19th February - Cable has broken down
21 February 2013
TECHNICALS:
WEEKLY CHART
The market’s double breakdown of the horizontal and the rising diagonal is important.
The next point of reference is the Prior Lows at 1.5238
DAILY CHART
The day chart shows the completion of the Double Top.
The minimum measured move is clear enough.
Note the failed attempts by the market to get back above the completion level at 1.5831.
Twice those rallies failed.
FUNDAMENTALS:
The support for Sterling is crumbling. After a period when data has swung from indicating a rare treble dip recession, to offering hope that a slow recovery might after all be under way, last week’s weak retail sales report was yet another nail in the coffin of the Pound Sterling as recession again looms large.
The negatives weighing on the Pound are quite straight forward:
1.Growth in the UK economy is persistently weaker than expected,
2.Inflation refuses to drop back to the Bank of England’s target of 2% despite economic weakness,
3.The governments debt reduction/deficit reduction strategy is veering off course, and
4.Political uncertainty centred on the UK’s long term commitment to the EU. Some of the above conditions exist in other leading economies, for instance the Euro zone and Japan are still in recession, the UK is at risk of recession but isn’t yet in one, and debt reduction is the main strategy in the Euro zone, but not in Japan. But in all the other leading economies, the US, Euro zone and Japan, inflation is much more subdued than in the UK and in Japan the authorities are struggling with a two-decade-old deflation, which makes the UK economic landscape probably the least attractive to investors; high inflation and slow or zero growth; the old British disease of the 1970’s long thought to have been vanquished. But a unique negative currently weighing on the Pound is the question mark hanging over the UK’s continued membership of the EU.
At the height of the Euro zone crisis there was much speculation about whether the likes of Greece, Ireland, Spain and Portugal would be forced out of the Euro, with speculation concentrated most on Greece.
But never was there any question about any of these leaving the EU. The problem was centred on the single currency block and how the Euro zone, supported by the EU and IMF would resolve what was a sovereign debt crisis.
The UK has placed it’s self in a totally different position. The ruling Conservative party has long struggled internally with EU membership since it became blindingly obvious in the 1990’s that the leading EU players were striving towards a closer political union or as some call it; United states of Europe.
Given the recent history of the European continent it is easy to understand why continental Europeans would find such a project attractive while the British would not.
But as the Germans and others see closer fiscal union as a cornerstone to repairing the damage done to the Euro by the sovereign debt crisis and see this, along with France and others, as a rout towards advancing the goal of closer political union in the EU, the British government finds it is unable to go along that route. And unlike other times when awkward decisions on EU integration have presented, the government seem not to be able to find any other way of dealing with the issue other than a full renegotiation of the UK’S terms of membership which it would then put to a popular in/out vote in 2017.
This clearly generates much political uncertainty and when you add the looming referendum on whether Scotland wishes to become independent from the UK, the Pound stands out among the major currencies as a sell.
Next story:
21st Feb - GBP/JPY Enjoys Temporary Pullback 
Previous story:
14th Feb - Coffee Still Looks Weak