Wednesday 28 October 2009

The pound has seen choppy

The pound has seen choppy price action after testing 1.7000 despite a jump in construction activity. The Construction PMI reading rose to 47.0 from 44.5 adding to signs that the economy is stabilizing. Indeed, we saw the manufacturing sector move into expansion which should keep the BoE from adding to their asset purchase program at Thursday policy meeting. The crowd is starting to jump on the sterling bandwagon which could see the GBP/USD look to test 1.7332 the 50.0% Fibo of 2.1168-1.3503, but could see a sharp reversal thereafter.

The dollar started to firm overnight as we are seeing profit taking after yesterday’s rally in equities and commodities but has failed to generate consistent support. Markets appear to be taking a breather ahead of the significant event risk to close the week including European interest rate decisions and US non-farm payrolls. Personal spending and income data today could spark volatility as a dearth of consumer consumption is the dark cloud over a potential recovery. An expected 0.2% increases in personal spending will ease some concerns but the forecasted 1.0% decline in personal income will cast doubt on its sustainability. The concerns remain that the mounting job losses will ultimately lead consumers to continue to retrench which would jeopardize future growth once government spending abates. Although we are expecting Friday’s employment report to show job losses easing to 325K from 467K, the unemployment rate is forecasted to rise to 9.6%.

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