7 May 2008 - 12:46Market Comentary 5/7/08

The pound is correcting sharply after hovering around $2 with no good reason for a very long time. Sure rates are higher now in England but recently they were not and many of the same problems America faces are shared by our cousins overseas.  Now that key support of $1.9650 was cracked this morning it is quite possible to see this pair head towards $191.50. GBP/JPY is also on the ropes and the falling stock market coupled with the bad news from England are helping drive the pair lower. US data came out just as bad as expected with pending home sales sliding another 1% last month. Although the dollar is gaining against the overvalued pound it is weakening against the undervalued yen. The carry trade is unwinding today and stocks are falling also. The same correlation we saw last summer is still intact.