Mighty Euro back up above 50 again - Almost on parity to Sterling now!

[teddy]

Here is an article from the Investor's Chronicle who are recommending shorting Sterling:

 

America's experiences today often become ours tomorrow. This is true across many walks of life. While the super-size menu and body-type may have been developed in New York, they are now just as common in Yorkshire. When it comes to our economy, the UK also now shares many of the worst characteristics of its American cousin.

 

The collapse of the American housing market foretold the problems that are now devastating the value of every Englishman's castle. And because both nations buy much more from the rest of the world than the rest of the world buys from them, both depend heavily on foreign lending to keep the show on the road. These factors have caused a massive drop in the US dollar against many other leading currencies over several years.

 

Why sterling will fall before it rises

 

Now, though, it is our turn. True, the US economy is still in an awful state. But having entered its crisis earlier - and taken steps to solve it earlier - there is a good chance that it will emerge from its malaise sooner. Our problems are likely to endure for a good while longer, given that we started to experience them later. And in many ways, our problems are actually bigger than those of the US.

 

Take the UK housing market. Compared to wages and to rents, British bricks-and-mortar became far more absurdly overvalued than American homes did. During housing crashes, prices tend to keep falling until long-term average valuations - or below - are reached. That still implies a big drop to come for UK housing, with some pundits calling for a 20 per cent fall in 2009. History shows that a weak housing market and weak sterling often go hand in hand.

 

Britain's indebtedness is also growing. Our government is having to spend heavily to soften the impact of the recession, which is going to lead the state's borrowing to balloon. As a result of our selling fewer goods and services to the rest of the world than the rest of the world sells to us, our current account deficit has also hit record highs. Both these factors are likely to weigh down further on the value of our currency.

 

Of course, sterling has already fallen long and hard against a whole range of other currencies. However, both the macroeconomic outlook and the charts suggest there is further pain to come. Admittedly, the pound has been trading lately near to 'fair value' of about $1.53. But currencies usually overshoot fair value when they're in a decisive trend such as the drop we've seen of late.

 

A 'head-and-shoulders' pattern suggests continued losses for sterling. From this, a price target can be derived in the region of $1.29. Other technical methods - such as the point-and-figure chart - also indicate the risk of losses into the $1.20s.

 

[HeartThais]

1 Pound 52.x Baht

It's been hovering around this mark for a while now.

 

Not exactly hovering. In the last 4 weeks it's been as high as 54 and as low as 49. Whatever happens, it's going to be a rocky road for pound.

[HeartThais]

A 'head-and-shoulders' pattern suggests continued losses for sterling.

 

I immediately dismiss anyone who talks about "head and shoulder patterns" as a con artist. I would short Euro over Sterling if I were forced to but would prefer to short asian and other EM currencies. Sterling is already braced for bad news. Nothing this guy says in the article is new. IMO, for Sterling to hit 1.3 would require some rare and extreme disaster such as rumors of the BoE collapsing.

 

Eurozone on the other hand has been painting a picture that can't be justified. So while I think some parts of Eurozone are healther than UK (and others obviously unhealthier), overall I think what comes back to bite is the rose-colored glasses. Therefore, unexpected bad news will hit Euro harder than sterling. I can't predict unexpected news so both Euro and Sterling are probably ok but if it does come, I think Euro is worse off.

 

As far as Asian currencies, I point to history. As exports slump, I think Asia will take major steps to boost their economy through currency devaluation. Also, as current account balances shift back to neutral, there isn't the normal upward pressure on these Asian currencies.

[teddy]

I would short Euro over Sterling if I were forced to.

 

So would the guy who wrote the article on Sterling/Dollar, he recommends that too.

 

He is not a con artist, he is a much respected writer for the Financial Times.

 

 

 

[HeartThais]

He may not be a con artist true. But being a journalist for the FT doesn't mean you aren't one either. My rule of thumb has always been to ignore the technical analysts because they make shit up and they usually don't have the basic math skills to test their own conclusions. They follow rules like "head-shoulders" and elliott wave patterns like modern-day astrologers.

