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Sterling Digest, April 25 2012: market follows central bank not economy

Mark Prisk, UK Business Minister
UK companies are backing a new Government campaign to highlight the best of modern British manufacturing at an exhibition during the Olympic Games. Will it work?

It was the hawks versus the doves of the BoE and today the hawks won. Even with the UK falling into a double-dip recession, the BoE has already told the market that the economy is actually stronger than the number would reveal. They are ignoring today’s GDP release. And the market followed suit with new yearly highs. We noted yesterday that any sterling weakness on the back of a disappointing GDP number would be temporary. Coupled with Bernanke keeping the door open for QE, $GBPUSD bulls remain well supported above 1.60.

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Beware Trade Tips

Especially when it comes from Goldman Sachs:

The mighty Goldman Sachs has apparently recommended selling EUR/GBP at 0.8210/20 with a tight stop of 0.8250 and targeting a move back down to 0.8150/60

Since Goldman Sachs wants to make trade recommendations, why don’t we all make some? Here is mine:

GOLDMAN SACHS IS LONG EUR.

Do what you will.

 

screen shot of my twitter stream at 2:20ish am pacific time
I LOVE my Twitter stream

 

Source: Trade Recommendation… (Forex Live)

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Sterling Digest, April 24 2012: the moment of truth

Is another recession on its way?

Wednesday may be a moment of truth in this sterling rally that has taken hold since the beginning of the year. Though the Federal Reserve announces its decision on monetary policy tomorrow, sterling traders have their eyes on the UK GDP release earlier that morning. But the Bank of England has already dismissed the GDP release. The BoE gives inflation trends more weight than the economy when setting monetary policy. So on disappointing GDP expect sterling to weaken, but that move lower may only be temporary as the market discounts GDP much like the BoE already has.

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Sterling Digest, April 23 2012: bulls maintain control

pounds and pence
Pounds and Pence

$EURGBP breaks to new lows to open the new trading week as fully anticipated by many in Thursday’s digest. Sterling also maintained bullish momentum versus the commodity dollars as $GBPAUD, $GBPNZD, and $GBPCAD continued to rally higher in Monday trading. $GBPUSD was the odd man as it trades in a narrow range struggling with both a strong USD and strong GBP. If USD strength remains, look for cable to correct lower to 1.60 before rallying again to new highs.

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Sterling Digest, April 22 2012: double-dip risks

GDP projection based on market interest rate expectations and £325 billion asset purchases
Large risk here of a double-dip

The Bank of England is sounding very hawkish with commentary from both Adam Posen (uber-dove) and Andrew Sentance (uber-hawk) featured today. However with double-dip calls coming out of the UK, the market is already looking ahead to Wednesday’s UK GDP release. Currently hawkish sentiment will drive an already rallying sterling higher into the release. However, the risk of a contraction could see sterling tumble severely on disappointing data.

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Sterling Digest, April 20 2012: sterling hot

A Bank of England Old One Pound Banknote
Sterling so hot even old notes find value

Sterling has staged a breakout across the board this week as its underlying fundamental landscape has turned hawkish. Early Friday trading saw GBP break to new 2012 highs versus the AUD, CAD, USD, and NZD. Its been a tremendous week. So it is no wonder that many traders are looking to get short sterling into next week. Whether this is a good idea or not depends on your timeframe. Just remember though, the trend is your friend.

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Sterling Digest, April 19 2012: the euro is dying

Bureaucracy. Democracy
Bureaucracy kills the euro

The streams are buzzing with $EURGBP talk as the pair finally breaks out to the downside for new yearly lows. This pair remained rangebound for 4 months as the ECB, IMF, and EU kept the market in great suspense on what it was going to do about Greece and the other PIIGS. Unlike other QE-wielding central banks like the BoE and the $FED, the ECB took its time in dealing with the financial crisis within its borders. As larger economies like Spain and France start to teeter, the long term euro implications of early inaction could be devastating and sterling stands to benefit.

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Sterling Digest, April 18 2012: when fundies turn hawkish

£20,bank of England
Is sterling strength here to stay?

Sterling comes alive this week after core UK CPI ticked higher-than-expected yesterday and a known BoE dove turns hawkish today. While economic data is important and moves the currency, the 2 most important fundamental pieces to watch concerning sterling are inflation and the Bank of England’s reaction to it. This week, both turned hawkish. If this becomes a trend, we could see sterling strength remain with a $GBPUSD that is above 1.60 and a $EURGBP at 0.80.

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Sterling Digest, April 13, 2012: the China effect

China and the paradox of prosperity, The Economist
What effect will China have on sterling?

If there were any doubts to China’s ability to move the markets now, there shouldn’t be. China’s soft data release very early in the Friday session has plagued risk currencies like the commodity currencies and the euro. And $GBPUSD and $GBPJPY remain weak as risk aversion flows strengthen the USD and JPY across the board.

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Enter The Chaos Index

the Chaos Index
Is this for real?!

Apparently, there are more riots and protests against the goverment in countries with poor or declining economies. In fact,

The strong link between unrest and austerity suggests that cutting expenditures in times of crisis may be even harder than previously thought…To avoid the spectre of default and a downward spiral of collapsing output, lower tax revenue, and a rising wave of unrest – an austerity trap – governments have to act more cautiously in good times. They need to borrow less and keep taxes high even if public debt is falling in a period of expansion.

This is hardly news. As long as credit rating agencies rule the world, governments are more interested in pleasing them as opposed to its own citizens. Expect more Arab Springs and Occupys as food and energy prices rise with unemployment in countries with strict austerity measures. And the markets won’t be forgiving. Look no further than Europe.

 

Source: This Chart Predicts Rising Violence And Unrest Around The World (Business Insider)

 

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