Cable fell to 1.4935 in Asia as UK budget woes hit the pound and a short while ago rallied to 1.5095 in New York as shorts scrambled to cover. We’ve seen this movie again and again and there is never a happy ending…
The fundamental backdrop in the UK remains dire with high odds of a hung parliament for the first time in over 35 years. A deteriorating fiscal outlook and grim growth prospects give specs plenty of reason to be bearish. The trouble is, we’re all the same way. When we’re all on the same side of the boat, the boat tends to tip over.
Cable rallies sharply, as we’ve seen again and again, to clear out the weakest shorts, but never enough to change the bearish backdrop. It trades just like EUR/USD, to put it in a nutshell…
Solid resistance lies above the market at the 1.5125 level. Expect more short-covering if that level is breached.
