…. and of course this pushes the pound lower immediately on the markets. This is the typeof market news where noone would know how to react and this is why most experienced forex traders advise to stay aside when such pieces of asteroids hit the news.
The British pound declined and gilts (the British bonds issued by government) advanced amidst speculation the government’s pledge to balance the budget by the end of its first term will damp the economic growth. Osborne said the government will cut the deficit to 20 billion pounds by 2015-2016 and will cut spending by 30 billion pounds annually.
Concern the U.K. would struggle to narrow the biggest budget deficit among the Group of Seven nations helped send the pound 9 percent lower against the dollar this year. Speculation the U.K. would lose its AAA rating helped the 10-year yield reach 4.3 percent on Feb. 22.Osborne, 39, the youngest chancellor since 1886, will outline plans to cut spending by the most in a generation to rein in the deficit, which amounts to 11.1 percent of gross domestic product. “We have set a brisk pace since taking office,” Osborne said while presenting the budget. “It has earned us credibility.” Read more
Or (if you want) miss-correlations. As all of your guru traders will say, in the forex trading you learn for your lifetime. And when you think you saw them all, something comes and takes away all your confidence (and hopefully not your profits, especially when you have the risk management tools in place).
What happened? I decided to test today on the MetaTrader 4 (MT4) platform the buy stop and the buy limit orders on the “twister sister” or the GBP/JPY pair. And the results were quite interesting.
So what happened? I placed from the previous day a buy limit order on the GBP/JPY, on the assumption that the yen currency will devaluate a bit whilst the pound will be stable. This was based on the relatively mild-to-bad incoming economic news: the trade balance of Japan was on the larger side of the forecasts, whilst the GBP news (public sector borrowing, retail sales and preliminary mortgage approvals, to name just a few) should have been better. And so they were. Read more
The pound rose against the euro, dollar and yen after Nationwide Building Society said the average cost of a home jumped 0.9 percent from February to 150,946 pounds All 13 economists in a Bloomberg News survey predicted a decline.
“The pound is very sensitive to the fortunes of the domestic housing market,” said Neil Jones, working with Mizuho Corporate Bank Ltd. in London. “The pound is increasing on the back of this upside surprise in house prices.” Read more
Interestingly enough, this week the sterling pound has dropped to its lowest level in 12 years against a broad basket of currencies amid a wave of weak economic performance indicators released. This GBP weakening kept alive a talk about a cut in interest rates by the Bank of England. Sterling’s trade weighted index hit 89,5, the lowest level since October 1996, and the pound fell close to a record low against the Euro.
In the second quarter, UK’s economy virtually grounded to a halt, whilst the houses prices fell at the fastest pace since August 1991. Even worse, the UK retail sales plunged to their lowest level in 25 years. This raised expectations of interest rates cut, which would further undermine the pound’s appeal to investors. “The recent ULK data have been universally bearish for the pound and the path of least resistance remains further weakness”, said a JP Morgan analyst.
The dollar rose to a one-month high against the euro as the pace of job erosion in the U.S. slowed while a decline in German retail sales indicated economic weakness is spreading to other developed countries. Read more