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Wednesday, October 25, 2006

Sterling Outlook (25th October 2006)

Touted offers at 1.8785 and 1.8800 represent obstacles to GBP/USD pushing its recovery envelope from yesterday's five-day lows just south of 1.8680. Rumoured stops above 1.8800 could spur fresh upward momentum if tripped. Above-figure bull targets include 1.8835 (Monday's top), 1.8859 (last Friday's two-week peak), and 1.8900. Exotic option barriers, carrying a cumulatively estimated GBP 10 million payout, reportedly reside at 1.8900.

1.8770 (yesterday's high) is now a pullback support point. Lower props include 1.8754 (today's Asian session roof), 1.8722 (today's Asian session floor), and 1.8694 (yesterday's NY session base). Yesterday"s hawkish comments from BoE Chief Economist Bean (BoE website) underpin the expectation that the UK base rate will be hiked to 5.0% next month.

Today's key event risk is the 18:15GMT FOMC statement to accompany a forecast "unchanged" US rate verdict. There is speculation that it may be more hawkish than the September 20 statement. US September existing home sales will be revealed at 14:00GMT. Forecast: 6.23 million.

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