From sweats to shivers; EURGBP; one to watch

Being a daily user of the underground I have finally succumbed to a heavy dose of a variant of the flu. I have spent most of the night either shivering uncontrollably or sweating like a pig. This swing from one extreme to another reminds me of markets, how supposedly purely capitalistic systems are now turning to socialism.

With extreme positioning in mind I took a closer look at EURGBP. I have been a EURGBP bull since the lows back in 2007. The Eurozone's main engine Germany has recently released some dire figures with their industrial output being one of note, a worse than expected 2.1% fall during October. Given the fact that Germany was the worlds largest exporter of goods in 2007, just ahead of China and the US, any impact on its industrial output will have a material impact on its domestic economy. In currecy markets EURSEK, EURNOK, EURGBP are all at, or near, all time highs and EURUSD has not been hit as hard as other dollar rates in the recent bout of dollar strength. Thus it appears that external demand for German goods is faltering as the EUR maintains its strength. This is unlikley to be a coincidence.

Returning to EURGBP, I see the .8950/.9000 region as offering a reasonable zone to exit longs and depending on price action, should it get there, could act as a place to get short. EURGBP may have the red hot sweats now, but Germany is showing the first signs of a bout of the flu. Given Germany's position as the engine of Europe, combined with the peripheral economic basket cases of Italy, Spain, Portugal and Ireland, a chilling of economic conditions in Germany, may lead EURGBP to experience a swing from sweats to shivers.