Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 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