Forex rebates on every trade - win or lose!

If the ADP was anything to go by, NFP's could easily fall short of expectations.

Gausie, i am looking at forex and will start from monday,i will be interested in the chatroom,could you please send me info to scussy@ntlworld.com

cheers
steve

Afternoon everyone. Easing myself back into Cable after a health scare which I hope has been resolved satisfactorily. Thanks Hilary for asking about me and to those who sent their regards via Bakko. I appreciate it.

Monday should see me back trading or at least feeling my way around again. Til then, happy trading and a Happy and Prosperous New Year.

LOL well I might have got that slightly wrong earlier...

Daily support looms now at 1.9250

anyone ride this thing down here...

:-)

Currently playing with FXCM's system, trial long from 1.9394, was long from 362 but trying to set a stop I managed to close it - only play money at the moment. The trailing stop in FXCM is really useful. edit stop is now at entry.

Does my stop look to tight in this?

SC: I'm also playing with FXCM.

A beauty contest for misshapen half-wits

Even Wall Street agrees the Pound Sterling must tumble. So why have central bankers been buying all they can get...?


Everyone wants a piece of the UK today. Bill Bryson just got himself an honorary gong. Monty Python's 'Spamalot' musical will soon hit Las Vegas (it's a hoot, by the way). And half-a-million Polish citizens are now living in Britain to earn Sterling, not Zloty.

Should US investors hail a black cab to Britain? Hold the Pound up to the light before you hedge your Dollars this Christmas.

Check the watermark. Make sure the metallic strip is intact. Then read the "promise to pay" signed by Mervyn King, Governor of the Bank of England. It's just as empty as the promise on US Treasury notes. Nothing but more fiat promises back it up which will work fine so long as everyone accepts Sterling in payment of debt.

But the Pound is set to fall hard, according to two big US investment banks. Goldman Sachs says the Pound is 13% over-valued on a trade-weighted basis. Lehman Brothers are gloomier still. "I'm not saying that things will be terrible, but they will feel much worse," warns their chief UK economist, Alan Castle. He sees Sterling falling to $1.82 next year, before sinking to $1.68 by Christmas 2008.

Wall Street's reasons are simple. They might give you da vu, too. For Great Britain and the United States have much more in common than merely the mess in Iraq.

Just like America, Britain is currently running a huge trade deficit with the rest of the world. The largest shortfall in Western Europe, it reached a near 18-year record this fall. And just like America, Britain also has a mountain of government debt.

Officially, public sector net debt stands at 486.7bn. That's equal to US$953.9bn and represents a little under 38% of annual GDP. Add the state's "off balancesheet" debt, however including its pension promises to state-paid employees and the total shoots nearly three times higher. Research by the Centre for Policy Studies in London says it would put UK government deficits at a staggering 103% of GDP. The debt burden per household would be over $103,880.

Then there's consumer debt only here, Britain is way ahead of the States. Total consumer liabilities now run to an entire year's worth of GDP, thanks to house prices tripling since 1996. That's when the last wipeout troughed. It started in late '89 and knocked average home prices, adjusted for inflation, down by 35% and beyond. Fast forward to Dec.'06, and the British now owe $2 trillion in housing debt, much of it held as a naked call otherwise known as interest-only home loans with no money down.

Now add unsecured debt per household of $16,840 on average...plus personal bankruptcies doubling to an all-time record since 2004...and "the surprise is that the Pound has been so strong," gasp Lehman Brothers. "Current account deficits matter over time," the suits in the City remind us, "and we're worried that Britain's [trade] deficit could widen to 4% of GDP in 2008."

But c'mon! What took Lehmans so long? None of this trouble is new. And other US investment banks have called the Pound lower before. Trouble is, they were wrong.

"As a top trade for 2005, we recommend going short AUD, GBP and NZD," said Morgan Stanley in January last year. By their expert math, these three Anglo-Saxon currencies were all "overvalued [and] no longer trading on fundamentals." That bit was right, but the trading idea was not. If you had sold the Aussie, Kiwi and Sterling against Euros and Dollars in 2005 it would have cost you dear long before now. As 2006 draws to a close, the trade's barely back in the money.

