BUY BRITISH POUNDS (GBP)
Investment case:
- The phasing out of quantitative easing and hikes by the BoE (before the ECB) will lead to appreciation of sterling.
- A gradual improvement of the economic situation and clarification of the political situation will reduce uncertainty related to sterling and the risk premium.
- We expect a minor but gradual appreciation up until the summer of 2010. The great potential of sterling is some months ahead.
- The strategy horizon is 3 months.
We recommend buying sterling against the euro with a three-month target of 0.8400. We recommend placing stop loss about 0.8900, since a breach of this level will indicate a shift to a new level. If you would like to place your stop loss a bit closer, our recommendation is at about 0.8850. The spot reference is 0.8805.
Risk:
- The UK falls back into recession and interest rates remain low for a longer period than expected.
- If the financial crisis re-escalates, sterling is likely to have a higher risk premium due to its exposure to the financial sector in London.
- A hung parliament may extend the period of uncertainty related to the consolidation of the finances.
- The euro zone will get the situation with Greece (and the debt problems elsewhere) under control.
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