Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Squid Game Stock Market 2025 - 5th Jan 25
Stock Market Bubble Drivers, Crypto Exit Strategy During Musk Presidency - 27th Dec 24
Gold Stocks’ Remain Exceptionally Weak Even as Stocks Rise - 27th Dec 24
Gold’s Remarkable Year - 27th Dec 24
Stock Market Rip the Face Off the Bears Rally! - 22nd Dec 24
STOP LOSSES - 22nd Dec 24
Fed Tests Gold Price Upleg - 22nd Dec 24
Stock Market Sentiment Speaks: Why Do We Rely On News - 22nd Dec 24
Never Buy an IPO - 22nd Dec 24
THEY DON'T RING THE BELL AT THE CRPTO MARKET TOP! - 20th Dec 24
CEREBUS IPO NVIDIA KILLER? - 18th Dec 24
Nvidia Stock 5X to 30X - 18th Dec 24
LRCX Stock Split - 18th Dec 24
Stock Market Expected Trend Forecast - 18th Dec 24
Silver’s Evolving Market: Bright Prospects and Lingering Challenges - 18th Dec 24
Extreme Levels of Work-for-Gold Ratio - 18th Dec 24
Tesla $460, Bitcoin $107k, S&P 6080 - The Pump Continues! - 16th Dec 24
Stock Market Risk to the Upside! S&P 7000 Forecast 2025 - 15th Dec 24
Stock Market 2025 Mid Decade Year - 15th Dec 24
Sheffield Christmas Market 2024 Is a Building Site - 15th Dec 24
Got Copper or Gold Miners? Watch Out - 15th Dec 24
Republican vs Democrat Presidents and the Stock Market - 13th Dec 24
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Sterling’s Politics v the U.S. Dollar and the Euro

Currencies / British Pound Dec 11, 2009 - 03:37 AM GMT

By: Seven_Days_Ahead

Currencies

Best Financial Markets Analysis ArticleThe Macro Trader’s view:
This week’s pre-budget report was, broadly speaking, a disappointment. It has been judged broadly fiscal neutral, with all the tough spending decisions deferred until after the General election due by May/June of next year, despite assurances to the contrary by Chancellor Darling.


The headline measure, a punitive tax on Banker’s bonuses, is little more than a populist measure designed to please the Labour party faithful and assuage perceived public outrage over bonuses paid to a group of workers whose firms are only still in business because of a tax payer funded bailout.

Why then, is the Pound not under greater selling pressure? The ratings agencies, Moody’s in particular, have questioned the sustainability of the UK’s AAA sovereign credit rating. The implication is that without a credible deficit reduction plan, the rating could be lost, which would increase the cost of funding the public deficit and make reducing it even harder.

And although Darling claimed in the pre-budget report that the deficit will be halved over the next four years, the statement looks long on aspiration and short on explanation of how it is to be achieved.

In reality, the Chancellor is first and foremost a politician and retaining power is his priority. The ruling Labour party are seriously behind the opposition Conservative party in the opinion polls and look like leaving office after next year’s election.  The pre-budget report was never going to announce any measure that risked upsetting the already slim chance of re-election.

The markets seem to understand this and have decided that the Pound should be given the benefit of the doubt with only 5 or 6 months to go until a new government is elected. If Labour were unexpectedly to win they would raise tax as a means of cutting borrowing with spending cuts taking less of the strain. If the Conservatives win, they have declared that spending cuts will be their main route to cutting the deficit back sharply.  The reason for the Pound’s resilience arises from the polls prediction that they will have a decent working majority.

Yet the Pound’s performances against the Euro and the Dollar are slightly different:

  • Against the Euro it has remained within a broad trading range that has dominated since October, and although the Euro zone has already emerged from recession, there are negatives about Euro zone public finances too.
  • Against the Dollar the Pound has weakened recently, and looks vulnerable to further selling.

Why the relative weakness against the Dollar (albeit slight) which has been weak itself for so long? The Dollar is currently enjoying a correction that is fuelled by lingering concerns over the Dubai debt rescheduling drama and a stronger-than-expected US non-farm payroll report released last Friday which aroused fears of an early turn in the US monetary policy cycle.
While that has been denied by Fed Chairman Bernanke, the markets are suspicious.

In any case, the US is out of recession whereas the UK is not.
The Technical Trader’s view:

Sterling v Dollar and Euro long-term


WEEKLY DOLLAR / STERLING CHART
In the long-term Cable chart the pressure on Sterling arises from repeated failure at a clear band of resistance
1.6802- 1.7020 throughout 2009.

But there is no completed Top yet in place (that requires a breakdown through 1.5709).

So the market is not immediately in the grip of a medium-term force.

(The modest support from the rising diagonal is being tested right now and may provide further clues.)

 

Possible H&S Continuation Pattern

WEEKLY  EURO/STERLING CHART

In the Euro/Sterling, the long-term chart shows the weakness of Sterling from mid 2009 to have arisen from the formation of a continuation pattern a bull falling wedge which completed in September this year.

(Of course, wedges are not the strongest of indicators.)

It would be much clearer for the Sterling bears if the possible Neckline above the market at 0.9380 were to be breached….completing a bull H&S pattern

Sterling v Dollar and Euro long-term

DAILY DOLLAR/STERLING CHART

Short-term, in Cable a small Head and Shoulders Reversal looks to have completed – though we need a confirming close beneath the neckline at 1.6294 today.

The minimum target of that pattern is more or less the critical Pivot at the Prior Low at 1.5709….

DAILY EURO/STERLING CHART

Short-term, against the Euro, the picture is strangely congruent with the long-term chart.

The market is again in the grip of a bull wedge (created, note well, by the solid support from the Prior High at 0.8838).

The Fibonacci 50% resistance may be proving troublesome, in any event,  there is no very short-term pattern driving the market

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 technical 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.

© 2009 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

© 2005-2022 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