Sterling saw seven week highs versus the dollar yesterday at $1.5867 but has failed to hold this level given the general pick up in the USD overnight. This morning sees the release of the CBI distributive trades survey for September, which could show that plans for fiscal tightening are impacting in terms of UK High Street activity. Final Q2 GDP numbers are also due and are expected to confirm the previous growth estimate of 1.2% over the quarter. Markets, however, are more concerned with the outlook for the current quarter, with leading indicators suggesting a sharp fall back in the rate of recovery.

The UK housing market continues to lose momentum as support from supple shortages falls away. According to the Hometrack house price survey, prices were down 0.4% over the month of September, the biggest monthly decline since March 2009. This follows a drop of 0.3% in August reducing the year-on-year growth rate to just 1.0% from 1.5% previously. This is key to fundamental developments with the Pound and is likely to weigh on price movement going forward.

The final reading of the GDP comes out today, but seeing as there should be little change on the previously reported figures the Q2 Current Account numbers will be of more interest. Sterling doesn’t have any friends on the fundamental front, so I am not expecting anything positive out of this. Cable has moved higher on USD woes, and EUR/GBP has topped out on speculation of a large sell order at the month-end. Even with fundamentals where they are, it seems that Cable could be a beneficiary of the fix flows, so I will not get too carried away on the downside, and will buy the dip ahead of 1.5730. 1.6000 remains a big level to the topside.

Looking elsewhere at the commodity sensitive currencies AUD and NZD are trading off their highs after the WSL article last night, with selling of AUD by Japanese Lifer a notable flow. The almost unchanged rally of late is overdue a correction, or at least a period of consolidation and today after the WSJ article we may well get one. Buyers should see dips as opportunities to buy AUD. The AUD should also find support as the market starts to focus on next weeks RBA rate decision. With the market now starting to price in more chance of a rate hike (16 bps now priced in and likely to drift higher) AUD should sind support as the week progresses.

Buyers into any of the 16 most actively traded currencies can contact me direct for a quote on +0044 1736 335264 or email me at tom.trevorrow@torfx.com

Tom Trevorrow

Senior Trader

+0044 1736 335264

tom.trevorrow@torfx.com