And all this while, the Pound has grown weaker on all fundamentals. Britain's broad money supply has exploded 25% since the start of '05. That's the fastest growth by far amongst the G7 economies, and nearly twice the rate of world money growth judging by the Bank of England's own data. Worse still, in early April this year, Dollar interest rates overtook Pound rates for the first time since 2001. This didn't bode well for Sterling, as a research note from HSBC said.

During the previous three decades, the GBP/USD pairing known as "cable" by traders had lost 12% per year on average whenever Dollar rates were higher. Yet this time the Pound shot higher against the Greenback as the yield-premium went Stateside. In fact, it leapt 15 cents higher to $1.90 within only five weeks!

So who's been filling their boots? It's a good job that Sterling broad money has risen so fast. Because the Pound has become the "anti-Dollar" of choice for the world's central bankers.

"There are not many places to go once you decide to get out of the Dollar," shrugged an official from the Banca d'Italia in August. Italy's monetary wonks had just said that Sterling accounted for 24% of their foreign currency reserves. They didn't hold any in 2004.

"Japan is always a question mark," he shrugged again. "At least the British economy is humming along okay and UK bonds offer a decent yield..."

In other words, Sterling is better than a poke in the eye. And it's thanks to that logic, says a report from the Bank for International Settlement (BIS), that the Pound now accounts for 12% of all foreign reserves held by governments worldwide. In fact, the UK currency underpinned by record inflation of the money supply...record house-price inflation...and near-record trade deficits is now the world's third reserve currency, second only to the Dollar and Euro.

What's to love about Sterling in this beauty contest of misshapen half-wits? Put simply, it isn't the Dollar or Euro. Nor are buttons or whale's teeth, of course. But a government vault full of cowrie shells would be tough to explain next time the wonks met for dinner in Paris. And the same sorry logic is at work on Wall Street, remember.

Lehman Brothers say Sterling will drop to $1.68. Goldman Sachs forecast a 13% drop or more versus the Dollar. Morgan Stanley this summer set "fair value" at $1.63. But what if the Dollar keeps falling...and Sterling falls too? Where will central banks turn next as they try to spread their currency risk from one fiat money to another?

"In the 1980s," the BIS says, "the Yen had begun to erode the US Dollars share [of central bank currency reserves]. At its peak the Yen accounted for over 10% of reserves. By 2006, it accounted for less than 5%. The decline in Japanese asset prices and the subsequent long period of low relative returns on yen assets appear to have contributed to the shift out of Yen reserves...The pound sterling has replaced the yen as the third largest currency in reserve portfolios. According to the BIS data, the share of sterling doubled between 1995 and 2006."

Funny, but the UK economy looks uncannily like late '80s Japan Inc today...only in miniature and minus the trade surplus. Yet central bankers have piled in regardless. Even the Swiss have bought Sterling, pushing it to 10% of their foreign exchange reserves! The BIS can't be sure what China, Japan and Russia have done. The three largest owners of foreign exchange reserves now deal secretly through private bank transfers to avoid telling the market what they're selling or buying. But Russia collects some $12bn per month thanks to its oil and gas sales. Sterling's strength in the currency market says it can't all have been destined for Dollars or Euros.

All central bankers now share this headache. The BIS puts total worldwide currency reserves at $4.8 trillion...a full 11% of world GDP. When the Pound hits the skids which even Wall Street knows it must, soon the stampede out of Sterling will send the next-best-thing soaring. In fact, the glut of central bank Pound buying may in fact have already ended.

In October, the official data report, the largest buyers of British government bonds were private foreign investors rather than central banks. Okay, furtive officials in Beijing, Tokyo or the Kremlin may have placed those orders "off book". But if they have chosen to stop buying Sterling, they'll find the four other major currencies in a race to the bottom.

Japanese inter-bank lending pays less than 0.4% today. Eurozone bankers have got all the Euros they want; the "Esperanto Experiment" now yields two percentage points less than the Dollar. The Swiss Franc pays even less, and the Dollar itself...well, you already know how ugly the Dollar now looks.

What about the commodity currencies, Korean Won, or the newly convertible Russian Rouble? "The BIS data suggest," says the Bank's September Review, "that at the margin [central bank] reserve managers have increased their holdings of Australian and Hong Kong dollars, Danish kroner and other currencies in recent years. The share of currencies other than the major five rose to 4% of deposits in 200506."

