By FXEmpire.com

Overnight, UK GFK consumer confidence was reported unchanged at -31, slightly weaker than expected. The impact on sterling trading was limited. Later today, there are no important eco data on the calendar in the UK. So, the focus will be on global issues and on euro side of the story. At least for now, we don’t see any market panic on the S&P downgrade of Spain. However, we cannot imagine that it will help the euro.

So, EUR/GBP might remain under pressure. Last week, the Minutes of the April BoE Meeting pushed EUR/GBP out of the previous range. Several other key support levels are lining up like 0.8143, the August 2010 low and 0.8068 the June 2010 low. EUR/GBP came already close to the first support earlier this week. It could take time for EUR/GBP to break clearly below these high profile levels. Nevertheless, we are encouraged by the recent good performance of sterling and thus keep our EUR/GBP short position.

This morning the BOJ raised the amount of government purchases by 10 Trillion yen and also indicated that it will buy longer-term government bonds. They also intends to buy other, riskier assets

Coming up is the all important US GDP, the main measure of economic activity and growth in the world’s largest economy.

Beware of the potential for the GDP report to join this month’s list of weaker economic data with the U.S. economy forecast to grow at a slower pace from 3.0% in the fourth quarter of 2011 to 2.6% in Q1 2012. Some less optimistic forecasts anticipate an even lower reading of 2.3%, while Moody’s monthly GDP gauge points as low as 1.8%. It would not be surprising to see the pressure mounting on the U.S. dollar on signs of U.S. economic slowdown and elevated QE3 odds.

On Thursday, changes in the EUR/GBP cross rate were very limited. Sterling remained in the drivers’ seat even as the UK data were mixed. EUR/GBP followed again more or less the price pattern of the EUR/USD headline pair. The euro tried a cautious attempt move higher at start of trading in Europe.

However, after two days of risk-on sentiment, investors turned again more cautious. At the current juncture, this is still a slightly negative for the euro. The UK BBA loans for house purchases were weak, but had no impact on trading. The euro and the equity markets lost further ground after much weaker than expected EC confidence indicators. The UK distributive trades were mixed.

In an interview, BOE’s Weale said that the argument from QE was strong now than if the economy had shown growth. However, these headlines had only a limited impact on EUR/GBP trading. On the contrary, the pressure in the EUR/GBP cross rate remained to the downside. After the close of the US markets, S&P downgrade the credit rating of Spain by tow notches to BBB+. EUR/GBP fell to the mid 81 area. So, the recent lows are again within reach.

Originally posted here