Darshan's Blog

Darshan's Daily Market Pondering

The BBC, the UK Budget and the British Pound

Wednesday 24th March, 2010

Afternoon,

Another yoyo day yesterday for most indices. While the Dow made a new high, the SPX and Russells did not confirm the strength - again showing the power of moving 30 stocks in an index to show strength, while everything else stalls. As I keep saying we need new highs but before we get them, there will be a correction which stops just above the recent February lows. That pullback should be bought into the new highs and then jump off and reverse short. The other thing you could do is just read anything from the BBC finance team - the moment they say do 'X' - you better do 'Y'. They are possibly the best contrary indicator since CNBC.

Last time I responded to Tim Weber, the BBC's Business Editor - it was due to their article warning about how dangerous Greece was for the markets. This was just as the bear trap was being set and I tweeted as much. I never got a reply. Today my gripe is about their lack of understanding regarding the forex markets - specifically my argument is that the BBC clearly cannot read the technicals - the Pound is not looking too healthy. Yet this is Mr Weber's latest tweet (in response to the UK budget):

"Tim_Weber leaves gilt yields unchanged, initial pound slip soon reversed vs dollar and euro"

Not so fast buddy. If Cable (GBP/USD) closes under 1.50 this week, then 1.40 is a clear target. As I have stated since last summer - the US Dollar is the currency to be in. The Euro has proved it's relative weakness against the Dollar so far but the Pound is only getting started. Ultimately I see a low below 1.37 but let's get 1.40 out of the way. I suppose this should at least bring more American tourists to our shores.

Also if you needed any further evidence that the Pound is just a dead cat - then look no further than the CPI figures. Annual Core CPI fell to 2.9% in February against 3.1% last month - well even with those 'high' numbers - what is the GBP doing down here?

Maybe we need further economic evidence to give the currency a boost? Okay well what about UK Retail Sales? Well those two increased for the second consecutive month. What about Mortgage Approvals? Yes those also edged up in February, from 35,154 in January to 35,276 in February.

All this should have seen the Pound appreciate - yet it has dived below 1.50, from what was clearly a corrective move. What can big Merve do to make things look rosier by the May elections? Well if he doesn't know - I'm sure Brown will be calling him a few times to intervene. Luckily, unlike the global equities market - the currency market is not as easy for a central bank to manipulate. Bad luck Gordon.

Maybe the Chancellor, Alistair Darling's 2010 Budget might provide some relief for the Pound, by showing how he can cut the deficit?

Well that would be wishful thinking. So close to the election is involved a whole heap of smoke and mirrors. For example, although stamp duty for homes worth up to #250,000 will be suspended until 2012 - it will only help first time buyers. Of course, to balance this - from 2011 stamp duty will increase to 5% on properties over #1m. Elsewhere in the Budget, we have the usual list of duties on elastic goods. So really nothing new in the whole budget then. Nothing that could possibly make the Pound more attractive?

Ah well issuing another #187.3bn in gilts over the next year, will help that deficit won't it - doh!

Anyway for today - just expect more range bound action and hopefully we should get that corrective move where long inventory since February, is wound down - that should hit the sell stops and give us the pullback we need to get long for the final high. Now is not the time to get long or stay long though.
If you have any questions - give me a shout anytime.

Happy trading

Darshan

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