But there's a snag. For while cash deposits of non-major currencies are easy enough to snap up, there aren't enough non-major bonds to go round. The Dollar, Euro, Yen, Sterling and Swiss Franc account for 83% of the world's debt issuance in total. Most likely that leaves non-major securities too tight. The big central banks can't seriously increase their holdings without freaking the market, most of all at the long-dated end where supply is tightest.

Finally, of course, there's gold. Since it pays no interest in a world always seeking out yield, it now accounts for just 0.5% of all government reserves by value. But now the 5 major currencies all look as bad as each other, then who knows? Gold might just find favor...most especially in Asia.

"It is unfortunate how much [India] has lost by...holding on to the antiquated belief that gold transactions in the market by the Reserve Bank of India are bad, while frequent transactions in USD, Euro, Yen and Sterling are good," said former RBI Deputy Governor S.S.Tarapore late in November. "Gold is unique, in the sense it is both a commodity and a store of value...

"More importantly," he went on, "gold invariably moves inversely with the US dollar and also rises in value when international inflation gathers momentum. Thus, there are strong reasons for holding a reasonable proportion of Indian foreign reserve exchange reserves in gold."

Adrian Ash, 15 Dec '06

Adrian Ash is head of research at BullionVault.com, the fastest growing gold bullion service online. Formerly head of editorial at Fleet Street Publications Ltd the UK's leading publishers of investment advice for private investors he is also City correspondent for The Daily Reckoning in London, and a regular contributor to MoneyWeek magazine.



Central bankers in gold buying shock?

"The week ended the 22nd December saw one of the signatories of the Central Bank Gold Agreement sell and another BUY gold leaving a net sale of 2.7 tonnes of gold," gasps Julian D. W. Phillips at GoldForecaster.com. "It seems that we are seeing a change in policy by European Central Banks...The information is huge...It is deeply significant that a European Central Bank (not just one of the Arab or Asian banks) should actually buy gold."

Further east, and the Russian central bank raised its gold holdings by 2.2% to more than 394 tons in the third quarter, according to the World Gold Council. China should also increase its gold holdings, according to an article published in the state-run newspaper The People's Daily at the start of December. Gold makes up 1.3% of China's vast foreign currency reserves. That's lower than the 3% benchmark used by other nations, says Gao Jie, a professor at the University of International Business and Economics.

Trouble is, China can't switch much of the $1 trillion it holds into gold without squeezing the market so tightly, the price would explode.

Doesn't mean it won't try though. Who knows what 2007 might bring in the race to flee the US Dollar...?

Got an average of 149 points out of recent fall but no time to post details as they occured.

I would be interested in the chatroom Gausie but would only be available on the odd evening due to work.

Chocolat: Interesting stuff. Does that mean you think I'll win my 'apocalypse' $2/1 wager with Hilary? That is, it won't happen?

hilary - What happened to Chelsea last night? :))

It's only half time, Prodman. Chelsea are a second half side.

:o)

Choccy,

I come out in a cold sweat whenever I read anything written by somebody with the name Ash purporting to know about minerals.

:o)

You shouldn't let this phobia get to you, Hils - all you need is a pinch of salt ;)

Oh boy

I'd get your old tin hat out of the loft, MM.

:o)

Nah Hils - he's still got it under his desk :)

He told me that he kept his commode under his desk, Choccy.

7% by year end, MM? This is a direct result of Tone and Gordon The Moron's feeble attempts to cook the books, imo. Let them now reap what they've sown!!!

:o)

The BoE"s accompanying statement says the margin of spare capacity in the UK
economy appears limited, adding to domestic pricing pressures. The statement
says that it is likely that CPI inflation will rise further above its 2.0%
target level in the near-term, and that relative to November"s BoE inflation
report, the risks to inflation now appear more to the upside. Against that
background, the MPC judged that a 25bp hike was necessary to bring CPI inflation
back to its target in the medium term (BoE website).

Going into next week, I think Alan Clarke's comment could be pertinent.

ANALYST COMMENTS

HOWARD ARCHER, ECONOMIST, GLOBAL INSIGHT

"This is a real surprise. Although we had expected interest rates to rise again, we thought the Bank of England would delay acting until at least February when it had a clearer idea of what was happening in the 2007 pay rounds and just how strong consumer spending was over the Christmas and New Year period.


"Clearly, a majority of MPC members believe that recently higher inflation, the buoyant housing market, evidence of ongoing overall relatively robust growth and doubts about the lack of spare capacity in the economy warrants further precautionary action now.

