do that ahead of the EU referendum but any downgrade would be very negative for the Pound. An upgrade is unlikely at this stage. 
And yesterday marked the start of the 64th annual Bilderberg Conference to which only 126 people are invited. They are to discuss the world as we know it and conspiracy theorists believe it is the meeting of the Illuminati. If you have read anything by Dan Brown, you'll know all about that. What is true is that those who attend in the early part of their career tend to have a glittering one. Mind you, Chancellor of the Exchequer, George Osborne attended last year and his career might be at a very different stage.

Joey's jump

Joey Essex is doing a parachute jump for charity. It's his first jump, so he's extremely nervous. The instructor calmly explains to him that it's all very easy, "The minute you jump out of the plane, the parachute will open automatically. If for any reason that doesn't happen, there's a personal pull-string on your right hand side and if that fails, there's the emergency pull-string on the left. Once one of those systems has deployed the parachute, just enjoy the ride, remember to bend your knees when you hit the ground and a truck will pick you up and take you back to the hospitality unit."
After explaining it a few more times and defining the word 'deploy' twice, they are finally ready to go.
Joey feels reassured. The Plane climbs to 2,000 feet and he jumps out. Then he starts to worry when the automatic catch doesn't work. He pulls his right hand chord and that jams. So he pulls the left hand one and it comes away from the chute. "Ohmygod", he shouts, "this ain't fair. I bet there ain't no truck there neither."

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: Construction output -3.6% 1.5%
GBP 09:30 UK: Consumer inflation expectations 1.8% 1.8%
CAD 13:30 Canada: Employment change -2.1K 3.1K
CAD 13:30 Canada: Unemployment rate 7.1% 7.1%
USD 15:00 US: Prelim UoM consumer sentiment 94.7 94.1

FX Research by David Johnson
Daily Currency Analysis with Zeta Webber 

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