Improved risk sentiment over the last 24 hours has helped support the Pound and push the currency higher against both the euro and the dollar as the Pound trades up from its confined ranges only a week ago. This week has seen little activity on the UK domestic front, leaving sterling vulnerable to swings in risk sentiment and the trend in cross trades. Today, though, does see the CBI’s distributive trades survey and markets will be looking to see if this indicates a continuation of the recent firm trend in retail sales.

Yesterday saw more negative US economic data released during the US session opening with both durable goods orders and new home sales disappointing markets – providing an element of risk aversion in the markets. With durable goods orders a solid lead indicator of manufacturing output it looks as if recovery in the manufacturing sector, which had been one of the main factors driving the economy forward, is petering out. Yesterday the GBP/USD cross saw further bearish movement as safe heaven flows into the world reserve currency caused USD strength across the board with GBP/USD down to a low of 1.5373 which will act as support for speculators trading the GBP/USD cross. It is advised US Dollar buyers consider working protective Stops to cover short / medium term requirements, as the GBP/USD is likely to continue its bearish move towards the lower 1.50’s.

Meanwhile, there was more bad news within the housing sector. New home sales fell by 12.4% in July, with June figures also revised downwards. At an annualised rate of just 276,000 units, July sales were at their slowest pace since recordings began in 1963. On top of the poor economic releases coming out of the US (the worlds largest consumer market) and the poor release of yesterdays figures- this only suggests a further contraction and slowdown in the pace of the global economic recovery.

Looking at price movement with the GBP/EUR cross it is evident the pair wants to see a break towards the higher end of its range, as the Pound has held well above 1.21 all week with technical indicators suggesting a possible breakout towards the 2010 high at 1.24. Intra day support sits at 1.2115 with short term resistance at 1.2257 which was the overnight high. The easing in risk aversion as stock markets recovered some poise is also helping the euro. Markets, though, remain very jittery and uncertain with today’s main risk event – the US weekly new jobless claims numbers which could cause some volatility going into this afternoons trading.

Buyers into any of the 16 most actively traded currencies who would like a live trading quotation or clients who simply want to discuss any short / medium term requirement can contact me on my direct line below.

Tom Trevorrow

Senior Trader / Currency Analyst

Tel: +0044 1736 335264

Email: tom.trevorrow@torfx.com