ForexLive European Morning Wrap: Sterling crushed

• Prudential PLC agrees to buy AIA for $35.5 bln
• Spain’s Economy Minister: Euro zone will not just stand by if a member is in trouble
• Shanghai share index ends up 1.2%, highest close in 5 weeks
• Eurogroup’s Juncker: Would act against market speculation if it ignores Greek reform efforts -Handelsblatt
• EU’s Rehn: Had very fruitful exchange of views with Greek FinMin. Sure “ we can overcome” this formidable crisis together
• Greek PM: Greece fiscal crisis is only tip of the iceberg, has reached dramatic dimensions
• German govt spokeswoman: No new developments on issue of aid for Greece. Ball in Greece’s court. No aid to Greece to be factored into German 2010 budget
• Ukraine parliament to hold vote of no confidence in government of PM Tymoshenko on Wednesday
• Swiss February PMI 57.4, better than median forecast 56.0
• Euro zone final February manufacturing PMI 54.2, up fractionally from 54.1 flash, 30 month high
• UK February manufacturing PMI 56.6, unchanged from upwardly revised 56.6 in January which was strongest read in 15 years
• UK January mortgage approvals 48,198 vs 58,223 in December, well below median forecast of 50,000 and lowest since May 2009

Sterling weakness very much the main feature today. Cable is down at 1.4885 from early 1.5160, EUR/GBP up at .9087 from around .8975.  It was even worse at one stage, with session low 1.4784 seen in cable while EUR/GBP posted .9148 session high. 

Two factors were at play, firstly the announcement confirming Prudential had bought AIG’s Asia life insurance business (AIA) and the weekend poll indicating that we could well be headed for a hung parliament.  Early trading was quite choppy, an early sell-off folllowed by rally to 1.5180/85.  The die was caste though once the Pru announcement hit the wires.

Option barriers were well tipped at 1.5000 but they were easily brushed aside, tripping stops just below. More stops were hit on moves through 1.4940 and 1.4900 and then the coup de grace when 1.4854 (61.8% fibo retracement point 1.3500-1.7044) gave out.  We went from just above 1.4854 to session low 1.4784 and back again in what seemed like the blink of an eye. UK clearers have been active sellers of cable and buyers on EUR/GBP today.

EUR/USD started around 1.3610 and rallied early, aided in no small part by aggressive buying from a US investment house. The rally petered out around 1.3656 and the pairing was already slipping lower when comments from German spokeswoman (see above) helped push the pairing below 1.3600.

However the BIS stepped in buying around 1.3585/90 and looked to have stemmed the bleeding. That is until the collapse in cable which dragged EUR/USD down to 1.3511 before slight recovery to 1.3533 at writing.

USD/JPY touch firmer, at 89.30 from early 89.10.  Basically sidelined. Buy orders tipped 88.80 down to 88.20.  Sell orders 89.40/50. Stops just above.