Sterling Sinks with Financials Hans Nilsson 2009-03-02

# The dollar gained against most major currencies on Monday amid continuing concerns over the global economic downturn and the solvency of major financial institutions. The dollar index broke its important resistance level, indicating further gains for the USD. Global stock markets plunged with the S&P 500 closing just above the 700 level after AIG reported its largest loss. The yen gained from an oversold position on increased risk aversion. The global economic outlook continued to deteriorate with the eurozone PMI contracting at a record low and the US PMI staying close to last month’s low. US personal income and spending rose more than expected, but income was driven mostly by government income increases or adjustment while consumption may have been overstated by problems related to seasonally adjustments. US construction spending fell more than expected and nonresidential construction outpaced the fall in the residential sector. The euro fell after eurozone leaders failed to agree on an aid package for Eastern European countries. The EUR/USD is likely to test the important 1.24-1.25 support again. The Canadian dollar fell on contracting GDP and slumping oil prices. The Australia dollar fell ahead of the Reserve Bank of Australia’s interest-rate cut decision tonight. The RBA is likely to cut its key rate at least to 3.00%, to revive Australia’s slowing economy.

# The GBP/USD fell as UK house prices dropped the most since at least 2001 and UK’s HSBC said it was looking to raise £12.5 billion in a deeply discounted share sale. The Bank of England will probably cut its benchmark interest rate 50 basis points to a record low 0.50% on March 5 and announced steps to boost the money supply. The GBP/USD is in a downward sloping trading channel and likely to test the January 23 low of 1.3502. There are support at the 1.40 handle and resistance from the upper trading band in the 1.45 area. Meanwhile, the EUR/GBP rose but remained below the 0.90 resistance. The 0.90 is an important resistance as it is both the upper trading band in the downward sloping trading channel and the horizontal resistance. If the 0.90 resistance is broken, the recent downtrend is likely to reverse.

09.03.2009