Euro, British Pound Reverse Sharply

By: LiveCharts

The euro and pound have both been in full retreat against the US dollar on Wednesday (August 11). One euro is worth just $1.2845 after trading as high as $1.3226 on Tuesday.  A British pound nets $1.5636 after a $1.589 peak Tuesday.

While the announcement of a $3 billion housing aid package from the Obama Administration might have assisted the dollar’s move on Wednesday, technical resistance and correction appears to be a primary driver of the sharp moves.

The euro faced strong resistance in the $1.32-1.33 level and appears to be facing the possibility of a bigger pullback toward the $1.1875 low from early June. At that point, credit troubles were reaching their sentimental peak in Europe.

The euro had climbed nearly 15 pips in about two months following resolutions of support from Germany and other European Union members.

A lowered economic forecast from the Bank of England helped ignite the pound’s corrective move lower against the dollar. Growth forecasts for 2010 and 2011 were cut by the bank.

Another report on UK consumer confidence from Nationwide showed a 14-month low on consumer sentiment. This shows that leading European economies are still facing similar economic challenges on the road to recovery as is the United States.

The pound has not traded with as much volatility as the euro in the last two months.  However, a firm break of $1.56 support could produce a quick slide toward $1.51-1.52, last seen July 21st.

The pound has been on a strong upward trend since falling to $1.4288 on May 18th. It was a couple weeks later on June 7th that the euro hit its 2010 low against the buck.

A combination of encouraging news in the US (2nd quarter home prices were reported to have increased in most US cities) and renewed concern in Britain contributed to an inevitable correction for the European currencies against the dollar.

The same emotional momentum that carried the pound and euro higher during June and July could produce at least as swift of a reactionary pullback in August.

Neil Kokemuller

LiveCharts.co.uk

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices .

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