Ralph Shell @ 1:49 PM, Tuesday July 13 2010
The British economic data announced today was enough to give the pound a turn around. We had felt that a pull back to the 1.49 handle was possible, but that was not to be. This morning the y/y CPI came in at +3.2%, as anticipated but down from last month's 3.4%. Again this exceeds the Band of England's target of 2% increase. This prompted a Monetary Policy Committee member, Andrew Sentance to again vote for an increase in the bank rate. To fight future inflation, he favors gradual rate increases.
The pound traders liked the news from Sentance, but the latest COT report did show that many of the big specs are short. In the complete futures and options report the large traders are short 39,055 contracts, more than the 38,451 contracts in the much large euro contract. The small spec was also short almost 14,000 contracts. In yesterday's lower market the futures open interest did increase 7701 contracts, which would normally be a bearish sign.
News that BP had fixed the oil leak in the Gulf and stronger equities also helped the pound today. It looks like we have a market where the specs are short and the market is reluctantly working higher. The increase in the open interest suggests they are defending their positions, rather than liquidating them.
Tomorrow we have the Claimant Count Change report, expected to be -20.1k while the US has the important retail sales report, forecast at -0.1%. Neither of these reports is likely to be a game changer so we will probably remain range bound, unless we get some short covering.
The 2H chart shows the pair trading up to the 1.52 four times before retreating lower. There are massive shorts, and some who may want to cover above the the 1.5250. Lets try to scalp the long side should this market settle back in the 1.50.55 area. Risk 100 pips, targeting an objective of 1.5250 to 1.53.
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.