Investment case:
• For the coming two quarters there are not many indications of a stronger dollar apart from an outbreak of risk aversion – rising equity prices will cause the US dollar to weaken.
• US interest rates will remain low and the dollar is still used as funding currency.
• The undervaluation of GBP is more than 25% and will be offset over time with a resultant sharp strengthening of sterling.
• We expect that the BoE will raise interest rates in Q3 and that the Fed will not raise until Q4. This will support sterling against the US dollar.
• The strategy horizon is 3 months.
Potential/strategy:
We recommend investors to BUY GBP/USD , the first target being 1.6800 and the next 1.7100. We recommend placing a stop loss at around 1.5700. The spot reference is 1.6150.
Risks:
• The trend in economic indicators for the UK in the coming 2-3 months: will the upswing continue? If not, we will probably not see a strengthening of sterling.
• The debt problems in the UK increase causing sterling to weaken.
• The Fed signals that it will raise interest rates earlier than we expect. This points towards appreciation of USD.
• A general shift in market sentiment towards risk aversion will be supportive of the US dollar and be negative for sterling.
• For the coming two quarters there are not many indications of a stronger dollar apart from an outbreak of risk aversion – rising equity prices will cause the US dollar to weaken.
• US interest rates will remain low and the dollar is still used as funding currency.
• The undervaluation of GBP is more than 25% and will be offset over time with a resultant sharp strengthening of sterling.
• We expect that the BoE will raise interest rates in Q3 and that the Fed will not raise until Q4. This will support sterling against the US dollar.
• The strategy horizon is 3 months.
Potential/strategy:
We recommend investors to BUY GBP/USD , the first target being 1.6800 and the next 1.7100. We recommend placing a stop loss at around 1.5700. The spot reference is 1.6150.
Risks:
• The trend in economic indicators for the UK in the coming 2-3 months: will the upswing continue? If not, we will probably not see a strengthening of sterling.
• The debt problems in the UK increase causing sterling to weaken.
• The Fed signals that it will raise interest rates earlier than we expect. This points towards appreciation of USD.
• A general shift in market sentiment towards risk aversion will be supportive of the US dollar and be negative for sterling.
0 Response to "FOREX ALERT 01/13/10: RECOMMENDATION – BUY GBP/USD"