Sterling continues to be the whipping boy of the majors as the BOE’s ‘explanation’ of Our Mervyn’s comments to a Newcastle journal fails to convince.

As commented many times in this missive both the BOE and the Fed seem to be running an undeclared weak currency policy as a palliative to the economic woes in their respective economies and respected Economists seem keen to back up their policies. It has always seemed to me to be the easy way out of a country’s problems to initiate a currency devaluation and in my time in the City I have never seen the policy work in the long run. All the sick men of Europe have been the serial devaluers and with Britain now being the sole external currency the easy mans route is now been termed the prudent one! The UK continues to drift down the road of putting off difficult decisions and it is unlikely that any of the harsh realities will be dealt with until after the next election.

If, as seems likely, the Tories win next spring we will see, yet again, a Labour administration handing over a dire legacy. It seems to me that the UK has a sort of Schizophrenia over their elected parties. They want sensible sustainable government but are continually diverted by the siren calls of something for nothing as proposed by campaigning socialists. In the end it means that, every twenty to thirty years of so, a nasty medicine has to be taken in the form of Tory cuts. No doubt in another 10 or 12 years the country will be back on an even keel again and the electorate will be seduced once more into electing the profligate and the whole series will go round again.

This morning sees a bit of weakness across the board with the FTSE trading some 30 pips lower along with the S&P, Gold and Oil but there has already been a bit of an odd opening in some indices with the Dax rallying from 5580 at 07.00 to 5645 by 08.00 and back down to a low of 5555 by 08.30. The FTSE followed suit with a high low range of 50 points briefly looking like regaining the 5100 level before scooting back down to just under 5050, there is some solid support from 5038 to 5048 and bulls will be hoping that this is not tested successfully in this session. A breach of here may well open the index up for a move down to 4950. At the moment the chances still favour the upside as dealers remain overwhelmingly bearish and there are too many weak shorts in the market!

That said it must be noted that the news summary and analysis over the weekend was not of the encouraging kind with many commentators worry that the stream of good(ish) news might be about to give out. There is something obviously upsetting the BOE as their every statement seems to get ever more cautious.

Sterling has managed to hit a new four month low vs the dollar at 1.5770 this morning as weak longs were driven out in the early morning session but buyers have been tempted back into the game since then and Cable has rebounded to be ‘only’ 50 pips lower as I write at 1.5880. The bounce has come from the same level (1.5750-1.5790) back in May/June that showed resistance to any pull back on the spring rally and the failure of an aborted move back in December last year. At the moment the perception is that too many people are short of the Pound for a simple continuation of the weakness and so there is a reasonable chance of some recovery in the next session or so but any breach below 1.5740 might well open us up for a return below 1.50.

Gold has given up on $1000 but too be fair the rejection of the level has not been on the impressive scale of the other failures to date. We seem to be stuck between 985 and 997 and it is anyone’s guess as to which way we will fly. The support that held good for a couple of weeks from 993-995 has given way but there has been no follow through selling and it must be said that as most shorts from below 960/970 have probably been driven out by now the lack of short liquidation momentum does not seem to be accelerating the price to the downside. All eyes will be on the very steep medium term trend line from last October which is now at about $965. Should this be breached …… there is a long way to the downside.

Oil continues to weaken as well and while we have managed to hold the fall above 65 bucks for a few sessions this has not (yet) transferred into any buying momentum. As with Gold previous rejections of support and resistance normally turn into an immediate dramatic reversal (either up or down) this time we seem to be stuck. I have a small feeling that we will hover around the current level until the Wednesday inventories number gives us more of a clue as to winter storage levels. The last two numbers have shown a rather unnerving increase in inventories AND an implied decrease in consumption. Should this be confirmed a third time the price of the black stuff might not touch the sides on the way down.