Currencies: Caught in a trap
In this era of Devalue Trading (©Lee Oliver & the weeklyFiX), it is clear that many market participants are struggling to work out which currency stinks the least and is therefore worth buying. Take EUR/GBP; it’s been up and down like a whore’s drawers over the past couple of weeks, but is ultimately little changed. Analysts have made good cases for significant breaks both up and down and, typical of a range-bound currency pair, EUR/GBP has looked very bid at the highs and offered at the lows.
On Monday, just as EUR/GBP appeared poised to break lower, it abruptly turned around and raced back to the top of its range. BNP Paribas was not the only bank to scratch its head. “We had been expecting EUR/GBP to break lower through the key near-term support in the 0.8815 area opening downside potential towards 0.8660 and even 0.8520. However, despite slightly breaching the 0.8815 level EUR/GBP has rebounded as the financial sector once again leads the equity markets lower, putting sterling under pressure,” the bank said.
The catalyst for the sterling sell off was HSBC’s announcement it was going to raise around £12.5 billion through a deeply discounted rights issue.