GBP Powers Higher vs EUR but GBP/USD Exchange Rate Stalls: 26/02

British Pound vs EUR:

1.2024

British Pound vs USD:

1.2532

British Pound vs AUD:

1.9231

British Pound vs CAD:

1.7483

British Pound vs NZD:

2.1478

British Pound vs ZAR:

22.7019

Jean-Pierre Dore at Western Union comments on today's GBP/USD weakness:

"The pound is down slightly against the USD this morning, as month-end USD buyers step in during the NORAM session to square positions, and a large option expiry at 1.6650 underpins the spot market.

"The only release of note today was a second reading of Q4 GDP, which was in line with expectations at 0.7 percent growth from the previous quarter. Look for GBP to find support at the 1.6650 level against the USD."

Roboforex see the GBP/USD correction running yet further:

"Pound continues moving inside descending channel towards level of 1.6580; this movement may be considered as correction. Later, in our opinion, instrument may continue growing up towards level of 1.7000."

According to the latest CBI Growth Indicator, output volumes in the three months to February grew at their fastest pace since records began.

The Growth Indicator provides further evidence that economic momentum has carried through at a healthy pace into the beginning of 2014, as consumer and business confidence continues to build, global growth strengthens and monetary policy remains supportive.

Katja Hall, CBI Chief Policy Director, said:

"The recovery is gaining real momentum with growth in output volumes at the highest since our records began and growth broad-based across manufacturing, retail and service sectors.

"The surge in confidence among firms for the next quarter suggests the recovery will continue to gain traction.

"Looking ahead, strengthening global growth and supportive monetary policy should continue to bolster a broadening and deepening recovery in the UK."

Strong gains being seen in GBP/EUR, the rate is now 0.3 pct higher at 1.2174. The move coincides with an even heftier slump in the EUR/USD rate. Driving the US dollar higher will be a big Surprise in the form of US New Home Sales which rose +9.6% in January vs -3.8% in Dec. In addition we note the EUR/USD sell-off coinciding with sell-off in the S&P.

Camilla Sutton at Scotiabank comments on the waning momentum in GBP/USD following on from today's GDP release:

"Headline GDP was unchanged from the first estimate at 0.7%q/q but slightly weaker at 2.7% on a y/y basis. The softness in private consumption and government spending was offset by strong business investment and export prints. Markets were content to ignore BoE’s Miles’ warning that there are unlikely to be a sudden surge in rate hikes; but that next year might be the right time to enter a tightening cycle.

"GBPUSD short‐term technicals: bullish but like EUR as spot is range bound momentum is fading; still technicals warn that GBP is vulnerable to a test higher. We expect a near‐term test up to the recent high of 1.6823."

Sean Lee at FXWW gives us some behind-the-scenes info as to why GBP is likely to remain capped today:

"There are some large expiries later today at both 1.6600 and 1.6650 which should ensure that cable stays capped for the next session or two. Any big moves away from the expiry level will encourage the holder to start selling in the spot market, if they haven’t done so already. Also the fact that the pair hasn’t rallied strongly despite the reportedly big M&A demand, might curb bullish GBP sentiment.

"That said I’d expect 1.6580 to continue to hold and dips and 1.6750 should be a step too far for the bulls in the short-term."

Another EUR/GBP note, this time from MIG Bank:

"EUR/GBP is grinding lower after Monday's intraday bearish reversal. The breach of the rising channel favours a test of the support at 0.8215. An hourly resistance stands at 0.8267.

"In the longer term, the technical structure remains negative as long as prices remain below the resistance at 0.8350 (13/01/2014 high).

"Monitor the support implied by the 61.8% retracement (of the 2012-2013 rise) at 0.8160. Another key support can be found at 0.8082 (01/01/2013 low)."

"Regarding, EUR/GBP we continue keeping a close eye on the ECB comments and on the EMU February CPI, scheduled for release on Friday. We maintain a sell-on-upticks approach for EUR/GBP in case of return action towards the 0.8350 resistance." - Piet Lammens @ KBC Markets.

Concerning the outlook for the GBP/USD, Ipek Ozkardeskaya at Swissquote Bank says:

"Another resistance stands at 1.6823. Supports can be found at 1.6584 and 1.6426. In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). However, a sustainable move above that level is unlikely in the next few weeks."

"The UK published steady GDP growth data this morning, the price action remained limited in GBP-complex. The Cable eased from 1.6702, while EURGBP shortly spiked to 21-dma. In Europe, the EUR traders remain cautious on the upside, offers remain solid pre-1.3773, stops eyed above. The important downside risk on random dovish ECB comments keep the appetite balanced." - Ipek Ozkardeskaya at Swissquote Research.

UK GDP QOQ (Q4) = 0.7% vs 0.7% expected and 0.7% previous. The ONS also says GDP grew 1.8% in 2013, revised down from 1.9% estimated last month.

But, of note:

U.K. 4Q BUSINESS INVESTMENT RISES 2.4%; UP 8.5% ON YEAR

FutureTechs have this morning issued this buy call on sterling dollar:

Short Term Trend: Bullish

Medium Trend: Bullish

Candlestick Chart says: We bounced from the 38.2% retrace on Monday and haven’t got going to the upside yet but this is our expectation

Profile Charts says: CHVN is 1.6656. Spent very little time below here yesterday.

Summary: 1.6606 is holding, albeit not as cleanly as we’d like.

Trade Idea: Buy above 1.6660, stop at 1.6620, targets 1.6725 and 1.6820. Low Conviction “Keeper”.

Time: 7.08am

A heads up that in one hour's time we get the latest quarterly instalment to the UK GDP series.

Gross Domestic Product (QoQ) (Q4) is predicted to come in at 0.7%, just below a previous reading of 0.8%. Gross Domestic Product (YoY) (Q4) is predicted at 2.8%, above a previous 1.9%.

This note just in from UBS:

"Having unwounded the overextended upside conditions, the pair is regaining strength. There’s potential for more upside to 1.6878. A break above this will open critical resistance at 1.7043. Support is at 1.6584."

Further to the observation made in our preceding post, Kathy Lien at BK Asset Management takes a stab at explaining the GBP/USD turbulence:

"We know that the swings are happening right before the 11am ET / 4pm GMT London fix. A large amount of sterling also needs to be bought to settle the $23.9 billion cash payment that Vodafone shareholders expect to receive on March 4th from their disposal of the company's stake in Verizon but that only explains the immediate recovery and not the sale of the British pound. Some large players could be using the recent strength in the GBP/USD as opportunity to position for a move lower."

A hot topic in FX land at present concerns the volatility seen in GBP/USD. The below hourly graph tells a story of range trading and wild swings:

Here are the key elements of coverage contained in our live reporting of Tuesday's session:

Support at 1.21 proves true for GBP/EUR

Caution urged on GBP vs USD

Lloyds favour medium-term GBP strength

Is Vodafone corporate action driving Sterling demand?