Friday, 9 January 2009


Yesterday's price action around the rate announcement and its subsequent reversal are pretty interesting, the factors effecting the price at the moment as Raven sees it are:
1) Big number attractor effect ie Parity.
2) The perception that the UK economy is going to be more effected because of the greater proportion of GDP coming from finance, the higher consumer leverage and the higher proportion of house ownership.
3) Given #2 is well known and has been confirmed by a large price move, we must assume that this is priced is. On the other hand the market doesn't seem to be pricing in that much of a rise in German unemployment - given its reliance on exports and the car industry. Is this because people believe the ECB will be slow/reluctant/too arrogant to act? or they are just looking at the same 'compass' as Trichet?
4) 0.9 is another important level, given it was the previous high for the D-Mark against GBP and that has been broken.
5) GBP 10Y yields are too low currently, whereas the yield on Bund looks more fair.

With so much short term volatility the Raven is for the time being just watching...

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