Weak US new home sales data and a slightly downgraded outlook from the US central bank’s FOMC meeting caused US equity markets closing in red.

EURUSD had a 1.2210-1.2340 range overnight, I think EURUSD is going to have a tight range of 1.2245/1.2335 in Asian session as 1.2345/65  resistance holding it firmly. We may have a further drop to 1.2165 to test the daily bullish trend support, despite FOMC leaves additional clues suggesting that the Fed will not be raising rates even as late as January, 2011.

BoE minutes revealing a surprise 7-1 vote to keep the key interest rate unchanged  and no change to the asset purchase programme boosted Sterling while Cable caught market on the wrong foot above 1.4855 and highs printed at 1.4982 this morning.  1.4975/85 area seems to be capping at the moment while supports at 1.4915 and 1.4855.

Good Morning,

The energy sector and home-builders led S&P having a negative sentiment yesterday and on the back of it, currencies moved accordingly. AUD printed the lows at 0.8728 overnight and we touched lower to 0.8702 this morning. EURUSD still remains bid around 1.2245/1.2265 area while the low printed at 1.2251 in NY session. 1.2245/1.2375 would be the day range while Asia may have a 1.2255/1.2295 if anyone looking for a tight range.

The UK Chancellor announced a tough Budget consisting of savage spending cuts and higher taxes with a view to slashing the deficit to just 1.1% of GDP by 2015- 16. On top of cuts already planned by the previous government, an extra £30bn a year of spending cuts over the next fi ve years was announced. On the tax side, an increase in Value Added Tax to 20% in January is expected to raise £13bn per year while CGT is being increased for higher rate tax payers to 28%. There was, however, a surprise cut in Corporation tax to 24% gradually over the next four years (from 28%) to encourage enterprise although this was offset by a bank levy beginning 2011. Growth forecasts were downgraded to 1.2% in 2010, 2.3% in 2011 and 2.8% in 2012.

The direct approach in attempting to curb the deficit has so far been received well by financial markets while Fitch rating agency welcomed the “strong statement of intent”.

Cable had a range of 1.4690/1.4860 yesterday, still feels like sell on rallies Cable with a stop above 1.4935, targeting 1.44s..

The UK Chancellor will be announcing budget cuts, estimated to total GBP 87bn. In terms of fiscal drag, that is 1.5% off of GDP every year for the next 4 years.  According to market chatters and positioning; two details to pay attention.

1) another bank tax and  2) a hike in the capital gains tax.  Either of these will be negative for GBP.

sell 1.4775 and 1.4885.. stop at 1.4935.. target 1.4435 ?

Due to lack of motivation and personal interests,  I did not publish any posts for a while.

Lets restart the engines and have a good month ahead.

Disappointing US house building data but receiving a lift from industrial production and capacity utilisation led US equity markets closing almost unchanged overnight. King comments put pressure on  Sterling while Spanish newspaper El Economista reported that the IMF/EU/ US Treasury were preparing a €250bn support facility for the country. Of course,  The EU and Spain denied the story.

Cable broke the 1.4755/65 support and a heading down to 1.4685 while a quick Asian squeeze to broken support level is possible. A break tru of 1.4685 confirms the chance of a further drop to 1.4565…

EURUSD on the other hand, completed the first target rally at 1.2345 overnight after the break of 1.2155 on Monday. 1.2275-1.2320 may be our tight range in Asia while 1.2240/1.2350 feels like the day range with buy on dips.

Marvin King comments:

*POUND’S 25% DROP IS SUPPORTING U.K. REBALANCING
*Bank of England key interest rate will probably be raised before bonds are sold in an effort to exit stimulus efforts.
*BoE won’t hesitate to exit stimulus “when necessary,” as the interest rate will likely be the “active instrument” of the exit.

CABLE is sitting at major resistance here 1.5430-40 level.  I am  still extremely bearish for EUR/GBP.. Thus, should we see a EUR S/L rally, be warry of that CABLE level. I believe, if we go 1.5445 bid, it should be flying up into the mid 1.55s quickly. Thus, buckle up, should that happen at any time today.