 

But in the spirit of Khun Sanuk's post about posting behavior, I apologize for calling him a con artist.

[teddy]

OK HeartThais, I know this is going away from the original thread but where do you reckon the oil price is heading? A chartist on CNBC said this today:

 

The price of a barrel of oil could slump toward $25 and even lower as the economy continues to falter, Phil Roberts, technical analyst from Barclays Capital, told CNBC Friday.

 

â??We're still getting bearish signals, the implication is - this move's not over,â? Roberts said.

 

Roberts' near-term view for the oil price is $29, but his â??slightly longer-termâ? outlook is for $25 a barrel or lower.

 

â??In the first quarter of 2009, you're in to the final phase of the down leg in the business cycle. So what weâ??re looking for is this to slow, the downtrend to slow. Where it's going to stop â?? best guess would be maybe between $17 and $25 a barrel,â? he said.

 

Roberts said he would even be wary of buying at $17 a barrel.

 

â??The downside risks are still very much there and this trend, you've got to respect it,â? he said. â??The deflationary cycle is still in play,â? he added.

 

 

I can't believe that oil will get as low as $17 a barrel, it probably costs more than that to get it out of the ground. I only ask because I am considering buying some oil ETF's if it gets around $30 a barrel.

 

[HeartThais]

My views on oil or other commodities would be complete guesswork. If you had asked me a year ago where oil was going to be today, I'd have said $150. I would have probably given you 20:1 that it would fall below $60.

 

As an aside, industry analysts have long ago discovered that the way to make a name in the business is to make outrageous predictions you hope come true. So, I tend to ignore the outlier claims.

[HeartThais]

Asked a friend and he thinks oil can't drop below $22 for very long. The cost of pumping a marginal barrel is about $7 give or take a few dollars depending on country and producer. Load the cost of construction and it comes out to about $11. The cost of refining from shale is about $17+. But there are less efficient producers, particularly for the newly established firms that tried to cash in on the boom. If oil falls below $25, many firms will have to shutter operations so supply will naturally decrease. I think oil at $30 would be a good buy from a downside/upside perspective.

 

These aren't my figures and my friend is a base metals trader, not an oil trader but he is pretty good with commodities in general. Personally, I find that trading commodities (excluding precious metals) requires specialized industrial knowledge so I stay far away from them.

[Faustian]

Guess the goats didn't do it, need something more substantial.

 

The pound is dropping like a stone!

 

47.8 today to 1 pound.

 

Holy fark.

[HeartThais]

RBS announced 20B pound loss on Monday and the UK taxpayer now owns 70% of that company. One of the most massive losses in UK corporate history. Then BOE announced plans to print up to 50B more to buy corporate debt directly. Meanwhile, Barclay's seems to be the next target of the short-selling mob dropping 25% last friday for no apparent reason other than rumor. Euro is also dropping a bit driven by banking threats. Also, Spain and Greece credit ratings downgraded with Ireland on credit watch. Utter chaos.

 

And then the doomsayer's like Jim Rodgers:

http://www.ft.com/cms/s/0/5d4a02ca-e7a1-11dd-b2a5-0000779fd2ac.html

Jim Rodgers made his fortune with Soros in the quantum fund and obviously knows a lot more about currency speculation than I ever will. But he also predicted oil at $200 and sold everything to move to Singapore so he's not shy about making extreme statements.

 

There is a feeling that UK banks are far worse off than appearances in a country where the banking system has been virtually nationalized. Will the pound recover? Quite frankly, I'm surprised at the magnitude of recent quarter losses at Deutsche Bank and RBS. I don't know if these are just really poor trades or whether we're seeing another huge wave of devaluation. If it is the latter, we can expect more bad news to be coming from the banking sector and terrible news for pound and Euro. Barclay's shares are down today and rumors are it may be nationalized. Faustian, I hope for your sake and mine this doesn't happen. I'm praying that Barclay's recovers.