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Saturday, May 19, 2007

Sterling Outlook (18th May 2007)

Cable tumbled by over half-a-cent after the 08:30GMT disclosure of April's disappointing UK retail sales numbers. These fell by 0.1% m/m, to stand 4.2% higher on an annualized basis. Retail sales were forecast +0.6% m/m, +4.7% y/y. 1.9705 marks the five-week session low-to-date.

The disappointing UK retail sales figures are bad news for hawks touting a year-end base rate of 6.0 pct. The consensus expectation is that the UK base rate will be hiked by 25bp to 5.75% in August.

Flagged sell stops below 1.9700 could spur fresh downward momentum if tripped. More stops reportedly reside sub-1.9680. 1.9732 (yesterday's low) is now a resistance level. Upper obstacles include 1.9750 and 1.9780.

EUR/GBP rallied to intra-day highs circa 0.6852 after the UK retail sales release. 0.6825 was the pre-data low. Offers are touted at 0.6855/60.

May's preliminary Michigan Sentiment index will be unveiled at 14:00GMT. Forecast: 86.0. Next week's key UK event risk is Wednesday's publication of minutes from the May 9/10 BoE MPC meeting.

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