Ralph Shell @ 2:16 PM, Tuesday March 30 2010
Favorable statistics from Britain helped the pound today as the m/m comparison of the HPI, the final GDP and the Current Account Balance all came in better than expected. The pound has been near the top of traders bear choices, so the positive news was not well received. Against the euro the pound gained from .8997 to a low of .8877, a large daily move.
The euro continue to labor with looming uncertainty caused by concern for the Greeks, and some of their other weaker members. The Greeks were able to find some 7 year notes buyers that traded as much as 368 basis points above the Germans 7 year bunds. It would seem borrowing a whole bunch of money at better that 6% is a sure way to hasten the default date, but sometimes people and governments borrow money just because they can.
As the speculators most favored short according to the last COT report, this currency is vulnerable to some surprise moves. Large and small speculators combined net short positions were 88,689 contracts. Yes, the pound is down over 6% against the USD for the quarter but are traders going to cash in tomorrow at the end of the quarter, or are fund managers going to paint the tape will low ball prices to enhance end of the quarter statements and bonuses?
The pound strength against the euro might have gone too far when trading under .89. Should the month end volatility give us a rally back in the .8970 area we are going to try the short side again.
Against the USD this morning the pound did rally above the 1.51 handle before pulling back to the 1.5070 area. There are some meaningful US economic reports later this week, bound to give us volatility. Most of the anticipated numbers, relating to employment are positive. Tomorrow the ADP Non Farm Payroll report is forecast at +40K, Thursday unemployment claims are projected to be 440K and the Friday non farm payroll report is anticipating a 179K increase. Bank holidays through the world on Friday will thin the trading ranks, and volatility may be consequently exacerbated. We would be inclined to try the short side of the pound versus the dollar on a revisit to the 1.52/53 area but the popularity of the short side of the pound makes us wary. Nimble scalpers, the bored, and the restless, can try to fade extremes in either direction.
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.