Ralph Shell @ 1:45 PM, Tuesday March 23 2010
Last year the Budget Day analysis provided by Alistar Darling to the House of Commons was bleak and the pound sterling took an immediate tumble. Then, the time frame for an economic recovery was conjecture, and perhaps a weaker pound was part of medicine needed to stimulate a recovery.
Considering the pending election, the date not yet announced but assumed to be early May, will Chancellor Darling not present this budget in a fashion that enhances the voter perception of his boss, Gordon Brown? This is not to imply that the government will intentionally deceive the public on the state of Britain's fiscal matters, but but politicians on both sides of the Atlantic are quite capable of massaging numbers if it suite their cause.
The government's tax receipts have recently run a little better than previous estimates, giving the Brown government opportunity to cite as success for his administration. Credit agencies have threatened to reduce Britain's AAA credit rating, so the market may applaud the belated fiscal responsibility of the Labour Government as the election draws closer.
Across the English Channel, where the perceived bastions of fiscal responsibility reside, the Greek sovereign debt issue continues to test the single currency, many country experiment. It is beginning to look like the Greek's, despite their new austere budgets, are about to be thrown under the bus. Greek PM Papandreou, confronted with the need to borrow €50B this year rightly realizes that rates exceeding 6%, will hasten the default date. Perhaps the northern members of the Euro-zone have concluded that Greece is a lost cause, and can best be a symbol to the other big spenders, Spain, Portugal, Ireland, and perhaps Italy, that budgetary restraint will be demanded for euro members.
So much for Keynesian budgetary deficits that do hasten the economic recovery, and but perhaps risk deferred inflation. Until there is some clarification of the European policies, it seems like the euro may be subjected to some more downward pressure.
It has been extremely popular for the specs to be on the short side of the pound. The most recent COT report, combining futures and options, revealed the specs were short 80,724 contracts out of 136,213 open sterling contracts. Specs have been bearish the euro too, but only 48,949 contracts of a larger market. The euro versus the pound traded above .91 several times but has since tapered off, a little below the .90 handle. It looks like the pound could be subjected to some short covering, and the one currency for many countries may be messier than a new democratic election in England. Try the short side of the euro versus the pound in the high 89's with a stop above the 91 level.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.