The British pound has taken some unseemly fundamental blows over the past week. Today, the December deficit ballooned. Add to that yesterday’s 13-year high in the level of unemployment and BoE Governor King’s adamant believe that inflation well above the central bank’s target will temper in the new future; and their is a clear weight developing for the single currency. Regardless, the struggles that the UK is facing are well known. What’s more, while conditions are still far from good; they are generally improving from the state of progress just a few months ago. This is something to keep in mind for a medium to long-term outlook – especially when evaluating the performance of counterpart economies and currencies.
It is the fundamentals that are keeping me short EURGBP. While recent data has been discouraging from the pound’s docket, it is hardly surprising. In contrast, the euro is still sitting on considerable premium; and yet the financial health of the region is seriously doubtful. Should another round of risk aversion pick up, the focus on Greece will return; and the euro will suffer for it. However, in respect for the congestion that has developed this past month, I will not build up a full position until we break below 0.8660. Another sterling position that I was holding earlier this week was the GBPUSD short. Jumping in at the former support for a eight-month range, jumping into a short near 1.58 seemed a good risk/reward. I took full profit after the pair dropped back to the bottom of the short-term rising trend channel however given the lack of momentum in the market and risk trends. Yet, now we are back near last week’s swing low; and potential for a meaningful break is back on. I will look for entry in a clear move below the 2/8 swing low at 1.5535; and float a relatively wide stop.
