Review of FX Markets - 26th February 2010

By Kenneth Broux, Market Economist and Altaz Dagha, Strategist, Corporate Markets

It takes a brave investor to bet against further downside in GBP/G10 crosses following the brutal sell-off and speedy decline through key technical levels over the last three trading sessions.

We remain medium-term USD bulls and GBP bears, but ask whether the lurch lower in EUR/USD is overdone.

The threat of a sharp rebound in the US unemployment rate above 10% in February could result in the unwinding of post discount rate hike USD gains, with the EUR separately standing to benefit from a flawless Greek 10y bond auction and more concrete plans of EU debt guarantees.

Overall, the failure of major equity indices to challenge recent highs, stagnant commodity prices and speculation of tighter monetary conditions in China still warrant a cautious approach towards pro-risk strategies.

With bearish seasonals lurking in March for the JPY, we think the SEK is well positioned within the G10 to extend its stellar performance, supported by hawkish central bank rhetoric and a relative sound fiscal position vis-a-vis other G10 nations.

Shrinking UK/G10 rate differentials and talk of a snap UK general election should keep GBP on the defensive, with the tempo of liquidation increasingly characterising fears of a precipitous GBP rout.

Read more (PDF, 728 kB)

* All charts are sourced to Lloyds TSB Corporate Markets Economic Research, Bloomberg, IMF and Datastream

 


What do you think?

We are interested to hear your thoughts.

We do not publish email address information, this is only to confirm and validate your comments.





Your comments

We are not able to publish all comments submitted. All comments pass through a human review process before being published online.