Friday, December 19, 2008

Fast approaching: £1 = €1

Remember the good ol' days (circa June 2007) when the £1 got you $2 (eventually topping out at $2.11); now we have a new pairing on the horizon: £1 = €1. It's not there yet, but this relationship has left the realm of the calculated and entered the crazy world of the emotional. It will end in tears for some and joy for others, but speculators need only apply.

From the FT:

Sterling sank to 95.5p against the euro for the first time amid rising speculation that the Bank of England will follow the US Federal Reserve and cut rates to virtually zero.

The speed of sterling’s fall has been gathering momentum.

Last week it fell by 1.25 per cent on a trade-weighted basis but this week it has taken only three days – Tuesday, Wednesday and Thursday – to fall 4 per cent.

The falls have sparked growing speculation about how soon the two currencies might reach parity, a state that Neil Jones, head of European hedge fund sales at Mizuho Capital Markets in London described as “the next big psychological barrier”.

This will come back as quick as its risen, probably soon after the euphoria of parity is reached; will traders sell the news if/when the Bank of England decides to cut rates, not necessarily when it cuts rates? Follow the developments with your own Zignals Forex Charts.

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts, and stock charts website