Forex Analysis for GBPUSD 20 August 2009

Forex Technical Analysis

Yesterday’s forex trading pattern for the pounds to dollars pair was dominated by the voting decisions of the MPC which, contrary to expectation (mine included) included the revelation that Mervyn King, the Bank’s Governor, was among a minority of three MPC members who had voted to increase the Bank’s asset purchases by £75bn – a much larger number than anticipated.  Of itself this is not unusual as the Governor has found himself in a minority on previous occasions, but what is troubling the markets is the extent of the QE programme and the fear that the Bank does not have a clear exit strategy, cannot agree what this should and is having difficulty communicating anything to the wider markets.  Despite this set back the pair did bounce back as equity markets held firm and the dollar came under selling pressure from the better than expected crude oil inventory data.  Technically yesterday’s trading session ended with a narrow spread candle but with a deep lower wick which suggests that Sterling bulls are still very much in the market, with the close of the day finding support from the 9 day moving.  Given the depth of the lower shadow it will come as no great surprise to see Sterling make a further attempt to breach the USD1.66 level today which could signal a further attempt at a break out from the current narrow trading range.   My forex trading suggestion for this pair is to look for small long positions on an intra day basis but with an eye to the USD1.66 level which may offer a degree of resistance to any move higher.

Fundamental Forex Analysis

There are three items of fundamental news on the economic calendar for the UK this morning, the first of which is the most important, being retail sales which are forecast to come in at 0.3% against a previous of 1.2% and would suggest that consumer spending is falling once again.  The second item of news, released at the same time, is the Public Sector Net Borrowing which is expected to come in at 0.3bn against a previous of 13bn with some analysts suggesting that in July the UK had a deficit not seen since 1996.  Finally we have the preliminary M4 Money Supply which is forecast at 0.2% against a previous of -0.2% which if correct would suggest that there is more money in the system.    Meanwhile in the US forex traders can look forward to the unemployment claims, Philly Fed Manufacturing Index and the CBI Index this afternoon and should these exceed expectations then this may tempt traders and investors into riskier assets thereby causing yet more pain for the US Dollar.

You can keep up to date with all the latest fundamental news on the economic calendar, latest currency news and live currency charts by simply following the links.  I have also included details on an excellent ECN broker.