Airline passengers are facing massive disruption across the UK after an ash cloud from a volcanic eruption in Iceland grounded planes read more from the BBC website...

The America’s Cup Defender, Alinghi, and its yacht club, the Société Nautique de Genève, today announced the venue for the 33rd America’s Cup in February 2010.

“We are pleased to announce that Ras Al Khaimah, in the United Arab Emirates, will be the Host Country for the 33rd America’s Cup,” said Fred Meyer, Vice-Commodore of the Société Nautique de Genève (SNG). “This is a venue that offers perfect weather and great sailing conditions for a Match in February; the authorities have shown tremendous interest in, and support for, hosting the America’s Cup; and the country has experience in organising first-class sporting events such as ATP tennis, PGA golf and Formula One. They will make a purpose-built island available at the Al Hamra Village in Ras al-Khaimah to provide the America’s Cup teams, sponsors and fans with an outstanding venue.”

Having won the 32nd America’s Cup in 2007 in Valencia with its yacht racing team Alinghi, the SNG is granted the right to choose the venue for the next America’s Cup which is scheduled to start on 8 February 2010. (source: 33rd.americascup.com)

Last week's price action represents a setback in sterling's recent recovery. However, despite the renewed "doom and gloom" reporting in the media following last week's worse than expected GDP figures, the technical outlook suggests that the uptrend may not be over quite yet.

The first estimate of first quarter GDP was - 1.9%. Last week's revision put that figure at an even worse than expected - 2.4%, sending the pound justifiably lower. It hasn't developed into the kind of sell off we were seeing last year though, and since the big figure emerged we've drifted back towards an old familiar level, 1.1575 (February's high). The market is now looking towards this week's Bank of England meeting with some trepidation, with expectations that the previously announced quantitative easing measures will be expanded from £150bn to £175bn, while interest rates are widely expected to remain on hold at 0.5%. The increase in QE is perceived as a short term negative for the pound.

This setback is not good news, and there could be more downside in the short term, but in the longer term the uptrend is still intact, and it would take a break below 1.1280 (the June low) to really call the recovery into question. Clients with Euro requirements should strongly consider covering at least half now, while we are still trading close to the recent highs.

Market Update - GBP EUR

The latest economic data from the UK suggests we may be in the midst of an economic recovery, anaemic yes, but indicators are moving in the right direction. Manufacturing was slightly ahead in April, and the pace of house price decline slowed again. Not much to celebrate in itself, but Sterling has already decided things are getting better, rising to new highs against the Euro last week, and making further progress yesterday. It's quite typical of currency markets to accurately predict economic turning points well in advance of the data. Markets are an effective voting machine, weighing up the opinions and actions of millions of people in real time, and lately, most people have held the opinion that things are bad, but that the pound has been unfairly punished. That sparked the beginning of a Sterling revival from New Year onwards, and that recovery is now starting to accelerate as little pieces of positive data start to confirm what we already suspected, not just that the outlook for sterling isn't as dire as we thought last year, but more importantly that the Euro deserves a basing too. A dire industrial production figure and a credit rating downgrade for Ireland gave us the required ammunition last week. Thank you Ireland !

In recent reports we've talked about the crucial technical resistance at 1.1575, which has now been overcome. This gives us room for increased optimism considering there are no new barriers until 1.2150. A rally to that level or above would certainly get many Brits back in the foreign holiday mood

EXCELLENT TIME TO BUY EUROS June’s edition of the European Central Bank Monthly Report is the only item of significance on the economic calendar for the upcoming session. The document is unlikely to offer much by way of new insight beyond what was revealed at the last monetary policy meeting. Other factors may stir Euro volatility however, as a proposed EU-wide financial regulation scheme threatens to stoke a backlash against the ECB while a currency crisis continues to loom in Latvia, warning of potential contagion. A failed bond auction has seen the Balkan country scramble to cobble together an IMF-backed rescue package to avoid a massive depreciation of the local currency. Western European banks are heavily invested in Latvia as well as neighboring Lithuania and Estonia; if the currency collapses, the value of Western European investments in the region will go with it, putting intense strain on lenders already battered by losses from the subprime crisis. Needless to say, such a scenario could weigh heavily on the Euro as traders seek to distance themselves from the turmoil.

