Ralph Shell @ 2:12 PM, Tuesday February 02 2010
This morning the pound stages a minor rally to fill the small gap at 159.79 from Monday morning. The ability to quickly fill the gap is a sign that the sell off in the pound might have been over done, and a rally back to the 1.61 handle should not be a surprise. Somewhat perplexing, however, is that open interest in futures at the CME did go up by 4773 contracts, and the expansion of the open interest when a market is printing a new swing low, is usually bearish.
There are going to be numerous reports this week. In Britain today we had we had a positive construction PMI report, 48.6 better than the anticipated 47.7 and 47.1 in the previous period, while in the US we had pending home sales come in better than expected. Later in the week in Britain we get the m/m Halifax Home Price Index and the services PMI. This will then be followed by the Bank of England's MPC statement, the Official Bank Rate announcement and the very important Asset Purchase Plans by the Bank of England. Any of the above reports are good for a 50 point move if the market is surprised by the numbers, but we also have some US numbers that the market will need to dissect and digest.
On Wednesday we get the ADP Non-Farm Payroll Change report, followed by initial unemployment claims on Thursday. This will be followed by the non-farm payroll report on Friday, always a potential market changer, and the monthly unemployment rate on Friday. It is expected that new hires in the private sector remains poor but the growth in the Federal employees is on the rise with a record 2.15 million now on the Federal payroll.
Yes, in the US the Federal Government is, as Investors Business Daily said in a viewpoint this morning: "
Growing Beyond Consent Of The Governed
"The $3.8 trillion dollar federal budget that President Obama
announced Monday is another bruising blow to American
freedom. Government is growing beyond the consent of the governed.
In 2008, government spent 38% of everything produced in the U.S.
(gross domestic product) and last year the figure shot above 40%,
perhaps as high as 43% though the numbers are still being crunched."
The spending, which produces deficits of over $1T per year for many years, combined with back door taxes that will hit practically everyone, even a proposed tax on the first $2400 of unemployment pay, will produce seething grass roots anger and discontent with current policies. How this plays out in the currency markets is unclear, but the US Government's need to borrow at least 33 cents of every dollar spent, can not be bullish the dollar.
There are enough reports around this week to make this pair dance, and under 1.60 we prefer to lead off on the buy side of the pound. An old friend of mine use to tell me, "no body is a bargain." The same can probably be said for this pair.
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.