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Is GBP About To Get Whacked Again
By Nic Lenoir of ICAP
Maybe it is related to the recent situation with Dubai's debt, but in any case we have noticed a lot of economic forecasters point out a risk of sovereign default for an EM or even maybe a G10 country as the wild card for 2010. The anti-fiat currencies pro gold trade has been raging on. Because of its role as leader of the free world and excessive 2009 deficit, the US has been in the eye of the storm. Shorting the USD has also been a popular trade to express discontent towards Washington. However, it is hard to imagine a currency crisis in the US without starting with one in Japan or the UK. GBP has been relatively weak since 2007 compared to the rest of the G10.
We focus on EURGBP today to express the view in sterling. EURGBP has been consolidating and retraced earlier this year from 0.95 to 0.85 after the sharp rally in 2008. The rally resumed in June but October and November have marked a correction. However we feel the rally is about resume. We can see on the weekly chart that we are in the early stages of wave 5 which has a target of 109.49! On a daily chart we can see that the breakdown of 2009's price correction is relatively clean in terms of wave structure as well and it appears the pull-back could be over. The only risk would be potentially if the rally which started mid June is only another X-impulse before another zigzag taking us back to 0.85. Still though, the impulse is currently incomplete, and we have a target of 0.9477 on this move. As indicated on the 60-minute chart, we would wait a pull-back t0 0.8980 to buy and hopefully ride the trade to 0.9477 or more. Overall in 2008 the pair traded in panic and the price action is more reminiscent of a commodity hyperbolic bull move or an EM currency crise. With the 100-dma and 200-dma posting a bullish cross, we have a confirmation that the bigger trend is bullish. Using a stop on a clse below 0.8830, we have a good risk reward ration when buying aound 0.89080.
Good luck trading,
Nic
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Via Minyanville,
http://www.cmavision.com/market-data
Wha happen? I thought everything was fixed! Someone has some 'splaining to do.
I think the dubai issues have the potential to hit the GBP pretty hard. Or at least start something.
Throw in a huge government deficit, an upcoming election between an idiot who has been involved in all the stupid government decisions of the past decade and a p.r. flack lightweight and you get the potential for trouble. I say bring it on!...I have a trip planned for July to the UK and could use a cheaper pound.
"an upcoming election between an idiot who has been involved in all the stupid government decisions of the past decade and a p.r. flack lightweight"
Wait. McCain and Obama are running GB too?
Sorry I think you are wrong on GBP. Goldman are long on GBP in 2011.
The reason is that interest rates will have to go up and money will follow the return as GB needs to raise more funds. The rest of Europe has yet to take thier pain. Euro banks are still hiding losses and I see low interest rates and turmoil in the credit markets.
and against the New Zealnad dollar it makes interesting reading
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100002454/to...
Looks good Nic.
I love the last 5 days in the March contract, perfectly set up for a nice little sell-off.
UK = epic fail. Eurozone will have a decision to make soon...us or them. Likely will be somewhere in between with epic fail Gilt auction plus a few other EM going down like Ukraine.
Nice to see some carnage in equities for a change btw.
Well actually the GBPNZD long recommendation was made by Julian Brigden strategist at Calyon, and "borrowed" without proper credits addressed by GS. I completely agree with the argument against NZD, and indeed the RBNZ has been leaking that expectations are completely overblown in terms of rates. That too by the way was first brought up by Julian who is very well connected.
That being said, I would not look at this trade against the GBP for the reasons I mentionned in my post, and technically unless we fail at 0.9477 we open up a lot of upside for EURGBP.
The QE and stimulus saved the banks and delayed the inevitable pain.
Anyone interested in the weekly chart formation on E/G should also examine the Gold:Oil ratio chart (I use stockcharts.com $GOLD:$WTIC) as the formation is very similar.