Getting Pounded!
British Pound futures fell to 1-month lows this morning, as large speculators continue to unwind so-called “carry trades” in light of the stumbling world credit markets. The British Pound was one of the favorite currencies for the carry trade model against the Japanese Yen, as the Bank of England’s benchmark rate of 5.75% makes it quite attractive versus the 0.5% rate in Japan. Now that traders are taking a more risk-averse stance to try to free up liquidity, the Pound and other higher-yielding currencies are being sold to buy back the borrowed Yen. In addition, tomorrow’s report on consumer prices for July is expected to show that prices grew at the slowest pace in more than a year. If so, this combined with the recent liquidity crunch may be enough evidence to keep Bank of England officials from raising rates to 6% at their next meeting.
Looking at the daily chart for the September British Pound, we notice prices falling through the 50-day moving average of 2.0130 this morning, which triggered further liquidation selling. However, prices have rebounded a bit, as higher world stock indexes gave some supportive buying to the Pound at lower levels. Momentum as measured by the 14-day RSI remains weak, with a current reading of 35.98. Bears have yet to test major psychological support at the 2.0000 level, which if taken out will set up a test of the 100-day mobbing average at 1.9967. Resistance is found at the 20-day moving average at 2.0366. In early trade, September British Pound futures are trading at 2.0130, down 0.0091.
