Sunday, August 26, 2007

Where are GBPJPY and other crosses headed to?

Hi All,So just 2 weeks back, we had this great fall in all the crosses and the crosses feel to record lows. Now last week, we ended up with a big rise. Now where do the crosses go from here? Two weeks back, i had said that the crosses would rise in September but that seems to be happening sooner than i expected. With all this, and with my analysis, it looks as though the crosses would rise to their pre-August levels by the end of September. The GJ should rise to 250 or even more within the next 5 weeks (end of September). Likewise with the other crosses. Of course, there would be the rectracements, but these retracements would not last for more than a couple of days and should not take Gj, for example, below 230 once it manages to crosses 235.
So all those who are interested in long term investments can load up their longs. The weekly technicals have started moving up already. What about the fundamentals, some may ask. What about sub prime, interest rates etc etc? All these existed even before May and these would continue to exist. The US economy has not become so weak overnight. We had a huge correction just for a week and now the normal service has been restored for longs. Does that mean that the economy was weak only for a week? No.
Every country has its fundamental problems with its economy and its just that these get exaggerated when things start going on. When the currency starts falling, people start looking around for reasons to attribute to the fall and they come up with variety of reasons. The same problems which existed during the fall did exist 3 mnths before the actual fall came and they continue to exist even now. But where have all factors and reasons gone when the currencies were falling?
It is all a question of basic rise and fall of currencies as a cycle over a period of time. When the GBP was rising to record highs, i had written that it would have to fall back to its original price of around 1.96 sometime soon and it did within 45 days. Now it is slowly going back up again. No country can afford to have either a weak currency or a very strong currency as well. If we take GBP and USD, lets assume that GBP is rising during a mnth as economic news out of USA is very weak and news out of GB is very strong. So the GBPUSD continues to rise but then this would slowly start affecting the economy of the respective countries. Importers and exporters would be the first to start feeling this effect as they start getting less and less GBP and more and more USD. This creates an imbalance and this starts reflecting in all spheres of life like cost of various products, profits etc. This effect would slowly begin to show in the economic news that are released over the next mnth or so. These economic news would show that economy of GB is weakening due to the weak USd and the economy of USA is strengthening due to this imbalance. Once such economic news started filtering out, the correct would take place which would correct the imbalance.
This is exactly what happened for the GBPUSD over the months of June, July and August. In June and part of July, GB was strengthening and USD was falling. This started affecting the economies and created imbalance and this was reflected in the news released from GB and USA in the later part of July and beginning of August which showed bad results from GB and quite good results from USA and this led to a correction in the pair to correct the imbalance.
Same principle would apply to the crosses as well and you can see the effect of all this in the forthcoming weeks and this imbalance would be set right by the end of September. So may the bulls enjoy!!!
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