Ralph Shell @ 1:04 PM, Tuesday September 28 2010
Since the elections results in May and the consequent compromise which gave blessings to the Conservative agenda, the pound has been gaining on the USD. The GBP/USD ran up from about 1.42 to 1.60 prior to a retracement of about 38% to the 1.53 handle. This pound bulls came to life again about the middle of September, confirmed by two MACD crossovers. On Friday September the 17th I observed:
"In Britain, recent economic numbers are not encouraging, and the US
Keynesian cabal, thinks Britain's increase in taxes and a reduction is
spending in the public sector is akin to an economic death march. The
market is creeping higher, and the MACD is giving us a buy signal. Who
is going to win this one, the technicians or the fundy guys watching the
numbers?"
So far it looks like the technicians have the bigger pile of chips, and the market is making a nice symmetrical saucer. A break out above the 1.60 level would give us a target in the 1.66 area.
In Washington, a representative of the Keynesian cabal, and nephew of the late Paul Samuelson, Larry Summers is taking a break from the political lights and heading back to Harvard. Summers acknowledged the US economic recovery was not as vibrant as might be expected from the massive dose of Keynesian spending. He attributed this to the European debt crises, the inventory cycle, and the aftermath of the financial crises that hindered the recovery, not his policies as head economic adviser. Not at fault either are economic theories championed by Bernanke, Krugman and other Keynesian disciples that provide academic cover for the Washington politicians who always have an abundance of projects to spend borrowed money.
The pound has been slow to join the latest anti-dollar assault perhaps because of the naysayers who say spending cuts, a lower public pay roll and tax increases, will result in economic stagnation. So far the economy has not contracted. Today it was confirmed that Britain's economic growth in the latest quarter, +1.2% was the fastest in nine years. Further, the current account was a negative £7.4B but better than the -£9.6 forecast and the -£11.3B in the previous period. The Revised q/q Business Investment was better than expected, likewise the CBI realized sales was positive. There has been concern about the strength in home prices, but these seem to be easing somewhat, perhaps as home mortgage availability contracts.
In the COT report of futures trading the pound has been the one pair where the spec is short the pound and long the USD. The OI in the pound is very small 77,263 in futures, only 57% of that which is open in the A$. The big OI in the A$ confirms traders are bullish there and have placed their bets. In the pound, they have not, probably because they don't know what to do. If this market gets some momentum and takes out the 1.60 level, look for the specs to come alive and, as the money flows in, they will take the market higher.
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.