Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Pound Attempting to Stage a Rally

After achieving the 2010 high on  Jan 19 of 1.6455, this market has headed south, and made a new low of 1.5532 on Feb. 8.  It is interesting to note that on Jan 18th After achieving the 2010 high on  Jan 19 of 1.6455, this market has headed south, and made a new low of 1.5532 on Feb. 8.  It is interesting to note that on Jan 18th the open interest in the pound futures was about 80 thousand contracts.  On the same day the OI was 130 in the AUD, 120 in the Cad, 162 in the euro, and 119 in the yen.  This morning the CME report of futures only showed the OI was 119k in the pound, compared to 98 in the AUD,93 in the Cad, 196 in the euro and 120 in the yen.  Trading in the pound grew sharply during this time frame grew, as the large specs sold the market vigorously.  On the last report, they were short 53.8% of the expanded open interest.  Not to be left out, the small spec joined the party and were short over 32k contracts on the last report.

Concentrated buying or selling of a market can become a self fulfilling prophecy.  We saw that in 2008 in the crude oil market as the funds bought at ever increasing prices, thereby bulling the market.   Once the crude market reversed, it left the longs stranded as that market sold off almost $100 a barrel.  We are not suggesting the the pound is as oversold as the crude market was overbought in June of 2008, but there was nearly a 50% increase in the pound OI during the last month.

This morning the Claimant Count Change came in at 23.5k, above the expected -14.6k, which of course shows more unemployed.   This, combined with a better than expected US building permit and housing starts report, turned the market back down after a brief excursion above the 1.58 handle.  This afternoon we get a report of the Treasuries aggregate receipts and disbursements for January.  This number is expected to be -$44.2B down from the previous month's  -$91.9B.  Anticipation of increased tax collections because of the January estimated payments is probably the reason for the smaller deficit.  Tomorrow the Brit's will give us their estimate of the Public Sector Net Borrowing, an indicator of their public cash flow.  These reports may give clues how the two countries are faring with their massive fiscal deficits.

Failure of the market today, to hold the 1.58 level will probably reinforce the bears resolve.  This market has been featureless, meandering in a sideways pattern since Feb 7.  It is very unusual that the Feb 7 low has not been retested.  Is it possible that we are forming a bottom similar to the one forged Sept 28th through Oct.13th.  A similar pattern would call for a revisit to the 1.56 area.  Now, like then in October, the large specs again have a big short position in the pound.  Currently we think the market needs to retest the lows.  Should the market fail to follow through to the down side, this may be a set up for a rally back to the 1.60 level. We will see if history repeats.the open interest in the pound futures was about 80 thousand contracts.  On the same day the OI was 130 in the AUD, 120 in the Cad, 162 in the euro, and 119 in the yen.  This morning the CME report of futures only showed the OI was 119k in the pound, compared to 98 in the AUD,93 in the Cad, 196 in the euro and 120 in the yen.  Trading in the pound grew sharply during this time frame grew, as the large specs sold the market vigorously.  On the last report, they were short 53.8% of the expanded open interest.  Not to be left out, the small spec joined the party and were short over 32k contracts on the last report.

Concentrated buying or selling of a market can become a self fulfilling prophecy.  We saw that in 2008 in the crude oil market as the funds bought at ever increasing prices, thereby bulling the market.   Once the crude market reversed, it left the longs stranded as that market sold off almost $100 a barrel.  We are not suggesting the the pound is as oversold as the crude market was overbought in June of 2008, but there was nearly a 50% increase in the pound OI during the last month.

This morning the Claimant Count Change came in at 23.5k, above the expected -14.6k, which of course shows more unemployed.   This, combined with a better than expected US building permit and housing starts report, turned the market back down after a brief excursion above the 1.58 handle.  This afternoon we get a report of the Treasuries aggregate receipts and disbursements for January.  This number is expected to be -$44.2B down from the previous month's  -$91.9B.  Anticipation of increased tax collections because of the January estimated payments is probably the reason for the smaller deficit.  Tomorrow the Brit's will give us their estimate of the Public Sector Net Borrowing, an indicator of their public cash flow.  These reports may give clues how the two countries are faring with their massive fiscal deficits.

Failure of the market today, to hold the 1.58 level will probably reinforce the bears resolve.  This market has been featureless, meandering in a sideways pattern since Feb 7.  It is very unusual that the Feb 7 low has not been retested.  Is it possible that we are forming a bottom similar to the one forged Sept 28th through Oct.13th.  A similar pattern would call for a revisit to the 1.56 area.  Now, like then in October, the large specs again have a big short position in the pound.  Currently we think the market needs to retest the lows.  Should the market fail to follow through to the down side, this may be a set up for a rally back to the 1.60 level. We will see if history repeats.




Disclosure: no positions