Good morning,
Well its practically official Kraft has bought Cadbury and Goldman Sachs is on drugs! Those at Goldie’s please don’t take offense, but calling that the UK will recover faster than any of its major counterparts is quite frankly reckless, irresponsible and foolhardy. I am yet to see one single piece of data or macroeconomic fundamental measure to support this view. But nonetheless GS speaks and the world listens (or at least the UK Telegraph newspaper) and subsequently here we are in the Cable and more importantly on multi month lows in the EURGBP which has been the primary cross driving the Cable strength in recent weeks. Cryptic comments from Alistair Darling as to the possible revision of recent new tax changes have also added to the Cable buying frenzy, but in an election year (only about 5 months away now) punters need to be a little more discerning as to how messages like this are ultimately interpreted. Where to from here?
Well simply put Cable remains bid and until it conclusively fails at the 1.6450/80 zone I am not prepared to stand in its way nor am I yet willing to buy the EURGBP until it does what the Cable needs to do around the 0.8730/50 levels. I fear there will be more stops lined up under earlier cleared levels at 0.8760 which will invariably take us to test the 0.8750 zone. Countering this view although admittedly half heartedly is the fact that we may see a squeeze in the EURUSD into the ZEW data out this morning, although I think if we do see a move higher it will be limited to 1.4450. The other piece of data that will be drawing much attention is the UK CPI number at 10.30CET where a bad print will likely see the Cable run lower into 1.6320 on a knee jerk reaction.
Other data due to day of note is the BOC meeting where no change is broadly expected but a change in tone or rhetoric should see the USDCAD correct recent weakness into first and now substantial short term resistance at 1.0330. As a value play in the short to medium term I still like this cross higher and continue as I have been buying dips into 1.0210/30 looking for more upside.
The USDJPY is looking precarious at best and despite being sidelined for the most part in recent trading sessions and the JAL bankruptcy all but priced in, I have a sneaking suspicion that be it today or tomorrow we should see the 90.30 level broken on the downside and stops taken out triggering a grind (much would to chop) into 89.80/90. Keep an eye on spread differentials in the US/JPY 10yrs for a guide (currently trading at 2.32).
I don’t really have a focus on much else today (still short the AUDUSD) and feel that with both Citi and IBM reporting today the remainder of risk appetite will be driven by these results. Keep an eye on the screens at 14.00CET for Citi results.
Best regards,
Ken Veksler.
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