GBP/USD Weekly Fundamental Analysis April 16-20, 2012, Forecast

Introduction: While the ranges are wider (and so should stops be), the lines are rather distinctive, especially towards the borders of the long term wide range. This pair makes for good trades, with the new austerity program implemented in the UK, the GBP is moving more on Fundamentals now.

• The interest rate differential between the Bank of England(BoE) and the Federal Reserve
• High yield and attractive growth in the UK drives GBP/USD higher

Analysis and Recommendation:

The GBP/USD is weaker, down 0.2% vs the USD and in line with its EU peers following the release of higher than expected PPI figures. The elevated level of producer price inflation contrasts with BoE policymakers’ concerns of below-target CPI and may limit their ability to provide further easing in the event of a decline in the pace of economic growth.

The GBP ended the week trading at 1.5848 after trying all week to assault the 1.60 price, the pound just has not been able to mount the stenght.

Date	Last	Open	High	Low	Change %
04/13/2012	1.5848	1.5958	1.5970	1.5841	-0.69%
04/12/2012	1.5958	1.5924	1.5985	1.5913	0.21%
04/11/2012	1.5923	1.5853	1.5938	1.5853	0.44%
04/10/2012	1.5854	1.5906	1.5931	1.5810	-0.33%
04/09/2012	1.5906	1.5877	1.5914	1.5836	0.18%

Credit rating agency Standard & Poor’s says Britain has retained its top-notch AAA rating, adding that it regards the country’s economic outlook is stable.

The agency said on Friday that it anticipated Britain would see “relatively modest real GDP growth of about 1.6 per cent between 2012 and 2015?.

Last week’s positives:

-Fed’s Beige Book said the “economy continued to expand at a modest to moderate pace from mid Feb thru late Mar”

-Germany continues its European economic outperformance as exports unexpectedly rise in Feb

-Chinese loan growth in March raises 1.01T yuan, well above estimates of 797.5b and the most since Jan ’11

-Chinese retail sales and IP both up

-US PPI flat m/o/m vs. forecast of up .3% but core rate rises .3% vs. expectations of up .2%

Last week’s negatives:

– Spanish and Italian bond yields jump again, IBEX and MIB stock indexes both fall more than 5% on the week, Spanish CDS at record high and not too far from Hungary

– French business confidence holds at lowest since Sept ’09 and IP and manufacturing production both less than expected

– China’s GDP grows 8.1% in Q1 vs. estimate of 8.4%, Mar CPI up 3.6%

– Initial Jobless Claims rise to 380k, a 10 week high.

– Chinese CPI rate of change in line but index at new record high and continues rising faster than wage growth

– consumer confidence down slightly but components mixed as while Current Conditions fell, the Outlook rose to the highest since Sept ’09,

– The NFIB small business optimism index falls to 4 month low

– Markets searching for some hope of QE from the Feds

Major Economic Events for the past week actual v. forecast

Apr. 09	CNY	Chinese CPI (YoY)	3.6%	3.3%	3.2%
Apr. 10	USD	Fed Chairman Bernanke Speaks
JPY	Interest Rate Decision	0.10%	0.10%	0.10%
JPY	BoJ Press Conference
Apr. 12	CAD	Trade Balance	0.3B	2.0B	2.0B
USD	Trade Balance	-46.0B	-52.0B	-52.5B
USD	Initial Jobless Claims	380K	355K	367K
Apr. 13	CNY	Chinese GDP (YoY)	8.1%	8.3%	8.9%
USD	Core CPI (MoM)	0.2%	0.2%	0.1%

Historical:

Highest: 1.681 USD on 17 Nov 2009.

Average: 1.5807 USD over this period

Economic Highlights of the coming week that affect the Euro, GPB, and the Franc

Apr. 16	08:15	CHF	PPI (MoM)	0.8%
Apr. 17	09:30	GBP	CPI (YoY)	3.4%
10:00	EUR	CPI (YoY)	2.6%
10:00	EUR	Core CPI (YoY)	1.5%
Apr. 18	09:30	GBP	Average Earnings Index +Bonus	1.4%
09:30	GBP	Claimant Count Change	7.2K
Apr. 19	08:30	EUR	Dutch Unemployment Rate	6.00%
Apr. 20	09:00	EUR	German Ifo Business Climate Index	109.8
09:00	EUR	German Current Assessment	117.4
09:00	EUR	German Business Expectations	102.7
09:30	GBP	Retail Sales (MoM)	-0.8%

Economic Highlights of the coming week that affect the US Dollar

Apr. 16	13:30	USD	Core Retail Sales (MoM)	0.6%	0.9%
13:30	USD	Retail Sales (MoM)	0.4%	1.1%
13:30	USD	NY Empire State Manufacturing Index	21.1	20.2
14:00	USD	TIC Net Long-Term Transactions	101.0B
Apr. 17	13:30	USD	Building Permits	0.71M	0.71M
13:30	USD	Housing Starts	0.70M	0.70M
14:15	USD	Industrial Production (MoM)	0.5%

Government Bond Auctions (this week)

Apr 16-30 n/a UK Re-opened 3.75% 2052 Conventional Gilt syndication

Apr 16 09:10 Slovakia Auctions floating rate Nov 2016 & 4.35% Oct 2025 & Bonds

Apr 16 09:10 Norway T-bill auction

Apr 17 08:30 Spain 12 & 18M T-bill auction

Apr 17 09:30 Belgium Auctions 3 & 12M T-bills

Apr 18 09:10 Sweden Nominal bond auction

Apr 18 09:30 Germany Eur 5.0bn 0.25% Mar 2014 Schatz

Apr 18 14:30 Sweden Details T-bill auction on Apr 25

Apr 19 08:30 Spain Obligacion auction

Apr 19 08:50 France BTAN auction

Apr 19 09:30 UK Auctions 0.125% I/L Gilt 2029

Apr 19 09:50 France OATi auction