Weekly Review and Outlook: Sterling Dived in Volatile but Indecisive Markets
Dollar and yen were broadly higher last week on risk aversion as economic data continued to confirm the global economy is entering into recession. However, the overall short term outlook in the forex markets remained rather mixed. Dollar index made a new high at 87.98 but failed to sustain there and retreated back into established range below 87.87. Indeed, looking at the monthly currency heat map, most of the pairs are still kept inside last month’s range with the exception of some Sterling pairs and USD/CHF. Developments in EUR/USD, EUR/JPY, AUD/USD, AUD/JPY argue that these pairs are still bounded in consolidation after last months’ sharp fall. The indecisiveness in forex markets could be attributed to the lack of direction in the stock markets. DOW dived to as low as 7965 but staged a strong rebound before weakening again towards the end of the week. And, the index is still staying in established range of 7884 and 9785 as consolidation continued. Gold is still bounded between 681 and 778. Crude oil, on the other hand extended the down trend to below 55.

Sterling is noticeably the weakest currency as BoE Quarterly Inflation Report released last week affirmed markets’ expectation that the upcoming path of rate cut is still steep. In particular EUR/GBP rode on broad based weakness in the pound and surged to new record high of 0.8660. In spite of confirmation of recession in the Eurozone by another quarter of contraction in GDP, Euro was supported by cross buying in EUR/GBP and stayed in range against the greenback and yen .
by ActionForex