Week in FX Europe – Is Sterling’s Magnetic Option Ride Over? Maybe Next Wednesday

Sterling's wild magnetic 'option' strike ride (1.4950,1.5150) over the last two-trading sessions has managed to knock many weak short cable positions out. Governor King himself provided added fuel – "the recovery is in sight"- the only thing in sight is his impending retirement. His comments that sterling had probably weakened far enough prolonged the painful short-squeeze. This market may have misinterpreted his comments. Why would he be talking up the pound?

Sterling's fall from such lofty heights has been swift, so much so that it had become a market congested with only sellers. Any 'reversal-of-fortune' would of course be rapid and costly – exactly what investors have been exposed to since Thursday. In truth, this market has become too fixated on a straight pound move.

At the same time, the 17-member single currency has managed to have its way with the "mighty dollar," which would suggest more of a dollar move rather than a pound fixation. The dollars strength has come a long way and its only natural to witness a partial retracement. US data this week confirms that their economy is the best performer amongst the G4 major currency regions, whilst the UK entertains a triple-dip recession scenario.

If you believe in King, then his remarks this week will likely have watered down expectations for more QE next month. The techies will love it; an excuse to signpost that the low is in and that 1.50 is the new base. However, all the good work could come undone by next Wednesday's annual UK Budget report when Treasury could change the inflation-targeting remit of the BoE.

 

WEEK AHEAD

* AUD RBA Policy Meeting Minutes
* GBP Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* GBP U.K. Chancellor Osborne Presents 2013 Budget to Parliament
* EUR German Producer Prices
* GBP Bank of England Minutes
* GBP Jobless Claims Change
* USD Federal Open Market Committee Rate Decision
* NZD Gross Domestic Product

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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Dean Popplewell

Dean Popplewell

Director of Currency Analysis and Research at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2007, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell