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

Can Sterling’s Strength Continue?

Currencies / British Pound Jan 21, 2011 - 04:31 AM GMT

By: Seven_Days_Ahead

Currencies

Best Financial Markets Analysis ArticleWe have argued over recent months in the Macro Trader’s guide that Sterling was oversold during the financial crisis and subsequent recession. We judged the UK economy fared no better or worse than most other leading developed economies.



MONTHLY  CHART

The wide context of cable is clear and well-structured: within the immediate trading range of 1.36-1.70 a triangle has formed – look closer.

WEEKLY CHART
Of course, Triangles are typically continuation patterns, in this case a bear continuation pattern…

But not always and the close approach to the upper falling diagonal boundary (currently at 1.6170) is intriguing.
As is the possibility that that diagonal might be regarded as the Neckline of a bull Head and Shoulders pattern. The slope of the neckline is a weakness of this interpretation, but if 1.6170 were overcome a completed bull H&S would be plausible.
Look closer still.  

DAILY CHART

There is no clear short-term source of bull impetus at work here.

Certainly the market’s strength in overcoming the prior Low resistance at 1.5846 was impressive.

But there is no driving pattern behind the bull trend - yet trends can continue with their own internal logic. If it does then an assault on the diagonal + and Prior High at 1.6298 must follow - with the exciting bull implications from the week chart.  

The Macro Trader’s view:
We have argued over recent months in the Macro Trader’s guide that Sterling was oversold during the financial crisis and subsequent recession. We judged the UK economy fared no better or worse than most other leading developed economies.

What seemed to rattle investors most about the UK wasn’t the actual Debt-to-GDP ratio or even the Deficit-to-GDP ratio that emerged as a result of the recession, but rather the speed and degree of deterioration compared to the UK’s peers.

Now though, the UK has taken some harsh and difficult steps to cut both the budget deficit, structural deficit and control the national debt. The worry is the measures adopted might prove too strong a medicine for the economy to handle and risk falling back into recession.

This fear is a potential negative for the Pound, but right now Sterling is enjoying a period of relative strength against the Dollar and to a degree the Euro. There are several reasons for this, some are domestic others are not. The main reasons though are;

  • The level of UK inflation over the last 2 years has or so proved consistently worse than the Bank of England’s quarterly inflation report forecast,
  • UK Interest rates are now forecast by independent analysts to rise this year to control inflation despite fears of a potential economic slowdown,
  • US interest rates look set to remain low for an extended period as the Fed tries to nurture the US economy back to health,
  • US public spending is still running at the crisis levels previously seen in the UK, with a budget deficit to GDP ratio around 10 - 12% and a debt to GDP ratio fast approaching 100% and in the absence of a policy change, won’t stop there,
  • US inflation is running at very low levels and looks contained leaving the Fed free from pressure to tighten policy.

So does this mean the Pound is already clawing back the losses it previously suffered on the way back to a more realistic level? One that reflects Sterling’s purchasing parity (about 1.7000 -1.7500) or is this rally a false dawn and if so why?

While we would like nothing more than to be able to proclaim a new bull trend is in place for Cable, we feel unable to do so. While there are very real concerns about the short term path of inflation, which is currently forecast by independent analysts to rise to between 4% – 5%, we judge the factors behind the run up are either one-offs like the VAT hike or are a result of higher energy and food costs which originate abroad and cannot be easily controlled within the UK economy simply by hiking rates.

We also hold the view that the economy will slow this year. Unemployment is forecast to rise by around 250k. The government hopes the private sector can absorb most of the public sector workers displaced as a result of the spending cuts, but so far there is scant evidence for this.

Our current view of Cable is that the Pound isn’t yet sufficiently free from uncertainty to allow it to fully recover. Until there is greater clarity about the economy’s ability to weather the current fiscal retrenchment, we judge the Pound is likely to suffer a correction lower, before the big rally begins, so the recent high may be it for a while.

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

© 2005-2019 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