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Euros To Pounds – March 5th 2009

With interest rate decisions in both the currencies today, I was hopeful that we would see some volatility in the pair, and a possible breakout from the current consolidation in the chart – sadly I was wrong! With the UK cutting rates by 0.5%, and the ECB deciding to hold rates at 2.0%, the effects seem to have cancelled one another out with little movement in the pair again today. The 9 day and 14 day moving averages are now closing still further and with no signals in the daily or weekly chart, we will have to wait for a signal to appear. Whilst it is virtually impossible to trade this sort of range using simple buy and sell strategies in the spot market, a longer term straddle using currency options, or alternatively a no touch or one touch bet using fixed odds, would certainly be more appropriate. The only issue with the straddle strategy would be to ensure that you allow yourself enough time for the position to move into profit, once the breakout from the current trading range occurs. I would suggest a minimum of 3 months, so that the time element of the options does not waste away too quickly, and if you did decide to close the trade early then there would still be some value left in the premium.

Looking ahead to tomorrow, the only $undamental news for the euro pound pair is in the UK with the release of the PPI data in the morning. Whether the NFP figures in the afternoon will have any effect is doubtful, so I think we will have to wait another week, to see whether the slow downwards drift will continue, or whether this will be confirmed with a breakout lower. My own view is that the euro is still over bought against the UK pound, and by the summer we should see prices around the 0.7950 region and possibly slightly lower.