"While we are surprised by the timing of this move, we still believe that 5.25 percent will prove the peak in interest rates this year."

DAVID BROWN, CHIEF EUROPEAN ECONOMIST, BEAR STEARNS

"Never underestimate the Bank of England's penchant for surprise. The Bank of England have caught the markets off their guard with a shock quarter point rate rise, when the market were heading towards expectations of a further move in February or March. Quite clearly the MPC's hackles are up and they are clearly concerned about the recent acceleration in UK inflation to 2.7% and the fast pace of monetary expansion, currently close to a 16-year high. This is a complete anathema to BOE monetary policy sensibilities. We would not be surprised if the tightening bias was still intact as the MPC hawks could be straining on the leash for a further hike to keep inflation risks battened down. This should put further pressure on short-dated UK yields, adding further inversion pressure to the gilt yield curve and giving a further boost to the pound in the process."

ALAN CLARKE, ECONOMIST, BNP PARIBAS

"Major surprise. Given the unusual step of moving outside of the usual inflation report month pattern the market will no doubt speculate that something significant has altered the MPC's thinking and there are more hikes to come.

"The minutes will shed more light on this, but that is still 2 weeks away. At the margins, since the MPC will have known next week's CPI data, we can speculate that the number was high."

KIT JUCKES, HEAD OF DEBT MARKET RESEARCH AT RBS


"The MPC is once again reinforcing its status as the world's most hawkish central bank. The currency obviously benefits from this and it will increase nervousness about what the ECB and the Fed are going to do next. This could tip the balance for a sell-off in stocks and corporate bonds."

LENA KOMILEVA, MARKET ECONOMIST, TULLET PREBON

"By raising rates earlier than expected, the Bank clearly estimates that the inflation risk posed by available data for Christmas consumer spending and pay settlements is greater than they, or the market, had originally estimated."

PHILIP SHAW, INVESTEC

"The statement does not give much detail on precise factors driving today's decision. Our guess would be that some evidence of firmer wage settlements were the main influence behind the timing of the move, although the services PMI last week was probably a significant contributor.

"We're rethinking our interest rate forecasts. The MPC has surprised financial markets twice now within the space of six months and at this juncture it's impossible to rule out another surprise."

PETER DIXON, ECONOMIST, COMMERZBANK

"The rate hike was kind of inevitable but it came a month earlier than expected. That's the bottom line.


"It's the second time the Bank has wrongfooted the markets. The Bank is keeping us on out toes but I can understand why today's move occured.

"The question is now, having acted so quickly, markets are going to be wondering if this marks a more intensive process of monetary tightening.

"Is the Bank going to raise again? That's the question that's going to be ringing round the dealing rooms this afternoon."

MARK MILLER, ECONOMIST HBOS

"It's a very pre-emptive move. The Bank is clearly worried about domestic price pressures."

Comments obtained before the decision:

IAN MCCAFFERTY, CHIEF ECONOMIC ADVISER, CBI

"It is disappointing that, with only tentative indications about the outcome of the wage round, the Bank has already decided to increase interest rates. If part of the intention was to dampen wage increases, it is doubtful a rate rise will have the desired effect.


"Unless wage settlements pick up steeply in coming months, inflation is set to fall back towards the Bank's mid-point target of 2 percent during the second half of 2007. The economy is already expected to slow over the course of the year."

GRAEME LEACH, CHIEF ECONOMIST, INSTITUTE OF DIRECTORS

"This was a tough but wise decision. The MPC needed to stamp down on inflation given the upside risk at present. Inflation is well above target, spare capacity is low, money supply growth is high and the housing market looks perky. Throw in on top the risk of accelerating wage settlements and the Bank of England's pre-emptive strike looks sensible."

DAVID KERN, ECONOMIC ADVISER, BRITISH CHAMBERS OF COMMERCE

"We appreciate the MPC must make difficult choices, and we accept that inflationary pressures have edged up, and the dangers have increased.

"But we believe that the clear risks that growth may slow sharply in both the U.S. and the Eurozone should have been taken more fully into account by the MPC, before tightening policy.

"The MPC could have afforded to wait until trends in the labour market became clearer. If firm evidence emerges that there is no acceleration in wage settlements, the MPC should consider an early reversal of today's increase in interest rates."