The British pound has enjoyed three consecutive sessions of strong rallies that have brought many of the sterling crosses to significant levels of technical resistance. While short-term momentum is still in the single currency's favor, it cannot be ignored that the pound is just off of recent record lows. Our DailyFX Analysts offer their outlooks for the pound and what they think is the best set up among the crosses.
Currency Strategist - Terri Belkas
My picks: Long GBP/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 Day - 1 Week
GBP/USD has broken above trendline resistance from the January 9 high, leaving potential open for further gains toward the confluence of the 61.8% fib of 1.5350-1.3503 and the 78.6% fib of 1.4982-1.3503 at 1.4643/62. However, an additional region of immediate resistance at 1.4413/26 has prevented the rally from continuing and has pushed GBP/USD back into a trading range of approximately 1.41-1.44. At this point, I think it may be more prudent to set a buy order near 1.4110 with a stop below 1.3979 and an initial target of 1.4371 (top of the range) and secondary target of 1.4473/1.4500 (January 13, 15 lows).
Currency Analyst - David Rodriguez
My picks: Flat the GBP/USD
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
Last week I moved to tighten risk on my previous GBP/USD short position, and that saved me from substantial losses. Indeed, I'm currently flat the GBP/USD after having moved my stop on my short above 1.4000. My bias is now bullish the GBP/USD based on a substantial shift in sentiment, but risk/reward is currently not there to support a GBP/USD long. I'll stay flat the Sterling until I see better opportunities.
Currency Analyst - Ilya Spivak
My picks: Short GBPUSD (pending)
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
Last week, GBPUSD dropped below support at the bottom of a Falling Wedge formation that contained prices since late October but risk-reward looked far from favorable. Sterling would find initial support in the 1.3680-1.4050 congestion area that has held up sterling since 1985 and bounce higher, rising for another test of support-turned-resistance at the Wedge bottom. Positioning now looks to be showing the makings of an Advance Block formation, with confirmation pending on a bearish close for the current candle. If this materializes, look to go short GBPUSD eyeing the continuation of the broader down trend.
Currency Analyst - John Rivera
My picks:Long GBP/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
My short GBP/USD call last week proved to be profitable as the pair would go and set a fresh 23 year low with a drop to 1.3503. However, since then it has rallied over 800 pips as traders viewed the selloff as overdone. Therefore, we could see the pair look to trade back into the 1.4500 - 1.5500 range that we saw from November through January. However, before, I go long I would like to see the 20-Day SMA cleared at 1.4484. If resistance holds it may change my bias with a BoE rate decision looming next week, so look for any pre-decision rhetoric from committee members as to future direction. Economists are forecasting a 50 bps cut and as we get closer we may see the Sterling weaken.
Currency Analyst - David Song
My picks: Remain Short GBP/CHF
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2- 10 Days
After reaching a high of 1.8706 in December, the GBPCHF broke below major support levels throughout December, and the lack of momentum to retrace the selloff in the previous month continues to favor a bearish forecast for the pair. I have been short the pound-franc since price action broke below the 50.0% Fib on 12/17, and I will continue to hold a bearish outlook for the pair as the Swiss franc continues to benefit from safe haven flows. I will continue to hold my target at the January low of 1.5364, but we may see the pair remain range-bound over the remainder of the week before it continues to move lower.
Currency Analyst - Joel S. Kruger
My picks: Buy GBP/USD @1.4385, for 1.5000; stop at 1.4040
Expertise: Technical Analysis
Average Time Frame of Trades: 1-3 Days
Price action thus far today has been quite interesting with the pair initially trading lower to take out the previous daily low, ending a sequence of 4 consecutive daily higher lows, before reversing sharply to trade back towards daily opening levels. While the overall trend is indeed grossly bearish, our outlook for the pair remains constructive with inter-day studies still showing plenty of room for corrective upside before bear trend continuation. Recently, much of the broad based USD busying has come in the European session before a US session, which over the past week, has been selling USDs more aggressively. While the pullback to 1.4070 is concerning, we will wait to see if that level is tested again in the US session. Our contention is that the 1.4070 level will hold and the market will eventually trade back above 1.4375 (28Jan high) to keep the recovery structure intact.
Fundamental Catalyst - The UK currency has been decimated over the past several months on the back of a global financial crisis and an ongoing deterioration within the local data. Sterling has been the currency of choice to play long USD positions through, bearing the brunt off the global macro slowdown. Much of the depreciation in the currency has also been exacerbated by a divergence in monetary policy between the Bank of England and the ECB in which the UK central bank has been vastly more accommodative. Eurozone data had not been showing the kind of weakness as was seen in the UK which translated into a more balanced ECB policy. However, we are starting to see a shift in the fundamentals, with the Eurozone deterioration starting to gain more traction. This should ultimately take some pressure off of Cable as traders begin to liquidate long EUR/GBP positions. Cable has also been very sensitive to risk aversion and therefore any sense of stability within the financial markets is sure to benefit the beleaguered currency.
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