None of that makes sense. The term "No Comment" is primarily reserved for the accused, politicians, and attorneys (just typing that makes me realize those three groups share a similar lack of scruples) or someone that is hiding terrible news.
This morning at 7am Eastern, the Bank of England left rates unchanged and said, "NO COMMENT". What is the likelihood that it was No Comment because they didn't want the world to know that it was a unanimous vote to leave rates unchanged, they didn't want to tell the world how great the British economy is doing or they had no concerns of the credit crunch and housing market? Could it be they left a no comment because they are concerned about how bad the news is and how much it would shock their currency if they exposed the whole truth of their decisions (minutes will be released on October 17th). I am betting on the second and I am a little surprised that the world market didn't read between the lines on this one. Lots of bad news and a weakening pound but No Comment must have been because they were tired and didn't want to say anything today.
Looking at the previous blog on why I thought the pound should weaken and why we should have heard dovish comments out of the Bank of England, I began my search for the right pair to trade and I found it in a peculiar place. I found it on the Gbp/Chf. This is not necessarily because I think this will be the most profitable trade, more that it is one of the easiest pairs to analyze and control risk.
In the chart you can see a nice down trend over the past couple of months with an approach and likely bounce off of resistance.Risk can be controlled with a 200 pips stop and a potential reward of nearly 500 pips if not more. As time goes on and if the lower trend line is reached, the lower trend line could be as low as 2.32 for a 750 pip move.
The problem with this trade is that the CHF is a weak currency. The benefit is, if I am right about the GBP, the minutes will reveal the dovish sentiment and further unwind "carry trade" pairs including the GBP/CHF pair.
3 comments:
Long $YUK Nov 116 calls @ $1.45.
An alternate view: Maybe the Bank of England has just seen the enormous, irrational reaction of the market in response to the Fed's comments in the U.S. and did not want the market to behave in a similar manner to their comments. I think it is irresponsible of the Fed to make comments that have a manipulatory effect on the market. On the other hand, they do try and keep their tone down and it may be the investors being totally irrational and irresponsible.
definitely agree with enormous irrational reactions. Though I disagree with him in so many ways, I always liked the Greenspan term of irrational exhuberance (sp?)
Post a Comment