Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Sterling Euro Suggests Further Sterling Weakness

Currencies / British Pound Apr 01, 2011 - 04:52 AM GMT

By: Seven_Days_Ahead

Currencies

Best Financial Markets Analysis ArticleThe outlook for Sterling against the other major currencies seems more or less unchanged - except against the Euro.


The Technical Trader’s view:

WEEKLY  CHART

The big picture is of the completion of a bull falling wedge that has formed since the beginning of 2009.

But fascinatingly, and coincidentally, note the completion of a small Head and Shoulders Reversal – adding greatly to the bull impetus.

Look more closely.

 

DAILY CHART
The simultaneity of the completion of the H&S Reversal is clear.

Note too, the importance of the band 0.8654-8672. Initially, this was resistance overcome and then good support. Indeed, the catalyst for the completion moves.

Expect the Neckline currently at 0.876 to be good support on any pull-back.

The Macro Trader’s view:
The outlook for Sterling against the other major currencies seems more or less unchanged - except against the Euro.

Against both the Dollar and the Yen, Sterling appears to be holding up reasonably well:

  • In the US the fiscal position weighs on the Dollar
  • In Japan the combination of the threat of further G7 currency intervention and the possibility that, away from Japan, the monetary policy cycle is close to turning. The ECB is talking up the need for higher rates and the US QE2 policy is close to completion so the Yen currently looks depressed.

Surprisingly, the Euro has emerged as the strongest of the leading currencies. Although the Sovereign debt crisis continues, with Portugal downgraded recently and at risk of being downgraded again and the Irish Bank crisis still rumbling on, foreign exchange traders are looking beyond these concerns.

They see:

  • The Euro zone economic recovery being powered by a strong Germany.
  • Germany taking the lead in how the Euro zone rescue fund should operate and dictating terms about how debt laden states can access those funds.
  • The ECB becoming increasingly restive about inflation,
  • The chance that Euro zone interest rates will rise as early as April (next week).

In the UK, the Government has taken bold steps to reign in runaway public debt, but risks a serious economic slowdown if the private sector is unable to fill the void created by drastic spending cuts and labour shedding.

But what really undermines Sterling, especially against the Euro, is the poor inflation comparison and the Central Bank response to it.

In the UK inflation never collapsed as frequently forecast by the Bank of England, even though in the Euro zone and US it fell so far deflation wasn’t just a risk but almost a reality. Now UK inflation stands above 4% and policy makers openly suggest it could rise to 5% this year. Compared to the CPI target of 2%, interest rates should already be increasing, but the Bank is nervous.

The majority of policy makers fear that if they tighten policy at the same time the government is implementing draconian spending cuts, the economy could be tipped back into a deep recession. Underpinning their decision to wait and see, is the belief that current inflation is a result of one-off shocks:

  • The VAT increase introduced this year,
  • The depreciation of Sterling during the financial crisis/recession, and
  • The spike in energy and commodity prices.

If they are right, then statistically inflation is set for a sharp fall, but are they blind to current events?

The oil price is still rising and could rise very much further given unrest in the Arab world and new fears about the safety of nuclear power. This is feeding into food costs. Additionally, because of the policy stance in the UK and its great leap into the unknown, Sterling could depreciate further.

In short, the Pound is undermined against the Euro by uncertainty and until it becomes clear, whether or not the current policy mix is working, the Pound looks set to weaken further against a Euro supported by expectations of higher interest rates.

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

6 Critical Money Making Rules