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5 "Tells" that the Stock Markets Are About to Reverse

British Pound GBP Australian Dollar AUD Currency Analysis and Forecast 2010

Currencies / British Pound Mar 02, 2010 - 06:08 PM GMT

By: Nadeem_Walayat

Currencies

Best Financial Markets Analysis ArticleIn response to a number of requests for an analysis of the Australian Dollar, this article seeks to conclude towards a forecast trend for the British Pound against the Australian Dollar for 2010. Thought readers should note that I neither track nor trade this currency cross and nor do I have the time to spend several weeks performing an in depth analysis of the Australian economy, therefore I am instead will relying upon existing analysis of the U.S. Dollar and GBP as a relative guide in terms of currency trends.


U.S. Dollar Bull Market - Current analysis suggests that the U.S. Dollar is in a bull market that targets USD 84.

GBP Bear Trend - The current analysis concludes towards Sterling being short-term oversold and could bounce higher to £/$1.52-53. However any bounce would be temporary as sterling continues to target a break of £/$1.40 which looks set to occur before the end of March. Further out, the technical picture of support at £/$1.40-37 could yet be blasted in a meltdown towards sterling hitting parity with the DOLLAR, never mind the EURO!

Therefore the above implies relative dollar strength and relative sterling weakness that is manifesting in the forex markets.

Aussie Dollar / U.S. Dollar Cross

The trend in the Aussie dollar is very strong, with the most recent price action resembling a corrective pattern. This is as a consequence of a stronger Australian economy and higher interest rates as illustrated by the metals and mining industry. At this point there is no sign of an end to the correction which looks set to continue to correct within the channel indicated. However it does suggest that ultimately the trend should resolve to the upside to target the 98.50 peak.

Aussie Dollar / British Pound Cross

It would not be an exaggeration to say that the British Pound has crashed against the Aussie Dollar given the move from 0.37 to 0.60 or a 60% drop. I am sure holders of Aussie dollars must be drooling over the relative gain in purchasing power in such a short space of time. i.e. for Australians UK houses are now some now 60% cheaper in a little over a year. Which is a manifestation of the Inflation Mega-trend that I have been warning off as nominal house price falls are replaced by real terms house price falls so as to delude home owners that UK house price are rising when they have in fact crashed at a far greater pace than that witnessed during the nominal house price fall period.

Fundamentals - UK's engine for growth was the financial sector that is now crippled for many years. Australia's is the commodities sector that continues to boom. UK has now passed £1 trillion of official debt with another £3+ trillion of unofficial debt in part as a consequence of bailing out the bankrupt banks that Australia never had to do. the UK economy crashed, Australia's just spluttered, UK economy is experiencing an anaemic economic recovery, Australia's is racing ahead. UK interest rates stand at just 0.5%, Australia has just raised rates to stand at 4%.

Technical Analysis - I see nothing on the chart that indicates an imminent reversal to the strong trend, as the up-trend line is expected to contain corrections during 2010. The breakout above 0.58, has triggered a strong Aussie dollar rally that could carry for some more weeks to probably as high as 0.65, however it will likely retrace back to 0.60 later in the year.

Investing - Clearly the long-term trend continues to favour sterling holders diversifying into australian companies such as large miners i.e. BHP Billinton to benefit both from corporate profits AND the currency advantage. For more on how to profit from the inflationary sterling bear market, see the New FREE 100 page Inflation Mega-trend ebook.

Migration - Sterling's collapse strongly favours migration from Australia to the UK and acts as a disincentive for Brit's to migrate to Australia.

Australian House Prices - Just as the crash in sterling is masking the real terms house price falls in the UK, however the strong Aussie dollar trend also suggests that Australian house prices should be heading for a large fall despite the stronger economy, as in real-terms they have become significantly more expensive over he past 12 months. Furthermore a strong currency should have a deflationary impact on the Australian economy as inflation is exported abroad, this also means australian wages should be under pressure and therefore further depress Australian house prices in terms of affordability. So I would conclude that many Australians must be eyeing selling their properties to lock in any gains, as the outlook should be for weakening Australian house prices.

Your inflation mega-trends investing analyst.

Source: http://www.marketoracle.co.uk/Article17611.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

antonio
03 Mar 10, 01:19
Sorry, i will explain

Just to finish up on my earlier point. I live in a small city of 100 thousand, our lord mayor just annouced we are looking at doubling this figure over the next 20 years, and we happen to be one of the most conservative cities i have ever witnessed. Not to mention the large city i just come from, which expects to more than double growth. These happen to be real figures and not made up, i happen to be experiencing this growth.

When a building firm can win a contract to build 10 thousand houses, you need to be on top of whats happening in oz to understand the huge boom that is about to be undertaken in Australia. Its real, its happening now. Like you mentioned, buy Mineral stocks, Cant go wrong, but any stocks really. They are all moving off-shore, and will make a killing over the next 30 years (big 4 banks). Asia is our white knight, and we are on top of it like a pile of bricks.

You dont spend 78 million on a expo building just for fun. The government will turn that into 78 billion return. The government is looking at a population of 35 million, i think this is conservative in this huge continent, i would surgest that 70 million would be more comfitable in this huge land. The smart money is on aussie, you would be a fool not to take it.


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