In association with

Market Bulletin 20th January 2011

The Technical Trader’s view:

UK Pound Sterling - US Dollar 2.20

2.15

2.005 - 2.01 High from 1991/2 2.10 MONTHLY CHART

2.05

2.00

1.95 The wide context of cable is

1.90

1.85
clear and well-structured: within
1.80
the immediate trading range of
1.75

1.70 1.36-1.70 a triangle has formed

1.7050 Low
1.65

1.60
– look closer.
1.55

1.50

1.45

1.40

1.35
1.3688 Low Pivot 1.30

1.25

1.20

1.15

1.10
Low 1.1065
1.05

1.00

0.95
1981 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

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This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
 In association with
UK Pound Sterling - US Dollar
1.80
1.79
1.78
1.77 WEEKLY CHART
1.76
Low resistance 1.7050
from the low in Dec 2005
1.75
1.74
1.73
Of course, Triangles are
1.72
1.71
1.70
typically continuation patterns,
1.69
1.68
1.67 in this case a bear continuation
1.66
1.65
1.64
1.63
pattern…
1.62
1.61
1.60
1.59
1.58
1.57
But not always and the close
1.56
1.55
1.54 approach to the upper falling
1.53
1.52
1.51
1.50
diagonal boundary (currently at
1.49
1.48
1.47
1.6170) is intriguing.
1.46
1.45
1.44 As is the possibility that that
1.43
1.3688 Low Pivot 1.42
1.41 diagonal might be regarded as
from 2001 1.40
1.39
1.38
1.37
the Neckline of a bull Head and
1.36
1.35
1.34
Shoulders pattern. The slope of
1.33
1.32
1.31
1.30
the neckline is a weakness of
1.29

A S O N D 2008 M A M J J A S O N D 2009 M A M J J A S O N D 2010 M A M J J A S O N D 2011 M A

this interpretation, but if 1.6170
were overcome a completed
bull H&S would be plausible.
Look closer still.

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Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573
E-MAIL MSTURDY@SEVENDAYSAHEAD.COM WWW.SEVENDAYSAHEAD.COM
This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
 In association with
UK Pound Sterling - US Dollar
1.690
1.685
1.680 DAILY CHART
1.675
1.670
1.665
1.660
1.655
There is no clear short-term
1.650

1.6298 High
1.645 source of bull impetus at work
1.640
1.635
1.630
here.
1.625
1.620
1.615
1.610 Certainly the market’s strength
1.605
1.600
1.595
in overcoming the prior Low
1.590
1.585
resistance at 1.5846 was
1.580
1.5846
1.575 impressive.
1.570
1.565
1.560

1.5217 1.555
1.550
1.545
1.540 But there is no driving pattern
1.535
1.530 behind the bull trend - yet
1.525
1.520
1.515
trends can continue with their
21 28 5
July
12 19 26 2 9
August
16 23 30 6 13
September
20 27 4 11
October
18 25 1 8
Novem ber
15 22 29 6 13
Decem ber
20 27 3
2011
10 17 24 31
February
own internal logic. If it does
then an assault on the diagonal
+ and Prior High at 1.6298 must
follow - with the exciting bull
implications from the week
chart.

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Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573
E-MAIL MSTURDY@SEVENDAYSAHEAD.COM WWW.SEVENDAYSAHEAD.COM
This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
 In association with
The Macro Trader’s view:
We have argued over recent months in the Macro Trader’s guide that Sterling was oversold
during the financial crisis and subsequent recession. We judged the UK economy fared no
better or worse than most other leading developed economies.

What seemed to rattle investors most about the UK wasn’t the actual Debt-to-GDP ratio or
even the Deficit-to-GDP ratio that emerged as a result of the recession, but rather the speed
and degree of deterioration compared to the UK’s peers.

Now though, the UK has taken some harsh and difficult steps to cut both the budget deficit,
structural deficit and control the national debt. The worry is the measures adopted might prove
too strong a medicine for the economy to handle and risk falling back into recession.

This fear is a potential negative for the Pound, but right now Sterling is enjoying a period of
relative strength against the Dollar and to a degree the Euro. There are several reasons for
this, some are domestic others are not. The main reasons though are;

- The level of UK inflation over the last 2 years has or so proved consistently worse than
the Bank of England’s quarterly inflation report forecast,
- UK Interest rates are now forecast by independent analysts to rise this year to control
inflation despite fears of a potential economic slowdown,
- US interest rates look set to remain low for an extended period as the Fed tries to
nurture the US economy back to health,
- US public spending is still running at the crisis levels previously seen in the UK, with a
budget deficit to GDP ratio around 10 - 12% and a debt to GDP ratio fast approaching
100% and in the absence of a policy change, won’t stop there,
- US inflation is running at very low levels and looks contained leaving the Fed free from
pressure to tighten policy.

So does this mean the Pound is already clawing back the losses it previously suffered on the
way back to a more realistic level? One that reflects Sterling’s purchasing parity (about 1.7000
-1.7500) or is this rally a false dawn and if so why?

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Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573
E-MAIL MSTURDY@SEVENDAYSAHEAD.COM WWW.SEVENDAYSAHEAD.COM
This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
 In association with

While we would like nothing more than to be able to proclaim a new bull trend is in place for
Cable, we feel unable to do so. While there are very real concerns about the short term path of
inflation, which is currently forecast by independent analysts to rise to between 4% – 5%, we
judge the factors behind the run up are either one-offs like the VAT hike or are a result of
higher energy and food costs which originate abroad and cannot be easily controlled within the
UK economy simply by hiking rates.

We also hold the view that the economy will slow this year. Unemployment is forecast to rise
by around 250k. The government hopes the private sector can absorb most of the public sector
workers displaced as a result of the spending cuts, but so far there is scant evidence for this.

Our current view of Cable is that the Pound isn’t yet sufficiently free from uncertainty to allow it
to fully recover. Until there is greater clarity about the economy’s ability to weather the current
fiscal retrenchment, we judge the Pound is likely to suffer a correction lower, before the big
rally begins, so the recent high may be it for a while.

Mark Sturdy
John Lewis
Seven Days Ahead

SEVEN DAYS AHEAD Professional trading guides and recommendations for the World's markets

Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573
E-MAIL MSTURDY@SEVENDAYSAHEAD.COM WWW.SEVENDAYSAHEAD.COM
This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.