Pound Rises After Testing Support After U.K. Home Prices Dropped To A Record Low

Daily Forex Fundamentals | Written by DailyFX | Feb 16 09 11:10 GMT |

Talking Points Japanese Yen: Fails At 92.50 Pound: Home Price Fall To Record Low Euro: Finding Support At 1.2700 US Dollar: Markets Closed For President's Day Pound Rises after Testing Support After U.K. Home Prices Dropped To A Record Low The pound would fall to support at 1.4150 after the Rightmove House price index fell to a new annualized record low of -9.1%. Sterling would bounce from the price level rising over 100 bps to over 1.4260. Sterling start the day's trading with a 100 pip decline after the markets priced in the uneventful G-7 summit. The finance ministers and central bankers from the developed nations agreed that the global economy was in a 'severe' downturn and they vowed to do everything they could to stop the problem. However, the lack of a course on how to deal with the problem added to concerns and sparked risk aversion flows. The Confederation of British Industry has lowered its growth forecast for 2009 to -3.3% which would be the biggest contraction in almost 30 years. The inability of the BoE and other central banks to revive the credit markets has accelerated the downturn and prevented the housing market to stabilize which was the root of the problem. The central bank has forecasted more rate cuts and the possibility of quantitative easing. However, most of this may already be prices into the pound which has found solid support at 1.4150. Although, we may see another test of this level as we get closer to the next rate decision, the upside risks may be greater for sterling. The post G-7 fallout would sink the euro to a low of 1.2731 before finding support, but the single currency would only reach as high as 1.2791 before giving back its gains. 1.2700 will be a key level to watch as it has held as support since December 5th,2008, break below could lead to a sharp move lower with a test of 1.2500 likely. Additionally, the 20-Day SMA has remained as staunch resistance and the technical level is on a downward trajectory as it has fallen below 1.300 for the first time since mid December at 1.2948. Now that the ECB has al but assured another rate cut at their March meeting we may see the euro continue to trade heavy. The Yen price action during the overnight session demonstrates the lack of uncertainty in the markets. After a sharp fall to 91.32 the USD/JPY would shoot higher to 92.05. Japan's economy contracted the most since 1974 which added to the dour post G-7 sentiment. However, the pair's rise to 92.05 shows that markets are refraining from becoming too pessimistic with several stimulus packages from all the developed nations about to be unleashed. The President's day holiday should lead to a low volume day of trading as U.S. equity markets will be closed. However, be conscious that on such a day price action is susceptible to volatility as a few large buyers could impact price action. The dollar may continue to be supported by safe haven flows, following the dismal outlook by the G-7 for the global economy. The economic calendar isn't expected to provide any major event risk until Friday's CPI figures which may lead sentiment at the mercy of the broader themes. We could see equity markets rise now that fiscal stimulus plan has passed and trader snake their bets on the potential winners. The spike in risk appetite could weigh on the dollar. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.