Pinoy New Era Of Investment

Investment case:

• It seems that UK retail sales have bottomed out. Consumers are beginning to look ahead, and the housing market seems to have stabilized. Overall, this should support sterling.
  

• Interest-rate hikes in the UK in Q3 2010 will support sterling.

• The prospect of deflation in Japan until some time in 2011 means that any tightening of the monetary policy in the form of interest-rate hikes is a good long way off.
  

• We expects equity prices to rise over the coming months, and this should support the sale of JPY.
  

• Technically, GBP/JPY is at the bottom of the trend, and our preferred technical indicators have buy signals for GBP/JPY.
  

• The strategy is expected to last for up to three months.

Potential/strategy:

We recommend investors to buy GBP/JPY forward outright, the first target being 150, the next
152. Stop loss should be put at around 139.50. The spot reference is 145.46.

Risks:

• The BoE is still considering whether to lower its rate on the banks’ reserves, thereby pushing down rates further to force the banks increase their lending. This may put pressure on GBP.
  

• Given its sharp fluctuations, sterling has been difficult to predict these past few weeks. There is no indication that the situation will change towards the turn of the year, and this may result in fair fluctuations of the position.
  

• Risk of renewed risk aversion supports JPY slightly.