EURGBP, DAX

TL;DR

David Bell predicts that the Euro GBP currency pair will decline due to Germany's recessionary growth prospects and the UK's higher productivity, providing a selling opportunity.

Transcript

hi my name's David Bell I am the author of the macro DZ act newsletter and I'm a macro trader as well and essentially I like to look at things from a top-down perspective and to look at news flow and come to a conclusion as to where I think certain assets are going another key one for me at the moment is euro GBP that is absolutely the one trade th... Read More

Key Insights

• 💐 David Bell applies a top-down approach and analyzes news flow to determine asset movements.
• ❎ Germany's negative GDP growth in Q3 2018 and stagnant growth in Q4 indicate recessionary conditions.
• ✋ The UK's higher productivity than the eurozone and the deteriorating German current account suggest a weakening Euro GBP currency pair.
• ⏫ The author recommends looking at double bottoms on the price chart and a potential selling opportunity if the second double bottom is broken.
• 🫵 Industrial production data and resistance levels on the DAX further support a bearish view on the Euro GBP trade.
• 🌍 The author predicts a potential decline towards 0.75 for the Euro GBP pair.
• ✳️ This analysis suggests that the UK may have less risk than perceived regarding the Brexit situation.

Questions & Answers

Q: Why does the author believe that Germany is experiencing recessionary conditions?

The author points to negative GDP growth in Q3 2018 and a 0% growth in Q4, indicating a recessionary period. Additionally, Germany's industrial production data and lack of inflation prospects further support this view.

Q: How does productivity affect the exchange rate between the UK and the Eurozone?

The author mentions the Bilasa Samuelson theory, which suggests that productivity differentials lead to exchange rate changes. With the UK's higher productivity compared to the eurozone, this could weaken the Euro GBP currency pair.

Q: What impact does a deteriorating German current account have on the Euro GBP trade?

A deteriorating German current account creates a weakness in the external balance assessment. In 2015, the IMF stated that the sterling was overvalued against the dollar by 15% due to this factor, indicating potential downside for the Euro GBP pair.

Q: How does the author suggest trading the Euro GBP pair?

The author suggests looking at the technical analysis, specifically double bottoms on the price chart. If the second double bottom is broken and closes below, it could signal a move towards 0.75. This would indicate trouble for the eurozone and potentially less risk from the UK.

Summary & Key Takeaways

• The author, David Bell, is a macro trader who analyzes news flow and employs a top-down approach to determine asset movements.

• Germany's GDP growth was negative in Q3 2018 and remains stagnant in Q4, indicating recessionary conditions.

• The UK's higher productivity and the deteriorating German current account suggest a weakening Euro GBP currency pair.