25th January - Vulnerable Sterling, sell a break of 1.5670
28 January 2013
TECHNICALS:
WEEKLY CHART
The market has been consolidating within a large triangle since 2009.
The rising diagonal at the bottom of the triangle has been strongly established on three occasions.
More recently, there has been a horizontal trading range 1.53-1.63 for 18 months…
But now look closer.
DAILY CHART
In the short term the market is testing critical support at the 1.5777-1.5669 level ,
And at the same time may be completing a Double top by breaking the Prior Low at 1.5831.
Use a confirmed break down through both to confirm the supremacy of the Sterling bears.
If 1.5670 breaks the minimum move is down to 1.5349 the Dec 2010 low.
FUNDAMENTALS:
The Pound has been trapped in a broad but well-defined range for a very prolonged period. On more than one occasion it has tried to break to the upside as UK data seemed to point to a strengthening economic recovery, especially in the 3rd quarter of last year.
However, as 2012 matured it become increasingly obvious that the economy was again loosing momentum and the strong Q3 GDP report was a one-off fuelled by London hosting the summer Olympic games.
But now it seems the UK economy runs a very real risk of experiencing an extremely rare triple dip recession. Double dip recessions are rare enough, but a triple dip! It is an indictment of the policies pursued by not only the current government, but the previous Labour administration that laid the foundations for the current economic weakness.
True the crisis has been truly global, with the US relying on bloated budget deficits and Fed QE to fuel even a tame recovery, and the Euro zone has its self endured a 3 year sovereign debt crisis that has spawned two recent recessions. Looking East and Japan is still struggling with China having also experienced her own mild economic slowdown.
But what differentiates the UK from the rest is the UK’s reliance on foreign trade, especially with the enfeebled Euro zone and the dynamism that used to be provided by the once free wheeling City of London and vibrant housing market.
Clearly the difficulties in the Euro zone have been a major drag on the UK economy, and recent signs of life in the single currency Bloc are very welcome, but one cannot simply blame foreign events for the UK’s troubles.
The previous administration encouraged a casino like mentality in the UK financial markets, its self borrowed large sums of money and encouraged private citizens, via its weak supervision of the Banking industry to do the same.
The result is the country is still trying to recover from a massive debt hangover. The Government is pursuing an austerity course, and to be fair they had little choice, but did they need to cut so deep when the economy, under Labour had become so reliant on the public sector, meaning it was always going to be a big ask for the private sector to fill the void.
Now the economy faces a triple dip recession and the IMF and others are calling on the government to ease up on austerity. The damage though, is done. The Pound is registering the problems policy makers are facing which, apart from flat to negative growth, includes stubbornly high inflation when measured not only against the Bank of England’s inflation target, but the inflation rates of our key competitors such as the US and Euro zone.
The outlook for the economy is bleak. And for Cable? A test of the lower limit of the trading range is now under way, but will it hold much like the upper limit did throughout last year? We are not sure it will, the upper limit held because the economy stalled, if the threatened triple dip recession materialises then Cable is likely to trade lower as traders see a failing policy mix in the UK where as in the US and even in the Euro zone there are growing signs of optimism.
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4th February - Can the S&P see past Q4 GDP? 
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25th Jan - EUR/CHF Springs to Life