Sterling: Range Ahead
Halal Traders | Aug 17, 2016 01:02AM ET
Our limit to sell at 1.38 was not triggered and FTSE 100 did not behave as we expected in our June 27th article; as lower Sterling value has attracted investors back into the UK equity market. Bank of England further decision to cut rates by 25 basis points, expand its asset purchase program and set up a new funding scheme for lenders in reaction to cushion any adversary impact of Brexit has drove Sterling lower and the UK equity market higher.
Bank of England in its recent meeting minutes, indicated that the committee were already in favor of lowering its rate to “close to, but a little above zero.” On top of that Governor Carney has stated that there is scope to expand all aspects of the stimulus package.
UK economic outlook has changed significantly post Brexit. Though official reports are not yet available, business surveys have implied a sharp deceleration of economic activity. One in particular is manufacturing PMI that recorded the largest monthly drop since 2009.
Looking at the recent CoT report, Sterling saw its net short increased the most among its peers. Net-shorts increased by 7,567 contracts to -90.1 thousands contracts. Furthermore, markets participants are reported to be net long in all currencies against Dollar, except Mexican Peso, Euro, Kiwi and Sterling.
On the institutional side, BNP Paribas (PA:BNPP) and Morgan Stanley (NYSE:MS) remain bearish and target 1.24 in the weeks to come. Currently at around 1.3035 as of this writing, we believe buyers are looking as low as the 1.28 handle before heavy bidding started. Looking at the chart, we believe a descending triangle is forming and range market is expected in the band of 1.28 to 1.33 handle, before further downward pressure is seen.
Halal Traders looks forward to deploying our range strategy in the weeks to come.
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