The Euro looks increasingly vulnerable however many traders will be taking profits from the "highs" we have seen, which at present is the highest level we have seen (GBP/EUR) all year, althought there is positive momentum in the markets a technical correction will limit further upside movement over the coming days so buyers are advised to take advantage.

A widely expected "no change" vote from both the Bank of England and the European Central Bank was overshadowed last week by political upheaval in the UK. Rumours of Gordon Brown's imminent resignation, or of a general election were quickly dismissed by Downing Street, but the mere suggestion left the pound reeling. The markets couldn't decide whether the prospect of the current PM and chancellor staying put was a good thing or not, and instead focused on the uncertainty created by the furore. Markets detest uncertainly, and at a time when clear and consistent action is required to combat the recession, the economic implications of a change of chancellor are damaging market confidence, leading most analysts to believe that no change would be a good thing right now. Sterling took a pounding on Wednesday, things got even worse on Thursday, but we did manage to gain a foothold at 1.13 on Friday. The good news from the real economy last week was further confirmation from that inflation expectations are falling, allowing the BoE more scope to keep interest rates low in the near term.

The technical outlook is disappointing. We managed to close above the February high at 1.1575 last Monday, which should have signalled a clear "breakout" and a run higher; but the dramatic failure here and subsequent sell off leaves a dark cloud hanging over this market. We need to recapture the 1.1575 in order to negate this bearish omen, so clients with Euro requirements should strongly consider covering at least half now, while we are still trading close to six month highs.

Sterling rallied to a fresh yearly high against the Euro and USD during trading yesterday afternoon -

Sterling managed to trade above 1.6400 against the USD for the first time since November 5th 2008, while the UK currency also broke through key resistance level at 1.1574 versus the Euro to record the highest level this year. Gilts also declined amid further evidence that manufacturing and the housing market is showing signs of recovery.

According to recent reports from Hometrack Ltd, U.K. house prices stopped falling in May for the first time in almost two years, adding to recent data from the Nationwide Building Society that the property market slump is beginning to ease.

 

Average prices in England and Wales held steady during the month of May at £155,000, after declining 0.3% in April. Home values have dropped 9.6% over the past year but the Bank of England's aggressive easing of monetary policy seems to be slowly lifting the economy out of the worst slump in at least thirty years.

 

Although the outcome of the reports provides some optimism that the UK economy is through the worst of the recession, Richard Donnell, director of research at Hometrack Ltd, said in a statement that "the outlook for the economy remains far from certain. It is too early to rule out future price falls." Other economic indicators are also suggesting that the recession may be past its worse phase.

 

The main focus in terms of economic data this week falls on the Bank of England and European central bank interested rate meetings on Thursday afternoon.

 

The Bank of England are widely expected to keep interest rates unchanged at a record low of 0.5% and continue a £125 billion asset insurance program to assist in the recovery.

 

Former Bank of England policy maker David Blanchflower confirmed in a statement yesterday that he still sees "risks to the downside" in the U.K. economy and sighted unemployment as the chief concern. Blanchflower warned that there is likely to be "big increases" in unemployment this year with jobless claims set to soar by an average of 100,000 a month "for the next year or so".

 

Blanchflower also mentioned that it was too early to gauge whether the Bank of England's aggressive policies are helping counter the worst recession in a generation.

 

Blanchflower spoke the day after he stepped down from a three-year term on the Bank's monetary policy committee, where he predicted as early as November 2007 that the UK faced a recession - well before his esteemed colleagues. However, his comments yesterday did little to curtail the Pound's momentum, as the UK currency continued to advance against the majority of the 16-most actively traded currencies.

News Letter June 2009

GBP/USD GBP/EUR

The Pound declined against the Euro yesterday, ending a two-day advance, while the UK currency also found strong support around $1.5850 versus the U.S Dollar, after outgoing Bank of England policy maker David Blanchflower said that he doubted whether the UK economy would grow this year or next. Blachflower's pessimistic outlook for the economy has poured scorn on suggestions that we're through the worst of the recession.