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What We Are Watching
Lots of UK Data!!!
UK Manufacturing Production
Bank of England MPC Meeting
US Initial Claims
“Big Bad” Bernanke Talks
This isn’t so much an MPC Meeting preview as a GBPUSD analysis. Going into today’s BoE meeting, the GBP has been riding a wave of strength since last month’s MPC Meeting signaled a hawkish tone from the central bank. Although the reality is that it seems unlikely that the BoE will really act quickly to raise interest rates, they appear to have at least put further monetary easing on hold for the remainder of 2012.
For the GBP, the surprising hawkish tone has been most seen in the EURGBP which has dropped to its lowest level since 2008, just above 0.8000. It appears that the GBP has become the new currency of choice for Euro holders that are looking for new destination to stash their cash out of the EU. With the EURCHF going nowhere, and the JPY trading violently in February to April, the GBP looks like a sensible choice. ***In a similar vein, a veteran trader pointed out to me yesterday the HUF’s gains against even the USD. This is seemingly being brought upon Hungarian holders of Euros that have been repatriating their cash back to the HUF. The trader noted, “you know its pretty bad for the Euro if even the Eastern European nations see it as too risky.”
Favoring the EURGBP
With that background and the GBP’s recent strength, we have two idea for today’s trading. First, mentioned on our twitter stream yesterday, we favor a EURGBP short. However, rather than put stops on the trade based on the EURGBP’s price, we believe it makes sense to stay short until the EURUSD trades back above 1.3000. 1.3000 was a long time support level of the EURUSD, therefore, with it broken we see negative Euro sentiment holding.
GBPUSD Buy on any Dips
The other idea is a GPDUSD strategy based on today’s UK data. If the GPBUSD spikes lower on the Manufacturing Production figures, we would be buyers ahead of the MPC Meeting, as we expect it to bounce as it goes into the news. However, we prefer exiting right before the MPC Meeting to decrease tail risk.
Finally closed theure day below 1.3000 yesterday. As such, just like the 1.3000 figure was the prevailing “line in the sand” support level, it now becomes its resistance. Until it can trade and hold above 1.3000, our preference is towards the short side, with a target of 1.2850. To reduce dollar exposure though, as mentioned above we prefer the EURGBP short rather than the EURUSD.
Intraday Support/Resistance 1.2910/1.3000