Buy the Pound, Sell the Euro?


Active Trader
Apr 19, 2012
Cork, Ireland
EURGBP. We had some interesting economic numbers released last week. Perhaps overlooked was the European M3 money supply report. This is the broadest measurement of the money supply and the quarterly and yearly growth numbers were both smaller than expected. The largest deviation from the pundit's guesses was the yearly number, up only 2.7%, less than the expected 3%.

A recent article by Ambrose Evans-Pritchard made some interesting observations:

"The broad M3 gauge - watched by experts as an early warning signal for the economy a year or so ahead - shrank by €30bn and is now down by €143bn since April. This is highly unusual.

The narrow M1 gauge watched for signals of activity six months head has held up better but also contracted in September, falling by €16bn. "The message is clear," said Lars Christensen from Danske Bank. "The ECB needs to stop obsessing about fiscal issues and do real quantitative easing (QE) if it wants to stop the eurozone going the way of Japan."

Could it be the Germans, obsessed with inflation paranoia, will result in deflation for all of Europe? The demand for austerity and the consequent economic contractions make it much more difficult to balance a budget. Eventually the bad loans need to be written off.

In the US today the quarterly GDP (Annualized) came out at 2.0%l; this number is better than the 1.8% increase expected. But good economic numbers might be part of the October surprise prior to the November 6th election.

Last Thursday (October 25), the UK quarterly GDP numbers were released. The Summer Olympics provided a boost, and the 3rd quarter growth at 1% brought the yearly growth rate back to even. This ends the Brits recession, but can we look forward to positive growth going forward?

This week we get unemployment numbers, and the always exciting Non-Farm Payroll report. First, German unemployment: they are forecasting it will move up to 6.9% from 6.8%. Unemployment for the eurozone, currently 11.4% is projected to increase to 11.5%. In the US, the current 7.8% rate is expected to go up a tick to 7.9%. The US NFP number is expected to show a 120K increase. Personally, I would not be surprised if it came in over 200K.
There is a wall of worry surrounding both the Euro and the USD - both seem to be currencies with flaws. Yes, there is volatility, but we think the trade will be in a wide trading range.

An alternative to the EURUSD might be a trade in the EURGBP. The weak Euro combined with the better than expected British GDP resulted in a sell-off of the euro versus the pound from .8160 to .8015. On the break, we crashed through the 200 day SMA and had a MACD sell signal. We would like to sell the EURGBP if we get a bounce back to .8070 vicinity. The initial target is .7930 but the longer target is .75. As always, use appropriate money management.



Any opinions, news, research, analyses, prices, or other information contained in this post are provided as general market commentary, and do not constitute investment advice from and/or