Pound Stems Losses On Mortgage Approvals, Will Dollar Find Support On Declining Durable Goods Orders?

The Pound remain heavy overnight but has seen losses slowed by the mortgage approvals release which showed lending rose to its highest level in fourteen months. Banks gave out 47,584 loans which surpassed median estimates of 47,000 and marked the fifth straight month of improvement.

Talking Points
• Japanese Yen: Under Pressure as Risk Winds Start To Change
• Pound: Mortgage Approvals Rise To 14 Month High
• Euro: Recovery Signs Continue
• US Dollar: Fed Beige Book, Durable Goods Orders On Tap

Pound Losses Stemmed By 14 Month High In Mortgage Approvals, Will Dollar Find Support On Declining Durable Goods Orders?

The Pound remain heavy overnight but has seen losses slowed by the mortgage approvals release which showed lending rose to its highest level in fourteen months. Banks gave out 47,584 loans which surpassed median estimates of 47,000 and marked the fifth straight month of improvement. However, net lending to consumers missed expectations of 0.3 billion with a print of 0.01 billion as banks remain reluctant to part with funds.

The results of the credit report didn’t come as a major surprise as they were inline with the recent BoE lending report which showed an improvement in mortgage lending but that consumers and small businesses continue to face challenges in obtaining necessary funds. Chancellor Alistair Darling took lenders to task stating that hey were not fulfilling their promises and that the government bailout wasn’t an act of charity. Indeed, the investment in the financial institutions limited the scope of stimulus that could be provided making it vital that banks loosen credit standards in order to stimulate growth. Therefore, if conditions don’t improve then we could see the growth outlook for the country dim and the sterling trade lower. The 20-Day SMA continues to provide support at 1.6359, but a break below thee and the converging 50-Day SMA at 1.6313 could lead to a test of 1.6000.

The Euro also traded lower as risk appetite waned, but has continued to find support at 1.4127-38.2% Fibo of 1.3835-1.4305. Today’s economic docket continued to point to signs of a recovery and further bolstered the case for future ECB tightening. French producer prices unexpectedly rose by 0.6% in June versus forecasts of a 0.1% drop. However, we saw the annualized reading dip to -8.7% from -8.5% as upside pressure are still far from appearing. Meanwhile, Italian business confidence rose to 71.7 from 69.8, which was the highest level in eight months. Rising confidence among businesses should translate into a slowdown in job losses and increased capital investment which could lead to the region returning to growth by the end of 2009. Also, the yen has come under pressure which could be a sign of increasing risk appetite as it we saw its strength forecast risk aversion yesterday, which could be Euro bullish despite its risk correlation fading. We are also seeing more Swiss National Bank intervention talk which could weigh on the Franc today.

After finding support throughout Asian trading we are starting to see the dollar give back some of its gains as currency pairs remain anchored in their current ranges. A sharp fall in Chinese stocks helped spark risk aversion flows but we have seen appetite pick up in European trading which has led to the consolidating gains. After setting a new yearly low yesterday, we saw the greenback start to regain its footing as traders were reluctant to become too aggressive with questions remaining over growth going forward. The U.S. durable goods report today will provide some insight into where we stand in the business cycle. The global cyclical indicator is expected to decline by 0.6% after May’s 1.8% gain, ending consecutive months of improved demand fro long lasting goods. We could see a reversal in investment in capital goods which rose 9.5% last month, but continued improvement in the component would be a sign that the outlook is improving and a return to growth could be imminent. The Fed Beige book later in the day will also provide some event risk as we get a closer look into current conditions in each of the federal districts.