Just a quick update eurgbp. I have to, unfortunately, agree with them that the euro is likely making a move toward the channel resistance at circa 0.87 vs the gbp.
The battle for the technical continuation of the cyclical bear vs the gbp has been running for what seems like the last 6 months. Checking the chart it has indeed been 6 months!
Fundamentally speaking, the UK is do all it can on all policy fronts to create money supply and inflation. It is in Vanguard of states ie the UK and Japan in attempting the inflationary route from its debt woes.
Its the test case. Historically the stress point for states that attempt these methods is a debasement in their currency. Given this historical background it should not come as a surprise to participants when the euro secular bull reasserts itself vs the GBP. This has a very highly likely hood of occurring from a fundamental perspective unless the ECB monetizes in a similar way to the BOE and the ECB the secular euro bull will return. I envisage borrowing all GBP fx to fund gbp longs at some point in 2014. Borrowing gbps at 1% per annum via your IB account is a very good business so, no problem.
For Euro bears recall Japan. Deflationary, deleveraging policies in an export lead economy. These policies can lead to a huge appreciation in the local currency even as the economy contracts year on year.
Europe is increasingly looking like Japan with perpetually high savings, debt deleveraging and ever harsher capital ratios for its financial institutions. This is euro appreciation strategy fundamentally speaking so long as Europe is stable. Like Japan during the 90s, it doesn’t need to grow!
Here Nomura
Here a reminder of my longer term price chart i’ve been running for a while which ties in to their trend resistance price of 0.87.
Apologies for the old chart from mid Aug. Im time constrained here. But the point is price has barely moved. The euro is distributing around this key area. The UK announces more fiscal and monetary stimulus every weak it seems at present and the economy is clearly in a domestic boom relative to the rest of the world. Its a pond debasement strat which will eventually threaten this key trend line. Medium term long term wise we need to watch this key trend line as it will directly feed into large allocation shifts in fx terms.
(It will also play in to the bullion, as another currency. Longer term bullion listed in gbps may be a better trading vehicle than US$ listed bullion).
As traders and investors alike, get direction and FX funding currency correct and you enter the super profit in-zone.
Here Nomura on the EURUSD. A critical area as well. Eur longs have been accumulated, at least for a short term push to 1.40 area. In theory the euro is in breakout of its cyclical bear vs the US$ but the breakout is early days and needs to be tested before allocators can really embrace the euro currency. Concerns fundamentally on an ECB weakening move though the recent “chat” from Draghi on higher capital reserves for the euro banks indicates he is content to see the euro higher. (UK moving in the other direction and weakening capital standards).
Here Nomura on the eurusd pair.A key pair for global commodity allocations due to the inverse correlation.
All the best
Rich
P.s. CS also here on a daily report also picking up the long eur vs gbp on the near term, for now.