Dumb And Dumber

Tyler Durden's picture

From Nic Lenoir of ICAP

As the competition as to who will print the most money & debt to manufacture artificial growth rage, the US and the UK seem to be our two finalists. China was disqualified as the lack of transparency makes it difficult to quantify how much public spending is done in order to pump GDP numbers, though we do not doubt they try thir very best.

All jokes aside, that's why the USD and the GBP have been generally the butt of the FX markets. Whether these currencies continue to weaken against the rest of the space, especially in the case of the USD, relies on what gives first: money creation or capital markets. As long as the markets don't force governments to stop, or a catalyst triggers a return to risk aversion, the ramp up will continue in equities as liquidity keeps pouring into the markets courtesy of the governments until the bubble levels become unreachable. Personally I would prefer the bubble to burst before it's too damaging but it's probably wishful thinking.

For those however who don't really want to call the end of the bubble and get too direcional, you can try investing in relative value between the two biggest printers of cash: the US and the UK. On the daily chart we see bearish divergence in RSI, but the RSI has actually retraced considerably from the highs, and at this point it could be a breather before a run up in GBPUSD. The 50 day moving average which has been a fitting envelop of recent moves has caught up with prices and we are currently consolidating before a break-out either way. There is a very clear H&S pattern with the neckline coming in at 1.6150 which we failed to break yesterday. Zooming, we see that we have a morning star pattern on the daily candlesticks right on the neckline of the H&S. Taking a step back and looking at weekly chart, we see that we are getting close to a strong resistance in RSI though. Elements are conflicting which shows that the market is having a hard time picking the worst horse to bet on. Given the stron H&S signal we would think short term GBPUSD should rally to maybe retets the intermediate resistance at 1.6740/1.6750, but bigger picture we conserve for now a bearish preference.

Good luck trading,

Nic