Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will the British Pound Get Pounded?

Currencies / British Pound Jun 06, 2009 - 08:28 PM GMT

By: Money_and_Markets

Currencies

Best Financial Markets Analysis ArticleBryan Rich writes: When financial markets were on the way down, risk aversion reigned and every investment that was deemed risky crashed. The U.S. dollar and 10-year Treasuries did well as global investors fled to safety.

But for the last three months this trade has been in retracement mode. And the further it has retraced, the more it has fueled optimism in the outlook for a recovery.


Stocks have been rising. Foreign currencies have climbed. Even commodities finally showed some life, and when they did … they bounced strongly. As a result, the U.S. dollar and 10-year Treasuries have been sold.

Wednesday, though, was a key day in the financial markets.

That day may have marked …

The Top in This Aggressive Retracement Period — At Least For the British Pound …

Last year, British shoppers were flocking to the U.S., taking advantage of the pound’s strength.
Last year, British shoppers were flocking to the U.S., taking advantage of the pound’s strength.

Just last year the pound was soaring to all-time highs against the dollar. And UK residents were enjoying their buying power in the States … snapping up U.S. real estate and traveling for shopping sprees in places like New York City.

However, when the financial crisis hit the U.S., it was quickly found that the UK was just as exposed, if not more so. And when it was finally determined that many countries were not “decoupled” from the U.S., but were in fact highly interconnected, the pound and other currencies came tumbling down.

British Pound Daily

Source: Bloomberg

The chart above shows the severity of the pound’s crash. Six years of strength in the pound (versus the dollar) was given back in 14 short months!

But in the last three months the pound has aggressively regained 23 percent of this fall.

As this retracement trade across risky assets turned into a recovery theme for the markets, the policy actions in the UK coincided nicely, beginning to show some effects and glimpses of economic improvement.

Nevertheless, in the face of this strength, the pound has been dealt two harsh blows …

Two weeks ago Standard and Poors downgraded the outlook of the UK’s AAA credit rating. Yet the pound proceeded to rally over 7 percent in the following weeks.

Then a political scandal struck when members of Prime Minister Gordon Brown’s cabinet were exposed for personal spending jaunts with taxpayer money. Yet the pound continued to rally.

Why?

It had very little to do with specific interest in the pound. But it had everything to do with the across-the-board retracement of the collapse in risky assets that took place from mid-2008 to March 2009.

Risk Aversion Trade — Round #2

This week, the wholesale retracement in financial markets reached some very significant inflection points …

The U.S. stock market, which has led this retracement, steadily climbed higher and higher and fed into an optimism that has fed back into the stock market. And when the stock market rises and optimism rises, so does confidence about the economic outlook. And voila, we have green shoots.

But in all likelihood, this feel-good rally has run its course. The U.S. stock market has climbed 42 percent in 13 weeks. What’s more, it has now reached its 200-day moving average AND significant long-term technical resistance.

On Wednesday, a key reversal signal flashed. Now the pound is feeling the heat.
On Wednesday, a key reversal signal flashed. Now the pound is feeling the heat.

When confidence is being manufactured by a rising stock market in simple retracement mode during the worst economic period since the Great Depression … look out below!

If there is one glaring characteristic of this financial market environment, it’s the tight relationship that has developed between markets in global crisis mode.

In other words, when the U.S. stock market runs into a wall, so will practically everything else. You could see this very clearly on Wednesday when sharp sell-offs took place in currencies, commodities and stocks all at the same time.

For currencies, when this rally subsides the biggest gainers are likely to experience the sharpest declines. As for the pound, it’s already feeling the heat.

Take a look at the following chart and you’ll see a clear reversal signal …

British Pound Daily

Source: Bloomberg

I’m seeing the same kind of foretelling technical signals in the Australian dollar, which was the biggest mover among major currencies on the way up.

The Aussie dollar has climbed 31 percent in three months, tracking the U.S. stock market closely all along the way as you can see in the chart below …

S&P 500 and the Australian Dollar

Source: Bloomberg

Bottom line: We could be entering round two of the risk aversion trade. And if we are, you can be sure that all of the negative issues and threats facing economies will come back into the crosshairs.

That could mean major downside for currencies like the British pound and the Aussie dollar.

Regards,

Bryan

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 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