The current price movement remains constructive for the pound with cable breaking the 1.5637 level – the 50% Fibonacci of the Aug’09 – May ’10. Analysts are expecting further gains in the short-term, after Sterling broke above its 200-day moving average last week. Therefore, a significant break above $1.5836 would trigger a further upward move towards $1.5970, the highest level in almost six months. Services PMI tomorrow will be the key release of the week for the UK – anything printing 55 or above should see the next leg higher in the pound, with potential for this move to see 1.65 now which will become a target point for speculative positions.

Price action with the Euro against virtually all of its counterparts continues to be positive and with the fundamental backdrop with the USD this only indicates a move higher against the USD and in turn the Pound also. Yesterday’s somewhat weaker US data , contrasting with the strong European PMIs being the latest data release has fuelled speculators to take “Long positions” with the Euro which is surpirising considering many analysts still feel the Euro is overvalued on a purchasing parity basis. The break and close above the fib resistance at 1.3125 was very encouraging and it is expected further bullish movement with the Euro is likely.

The euro hit three month highs close to the $1.32 level versus the dollar yesterday, aided by good manufacturing data from the eurozone, as well as a spike in risk appetite on the back of some better than anticipated US data. Against the Pound the Euro continues to hold well at 0.83stg / 1.20.

Looking at price movement across the board the AUD pared losses after the central bank, the RBA, announced that it was holding rates steady at 4.5%, the third consecutive month of no policy change. This was in line with expectations, with the RBA saying in its accompanying statement that policy is appropriate and inflation is close to target. With the recent AUD strength however gains against the commodity sensitive currency will likely to be limited.

If you would like to discuss your requirement with me further do not hesitate to give me a call on my direct line +0044 (0)1736 335264 or email me direct tom.trevorrow@torfx.com

Tom Trevorrow, Currency Analyst at Tor FX