SHORT CABLE: HISTORICAL GBPUSD v EURUSD CORRELATION CYCLES
On the 1D time frame, a strong positive correlation relationship emerges - where previously on the 4h time-frame the correlation looked relationship-less and "noisy".
However, looking back at the Daily correlation over the last 2-3 years for GU and EU one noticeable and significant trend emerges -
A steep fall in correlation, either from positive-lower positive, or positive to negative, is historically ALWAYS followed shortly by a plummet/ Sell-off in GBP$.
Thus as we see below GU v EU correlation has been descending and has just turned negative - so in my opinion we should consider selling GU as if history holds true an aggressive sell off on the daily is close by.
I also like short GU fundamentally over the next 4 weeks especially but also 12months for:
FOMC 16th June - hawkish or hike must push GU lower.
BREXIT 23rd june - UK Referendum uncertainty will inevitable price GU lower than 1.43 at somepoint before or on the 23rd, even if briefly - just like GU priced lower as Scottish Independce referendum loomed (which is less of a risk but equally as likely to happen)
Economic Divergence - Fundamentally the UK economy and financial markets are not as robust as the US due to a lack of innovation and a poor technology sector, which massively will affect productivity, the recovery and future growth (especially as moores law becomes questionable).
This economic divergence will be priced in as lower GU as investors in the long run price such economic differentials as speculation in future monetary policy divergence.
However, looking back at the Daily correlation over the last 2-3 years for GU and EU one noticeable and significant trend emerges -
A steep fall in correlation, either from positive-lower positive, or positive to negative, is historically ALWAYS followed shortly by a plummet/ Sell-off in GBP$.
Thus as we see below GU v EU correlation has been descending and has just turned negative - so in my opinion we should consider selling GU as if history holds true an aggressive sell off on the daily is close by.
I also like short GU fundamentally over the next 4 weeks especially but also 12months for:
FOMC 16th June - hawkish or hike must push GU lower.
BREXIT 23rd june - UK Referendum uncertainty will inevitable price GU lower than 1.43 at somepoint before or on the 23rd, even if briefly - just like GU priced lower as Scottish Independce referendum loomed (which is less of a risk but equally as likely to happen)
Economic Divergence - Fundamentally the UK economy and financial markets are not as robust as the US due to a lack of innovation and a poor technology sector, which massively will affect productivity, the recovery and future growth (especially as moores law becomes questionable).
This economic divergence will be priced in as lower GU as investors in the long run price such economic differentials as speculation in future monetary policy divergence.
