Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Sterling Euro Suggests Further Sterling Weakness

Currencies / British Pound Apr 01, 2011 - 04:52 AM GMT

By: Seven_Days_Ahead

Currencies

Best Financial Markets Analysis ArticleThe outlook for Sterling against the other major currencies seems more or less unchanged - except against the Euro.


The Technical Trader’s view:

WEEKLY  CHART

The big picture is of the completion of a bull falling wedge that has formed since the beginning of 2009.

But fascinatingly, and coincidentally, note the completion of a small Head and Shoulders Reversal – adding greatly to the bull impetus.

Look more closely.

 

DAILY CHART
The simultaneity of the completion of the H&S Reversal is clear.

Note too, the importance of the band 0.8654-8672. Initially, this was resistance overcome and then good support. Indeed, the catalyst for the completion moves.

Expect the Neckline currently at 0.876 to be good support on any pull-back.

The Macro Trader’s view:
The outlook for Sterling against the other major currencies seems more or less unchanged - except against the Euro.

Against both the Dollar and the Yen, Sterling appears to be holding up reasonably well:

  • In the US the fiscal position weighs on the Dollar
  • In Japan the combination of the threat of further G7 currency intervention and the possibility that, away from Japan, the monetary policy cycle is close to turning. The ECB is talking up the need for higher rates and the US QE2 policy is close to completion so the Yen currently looks depressed.

Surprisingly, the Euro has emerged as the strongest of the leading currencies. Although the Sovereign debt crisis continues, with Portugal downgraded recently and at risk of being downgraded again and the Irish Bank crisis still rumbling on, foreign exchange traders are looking beyond these concerns.

They see:

  • The Euro zone economic recovery being powered by a strong Germany.
  • Germany taking the lead in how the Euro zone rescue fund should operate and dictating terms about how debt laden states can access those funds.
  • The ECB becoming increasingly restive about inflation,
  • The chance that Euro zone interest rates will rise as early as April (next week).

In the UK, the Government has taken bold steps to reign in runaway public debt, but risks a serious economic slowdown if the private sector is unable to fill the void created by drastic spending cuts and labour shedding.

But what really undermines Sterling, especially against the Euro, is the poor inflation comparison and the Central Bank response to it.

In the UK inflation never collapsed as frequently forecast by the Bank of England, even though in the Euro zone and US it fell so far deflation wasn’t just a risk but almost a reality. Now UK inflation stands above 4% and policy makers openly suggest it could rise to 5% this year. Compared to the CPI target of 2%, interest rates should already be increasing, but the Bank is nervous.

The majority of policy makers fear that if they tighten policy at the same time the government is implementing draconian spending cuts, the economy could be tipped back into a deep recession. Underpinning their decision to wait and see, is the belief that current inflation is a result of one-off shocks:

  • The VAT increase introduced this year,
  • The depreciation of Sterling during the financial crisis/recession, and
  • The spike in energy and commodity prices.

If they are right, then statistically inflation is set for a sharp fall, but are they blind to current events?

The oil price is still rising and could rise very much further given unrest in the Arab world and new fears about the safety of nuclear power. This is feeding into food costs. Additionally, because of the policy stance in the UK and its great leap into the unknown, Sterling could depreciate further.

In short, the Pound is undermined against the Euro by uncertainty and until it becomes clear, whether or not the current policy mix is working, the Pound looks set to weaken further against a Euro supported by expectations of higher interest rates.

Mark Sturdy
John Lewis

Seven Days Ahead
Be sure to sign up for and receive these articles automatically at Market Updates

Mark Sturdy, John Lewis & Philip Allwright, write exclusively for Seven Days Ahead a regulated financial advisor selling professional-level techni44cal and macro analysis and high-performing trade recommendations with detailed risk control for banks, hedge funds, and expert private investors around the world. Check out our subscriptions.

© 2011 Copyright Seven Days Ahead - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Seven Days Ahead Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in