Sterling looks shaky on possibility of hung parliament

US Dollar:
The Greenback encountered some selling pressure yesterday but has weakened from its multi month highs against most majors including GBP, EUR, and JPY.  Cable has recovered from its massive drop last week to reach a high of 1.5529 this morning while EUR recovered back to 1.3620 and JPY returned under 91. Market feeling is still very dollar positive and we expect these moves to be a correction/profit taking rather than a reversal of trend. Data is very light in the early part of the week so we are expecting dollar bulls to look to Bernanke monetary policy testimony of Wednesday for fresh ammunition. Event risk today will stem mainly from US consumer confidence released at 3 pm GMT which is forecast to have weakened slightly in FEB
Data—US Consumer Confidence (FEB), Various Case Shiller housing data (DEC/JAN)        
        
Pound:
Sterling had a mixed bag during trade yesterday, gaining a cent on the dollar from Fridays low but trading near its lows against the Euro. GBPEUR traded as low as 1.1340 but recovered to close above 1.1390. The market has been skirting around these levels for the last couple of weeks and a successful break of 1.13 would expose the 2010 low of 1.1090. With concerns over both the UK and certain members of the Euro Zone sovereign debt levels it is difficult to predict who will come off worse so we expect the pair to remain in a relatively tight range for the time being or at least until the debt situation becomes clearer. Another story hurting Sterling yesterday was the possibility of hung parliament at the next general election. Any loss of control would weaken the governing party’s ability to execute wide spread spending cuts and bring our deficit under control. This of course is of concern to the ratings agency's, who asses our ability to repay our debts and ultimately how much is cost s the UK to manage its finances
Data— UK BBA Loans for House Purchases                

Euro:
The Euro recovered some ground yesterday as risk appetite returned in a small way to the market. EURUSD has made a good recovering from last weeks low of 1.3445 and is currently trad-ing at its high of 1.3681. As per our US report we expect this to be a technical correction. Markets are eagerly anticipating a Greece government  bond sale later this week as this will be used to gauge market sentiment on the sovereign debt crisis. The European data docket is overflowing today with the most notable figure being the German IFO index.
Data—French Consumer confidence, consumer spending MoM/YoY GER IFO Index (FEB)             
                           
General:
• Dr Doom advises investors to buy farm land and gold. Dr Faber, who predicted wall street crash of 87 and one of the few to predict subprime, advises investors to buy land and property in the country and precious metals as global meltdown would cause unrest in cities.
• Oil exceeds $80 as strike by French refinery workers in France threatens supply.            
   

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John Paul Georgiou
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