Well it seems that S&P's announcement has had little effect on Sterling. I must admit I have sympathy with the price action. Afterall why should we trust an organisation that got it so wrong on the way up to tell us how things are on the way down. Ultimately they are a corrupt organisation who's influence on the market is far too great. Over time S&P have managed to get their ratings into various bits of legal documentation that stipulate what can and cannot be held in various funds. It is via this route that they still exercise such influence. If major sovereign downgrades do occur it will be for the better, because with it S&P may find that they instigate their own demise. In the long run Japan proved that you don't need to bother with S&P. And hopefully the investment community at large will conclude the same. Of course an equivalent independent organisation that is not funded by those that it rates would be most welcome.
That said, as someone who lives in the UK, I do appreciate that the debt burden on the state and the consumer is considerable, but is it really that much worse then other major economies (US, Germany, France). We are all in this together and that is why I think that the markets shrugged off the initial knee jerk reaction.
In the short run I remain a EURGBP bear simply due to a major over-extension on the top side. In time I hope to do an update on this too. Back to cable. The price action is exhibiting some initial signs of exhaustion, so given my view on the USD I feel that the region around 1.6055 could act as a decent area for shorts with a return to the 1.5000 region initially. Where to place a stop is down to the individual trader but a minimum 100 tick stop is recommended. To get at least a 2:1 ratio you could place one over 1.6400 too.
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Thomas Adair
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