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 Monday 04 April 2016

PM Bulletin: Holiday spending money

 

 

It’s been while since I’ve been abroad - Europe or anywhere else for that matter. So I thought I’d take the plunge this year and head off to Ibiza. I’ve got a seat on a plane, a place to stay and now I’m looking forward to July and some decent weather. But then I thought about a referendum which takes place on 23rd June – the week before I leave. Whatever one’s views on Europe two things are certain. We’re going to experience high levels of volatility in sterling currency pairs over the next few months, and we can’t rely on the polls to accurately predict the referendum outcome. It won’t be an expensive holiday (I won’t be doing much clubbing) but I don’t want to be paying top-dollar prices for euros either – I have some pride. So buy now or later?
   
Sterling has lost around 14% since November last year, so it’s a shame I didn’t think about all this earlier. But if we look at the daily chart of the EURGBP below, the latest rally is put in perspective.

Holiday spending money 1

The euro has been in decline since the fag-end of 2008 when it briefly traded above 0.9800. If we cast our minds back we remember the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and the very real fears of a Euro zone break-up. It wasn’t that long ago that all the talk was of a GREXIT, not BREXIT. But even when things calmed down (although they remain unresolved) the euro continued to come under pressure as Mario Draghi first promised “to do whatever it takes” to save the euro and then managed to persuade his colleagues on the Governing Council to launch a programme of quantitative easing. Now it’s sterling’s turn to fall thanks to nervousness ahead of the referendum, and as investors increasingly come to believe that the ECB is approaching the end of monetary easing.

Holiday Spending 2

The area around 0.8030 has acted as resistance in the past and that area is being challenged again. It also ties in with the upper prong of the Andrews’ Pitchfork that I’ve also drawn on the chart above. But the Pitchfork also suggests that there’s a decent upward trend in the EURGBP which makes me think the rally could have further to go if it can break and hold above 0.8030 over the next week or so.
 
What to do about my holiday spending money? The problem is I’ve got to trade. If I was sensible I’d be a scaled-in buyer and spread the risk. But I think I’ll make it exciting and punt the referendum. After all, whatever the outcome my final P&L will only amount to a round of drinks.


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Posted by David Morrison

Category: PM Bulletin


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