Ralph Shell @ 1:40 PM, Thursday July 22 2010
Fed President Bernanke's ambivalent assessment of the current US economic recovery may have given a boost, at temporarily, for the euro, but so far the pound traders are unwilling to bet that bad US news is bullish the pound. A recovery rally has, however, lifted the pound from 1.5122 to the current 1.5260, well under the 1.5469 peak from last week.
News that the world cup had given a boost to the British retailer provided some good news this morning when the retail sales were 0.7% up ahead of the +0.5 forecast. Tomorrow we will get the preliminary q/q GDP estimate, the current guess being a positive 0.6%.
The US economic news continues dreary. Initial unemployment claims came in worse than expected 464k higher than the 449k estimated and the 427k in the previous week. The estimate of home sales did surpass the reduced expectations, but with the federal tax credit expired, purchases of existing homes are expected to fall.
Earlier in the week it week it was reported that the UK budgetary deficit was £14.5B, more that the anticipated £13.2B, indicating the higher taxes and spending cuts have yet to commence cutting the deficit. In the US next week, there will be a bi-weekly auction as the US Treasury will sell $104B composed of 38B 2 year, 37B 5 year and 29B 7 year. With rates at the short end of the yield curve near record lows, it is always amazing how easily the Treasury can peddle all these notes. Contrast this to the Germans were only able to sell 95% of the €4.0B 10 year offering earlier this week.
This week PM David Cameron received a warm welcome at the Washington White House. We wonder if President Obama discussed with the PM his Big Society Bank concept. Under this plan surplus or unclaimed bank funds will be allocated to help the poor and the needy. What would be next? Tapping the $2T of undistributed US corporate profits?
During the pound's rally which began mid May, the upward channels has been well defined, often clinging to the top Bollinger band. The MACD has given us a bearish cross over, somewhat indecisive, but a crossover never the less. Our guess is the GBP/USD is a short, but we are going to wait a day or two to watch developments.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.