Traders began selling the Sterling overnight following a report that Lloyds Banking Group PLC would withdraw plans to exit the UK govt. asset protection program. Apparently the FSA believes Lloyds needs additional capital to absorb increasing bad debt and to ramp up lending to both commercial and private borrowers over the next year. The negative news not only regenerated risk aversion regarding the Sterling, but spread to the broader financial markets. Most of the G10 slipped agains the dollar in intraday trading after a week-long rally across asset classes. Concerns that central banks are not quite in a position to wind down unconventional monetary policy increase the probabiliy the economic downturn may be longer than expected. While volatility has dropped substantially, the risk of currency headwinds is a potential threat to corporate profits as some pairs who appreciated to pre-crisis levels may retract. The inability of the sterling to return to levels prior to the recession, put a major crimp in UK consumer spending. The number of Britons who travel abroad during holiday dropped from roughly 6,000 in 2007 to 4,030 in 2009. The trend of decreased travel abroad resembles a similar trend in the depreciation in the Sterling against the Euro and dollar. The fall in purchaing power is having an adverse affect on spending behavior, putting additional pressure on the UK govt. to regenerate growth through fiscal and monetary policy changes.

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Today's Key Issues (time in GMT):

  14:00 EUR German PPI Survey: 0.2% vs. Prior -1.5%

16:00 EUR Eurozone Current Account Deficit: Prior -5.3B

 16:30 GBP UK M4 Money Supply: Survey 0.8% vs. Prior 1.5%

The Risk Today:

EurUsd The EurUsd is mostly range trading lower by 20pips to the 1.4721 level off its highs of 1.4767 this week. The current price is pretty consistent with its longer-term moving averages like the 200 day SMAVG which stands at 1.4726. Momentum is even weighted as RSI hold at 56.21 and no major crosses in MACD are present. Psychological support remains is at 1.47, a break below this level may succumb to further downward pressure ahead of the weekend.

GbpUsd GbpUsd continues to sink as the price fell by roughly 80pips through the 1.64 level of support establishing new lows on the week. A move below 1.63 would prompt a deeper selloff, however we do not believe there is enough volume to push pair this low before Friday close. The price decreased 1.9% over the last several days, RSI remains at low levels (36.96).

UsdJpy Price action in the UsdJpy has been very rangebound with a high of 91.64, a low of 90.13, and an average price of 91 over the last three days. The current level of 91.08 is a perfect 61.8% away from its previous high but hooked to the downside after breaching the 76.4% retracement level. We expect mostly sideways trading in intraday trading.

UsdChf The UsdChf is showing some negative trending despite its 14pip increase on the day, it is well off its high of 1.0318 at 1.0296. DMI is fairly neutral with the positive and negative sides at 25 and 26, signalling an overall lack of conviction in the price. Some Major financial institutions are calling for 1.0270 as a target price, but it may difficult for sellers to drive prices lower without extensive volume.

Resistance and Support:

EURUSDGBPUSDUSDJPYUSDCHF
1.4910 1.6745 93.30 1.0700
1.4860 1.6700 92.30 1.0550
1.4800 1.6660 91.80 1.0452
1.4737 1.6538 90.70 1.0314
1.4640 1.6445 90.10 1.0220
1.4560 1.6425 89.90 1.0175
1.4520 1.6365 89.20 1.0135
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot