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Tuesday, December 19, 2006

Sterling Outlook (19th December 2006)

Good size Swiss and UK name buying of cable was noted from the European open. The buying was reportedly related to Vodafone's GBP 1.8bn sale of its 25% stake in Swisscom Mobile (FT website). The above-mentioned M&A-related demand, plus the instigation of fresh GBP/JPY carry trades on the back of dovish comments from BoJ Governor Fukui, and squeezed GBP/USD shorts, helped propel sterling to a high of 1.9654.

Today's Asian session range was 1.9467-1.9502. Sterling elicited support circa 1.9600 on its pullback from 1.9654. Sell interest at 1.9600 was sated en route to that high. Sub-1.9600 support points include 1.9582 (yesterday's top), and 1.9523 (yesterday's NY session peak). 1.9654+ resistance levels are located at 1.9665 (last Friday's post-US CPI high), 1.9712 (last Thursday's post-UK retail sales data top), and 1.9730.

Minutes from the December 6/7 MPC meeting will be published at 09:30GMT tomorrow. These are expected to reveal that the UK base rate was held at 5.0% by a 9-0 vote, following November's 25bp hike.

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