EURGBP is sitting on a ledge... with a long way down
Hey all.
Sometimes there are trades which just stand out to you.
EURGBP here is one of them.
See, there's a big issue currently in Europe.
With fiscal stimulus seemingly being coordinated simultaneously with most of the major countries excluding the Eurozone partaking, it seems that this is rather an obvious trade we have here.
Now, fiscal stimulus tends to lead to an increase in inflation expectations, which naturally end up leading to central banks reassessing their monetary policy guidance.
Now, I actually think that the risk is no longer low or negative rates, but a sharp reversion to the upside in global interest rates, and this could certainly stem from fiscal stimulus, IF it is GDP effective.
The problem with this, however, is that since rates have been low for so long, the world has gorged on debt, and a higher base rate will likely lead to higher refinancing costs of this debt.
For the Eurozone, however, there is mixed feelings towards this.
The block doesn't have fiscal union - that means that each individual country decides what to do with its own spending... which is at odds with having a monetary union.
So if Germany start to spend for example, the monetary policy could end up working against the German government's aims, or vice versa, the ECB's aims.
This creates ineffectual policy eventually - but it's created ineffectual policy anyway, and that can be seen through the movement of labour from eastern European states to central and western European states.
A big issue that may start cropping up though, is that the German government is in a bit of a crisis, and may be forced to start spending, reducing the surplus that they've held for a long time - but is this likely to happen?
My guess is not - and whilst the UK releases its budget in Q2, I think we'll see a large deterioration in the value of the Euro relative to the pound.
Because of this, selling EURGBP is a very valid trade, and what's more is that you earn swap for holding overnight on this.
Some technical levels -
I'd expect the market to trade a bit higher this week, but with Eurozone and German data to the back end of the week, I'd expect the pair to trade into 0.8380 - 0.8400 and then begin pushing back to the downside with a key break of 0.8300 leading to an increase in position size.
Managing the trade will simply be looking at adding and adjusting a trailing stoploss at the prior day's average true range + 10 ticks.
We will increase/decrease position size with newsflow - most importantly, taking a cumulative view of soft data which will price in hard data.
Sometimes there are trades which just stand out to you.
EURGBP here is one of them.
See, there's a big issue currently in Europe.
With fiscal stimulus seemingly being coordinated simultaneously with most of the major countries excluding the Eurozone partaking, it seems that this is rather an obvious trade we have here.
Now, fiscal stimulus tends to lead to an increase in inflation expectations, which naturally end up leading to central banks reassessing their monetary policy guidance.
Now, I actually think that the risk is no longer low or negative rates, but a sharp reversion to the upside in global interest rates, and this could certainly stem from fiscal stimulus, IF it is GDP effective.
The problem with this, however, is that since rates have been low for so long, the world has gorged on debt, and a higher base rate will likely lead to higher refinancing costs of this debt.
For the Eurozone, however, there is mixed feelings towards this.
The block doesn't have fiscal union - that means that each individual country decides what to do with its own spending... which is at odds with having a monetary union.
So if Germany start to spend for example, the monetary policy could end up working against the German government's aims, or vice versa, the ECB's aims.
This creates ineffectual policy eventually - but it's created ineffectual policy anyway, and that can be seen through the movement of labour from eastern European states to central and western European states.
A big issue that may start cropping up though, is that the German government is in a bit of a crisis, and may be forced to start spending, reducing the surplus that they've held for a long time - but is this likely to happen?
My guess is not - and whilst the UK releases its budget in Q2, I think we'll see a large deterioration in the value of the Euro relative to the pound.
Because of this, selling EURGBP is a very valid trade, and what's more is that you earn swap for holding overnight on this.
Some technical levels -
I'd expect the market to trade a bit higher this week, but with Eurozone and German data to the back end of the week, I'd expect the pair to trade into 0.8380 - 0.8400 and then begin pushing back to the downside with a key break of 0.8300 leading to an increase in position size.
Managing the trade will simply be looking at adding and adjusting a trailing stoploss at the prior day's average true range + 10 ticks.
We will increase/decrease position size with newsflow - most importantly, taking a cumulative view of soft data which will price in hard data.
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