1st December 2022
THIS POSITION IS NOW CLOSED
(CORE) POSITION TRADE
TRADE REFERENCE: CP23
TRADE DIRECTION: LONG
TRADE STARTED: 5th January 2021
EXPECTED TRADING PERIOD: Very Long-Term (Thru 2021 – 2024)
REASONS and THOUGHTS BEHIND THE TRADE:
The last time I took a CORE POSITION with this pair was (CP15) in December 2019. Since then, much water as they say has passed under the bridge.
Where to start....
I do NOT want to go too deep here as I will have pages of reasons and pages of thoughts behind this trade.
- BREXIT is now finally out of the way. A deal is done that requires ratification both sides of the English Channel.
- VACCINE ROLLOUT is underway in the UK. Initially via the Pfizer vaccine, but more interestingly over 100 million doses of the Moderna vaccine have been ordered this can be held in fridges the cost of £3.00 a shot is the most cost-effective vaccine option and the rollout through local GP’s and Pharmacy’s is planned. This will place the UK well ahead of other countries.
- BANK OF ENGLAND, at the height of the pandemic BOE Governor Mark Carney was swapped out for Andrew Bailey, who decisively chopped cable interest rates to 0.10% and doubled QE purchases almost on day one. He talked about negative rates for a while, but recently has dismissed this as a measure.
- GOVERNMENT SPENDING is generous, new chancellor Rishi Sunak appears to be supporting where he can with as much as he can. The issue here in my opinion is inflation. Increasing Government spending is GBP positive but if inflation rises the BANK OF ENGLAND would be forced to act. It is what Governor Bailey does in that scenario which is interesting. A rate hike would stop in its tracks any economic recovery and would signal the end of a Government spending. That could be GBP negative.
- JOE BIDEN AS PRESIDENT OF THE UNITED STATES is probably a positive for overall UK / US relations the Democrats and UK Conservatives share many economic core values. CHINA and RUSSIA fears are aligned as well. U.S. FED policy is clear and with ex FED Chair Janet Yellen as Treasury Secretary the idea of U.S. spiking back to 100.00 seem a little remote. The flags in the U.S. have been pinned to the mast and the USD has been the sacrifice. Will BIDEN say he wants a STRONG USD policy obviously, so will uber dove Janet Yellen BUT their combined actions with the FED will say the opposite.Most importantly though if BIDEN can control both “houses” he will spend, spend, spend... infrastructure, pandemic relief and support will re-define the term HELICOPTER MONEY....U.S. equities will continue to rally and the USD will be demolished.The BIDEN victory after the dust settles, I believe will be is GBP positive.
What is fair value for the GBP/USD?
There have been so many articles about this. Initially, I was working with spike highs of 1.4380 from April 2018, but of late following the BREXIT TRANSITION DEAL being agreed many more theories and opinions have surfaced, some more conspiracy based than others, but I do see maybe 1.5000 being the best option. 1.5024 was a spike high June 1st, 2016 just prior to the UK BREXIT REFERENDUM.
CURRENT CENTRAL BANK INTEREST RATES:
Current FED rate: 0.00%
Current BOE rate: 0.10%
Q1 2022 REVIEW:
I brought my LIMIT objective in from 1.5020 to 1.4250. This level is more reflective of current market conditions.
This pair is in a huge consolidation phase off its COVID lows of around 1.1400. Patience is required as we get past COVID-19 and the UKRAINE war. Fundamentally, the UK has the same issues as most of the G7 countries and it will take time to push through.
Moving forward, I think that my trading volume with this pair will resemble more of a RANGE TRADER as opposed to a POSITION TRADER. The bottom line however is that in my opinion post UKRAINE war the UK will be faster to revert to normality that the EUROZONE and therefore I see cable more perkier. The EUR/GBP should provide support to push this pair higher.
CHART UPDATE: 01.05.2022 5 Minute ZOOM update: