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WORLD FOREX: Sterling In Focus Ahead Of UK Budget Statement

Date : 12/05/2012 @ 5:31PM
Source : Dow Jones News

WORLD FOREX: Sterling In Focus Ahead Of UK Budget Statement

--Sterling seen falling after the UK budget statement at 1230 GMT

--Dollar firm against major peers

--Polish rate decision ahead, zloty softer

By Eva Szalay

The pound was steady in European trading hours Wednesday ahead of the U.K. Chancellor's Autumn Statement, while the dollar was mostly firmer as disappointing economic data from the euro-zone capped gains in the euro.

After slipping to its weakest level against the euro in six weeks in late Asian trade, the pound firmed slightly against both the single currency and dollar as market participants awaited George Osborne's speech at 1230 GMT, where he is expected to confirm that the U.K. economy is faring less-well than previously anticipated.

Traders expect official economic growth forecasts to be lowered and for Mr. Osborne to indicate that government borrowing targets are likely to be missed, prompting many to justify a negative--or short--bias against the currency.

"I'm happy to be short sterling and I think the market as a whole is doing the same," said a London-based trader at a large U.K. bank.

Even so, the pound held up relatively well in early European trade, shrugging off disappointing services-sector data which suggested the economy might contract again in the fourth quarter, having only just escaped recession.

"We still expect a 0.4% drop [in the fourth quarter], reflecting the combination of weak underlying output and the reversal of the Olympics boost," said research house Capital Economics in a note to investors.

The wider European data slate also brought more economic gloom and reined in the euro after it printed a six-week high against the dollar at $1.3127 in late Asian trade.

Private sector business activity in the euro zone shrank again in November and the services sector purchasing managers' index stood at 46.7 against a first estimate of 45.7.

Spain also sold less government bonds than planned at auction, although yields on the debt continued to inch lower. The auction was the country's penultimate debt sale for this year.

Meanwhile, other data showed Finland dipped into recession as the slowdown in the euro-zone finally caught up with the Nordic economy.

The dollar was also stronger against the Japanese yen after overnight comments from Bank of Japan Vice-Governor Kiyohiko Nishimura reiterated the central bank's willingness to take measures to weaken the yen.

The Polish zloty was in focus in emerging markets ahead of the central bank's rate decision and accompanying statement. Consensus expectations are calling for a 25 basis point rate cut to 4.25%. The zloty traded with a soft tone ahead of the decision.

Minutes from the Hungarian central bank's latest rate setting meeting are due at 1300 GMT, while the Reserve Bank of New Zealand meets to decide on rates at 2000 GMT.

At 1118 GMT, the euro was trading at $1.3085 against the dollar, compared with $1.3095 late Tuesday in New York, according to trading system EBS. The dollar was at Y82.18 against the yen, compared with Y81.90, while the euro was at Y107.55 compared with Y107.25. Meanwhile, the pound was trading at $1.6108 against the dollar, compared with $1.6099 late Tuesday in New York.

The Wall Street Journal Dollar Index, which tracks the dollar against a basket of currencies, was trading at 69.997, compared with 69.911 late Tuesday in New York.

A summary of key levels for chart-watching technical strategists is below:

 
Forex spot:       EUR/USD    USD/JPY    GBP/USD    USD/CHF 
 
Spot 1110 GMT     1.3087     82.19      1.6112     0.9290 
3 Day Trend       Bullish    Range      Bullish    Range 
Weekly Trend      Bullish    Range      Bullish    Bearish 
200 day ma        1.2874     79.55      1.5896     0.9386 
3rd Resistance    1.3172     82.75      1.6217     0.9400 
2nd Resistance    1.3140     82.69      1.6175     0.9341 
1st Resistance    1.3127     82.37      1.6130     0.9300 
Pivot*            1.3083     81.97      1.6106     0.9268 
1st Support       1.3069     82.10      1.6089     0.9241 
2nd Support       1.3044     81.91      1.6050     0.9215 
3rd Support       1.2997     81.71      1.6025     0.9184 
 
 
Forex spot:       EUR/GBP 
 
Spot 1111 GMT     0.8124 
3 Day Trend       Bullish 
Weekly Trend      Bullish 
200 day ma        0.8098 
3rd Resistance    0.8165 
2nd Resistance    0.8151 
1st Resistance    0.8147 
Pivot*            0.8124 
1st Support       0.8120 
2nd Support       0.8101 
3rd Support       0.8060 
 

--Dow Jones Technical Strategist Francis Bray contributed to this story

Write to Eva Szalay at eva.szalay@dowjones.com



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