Following strong retail sales on Black Friday we may see some dollar strength returning. Further evidence of this will be any slowing in German trade figures which are out tomorrow. In addition we have US consumer confidence data and US house price index which may also throw further light on the sub prime debacle. Euro dollar has continued to consolidate a shade under 1.49 but we could see dramatic moves tomorrow. I would therefore continue to trade this pair as a straddle. A glance at the latest COT report shows non commercial (speculators) still determined to long the euro while commercials are beginning to build short euro positions. For another view of the euro; against the yen it is showing a positive sell and any break below 158 could even lead to a run to 155 or even 154. This is also more evidence of carry trade unwinding.
Friday’s huge doji on cable simply confirmed the indecision swirling around this pair. Given its position in the charts it is impossible to forecast accurately what will happen next. My personal view is that the pound will continue to fall in the short term. As there is no significant data in the UK until Thursday when house price and mortgage lending figures will simply confirm that there has been a slowdown, i would not trade this pair until then.
Speeches from both Blanchflower and Sentence tomorrow may have some impact on cable but as it is no secret that the BOE plans to cut interest rates the only question is whether it will be as early as December. Of far more interest is the political background in the UK. Prime Minister Brown just cannot seem to stop skidding on banana skins – the latest being sleaze surrounding donations to the Labour Party.