The British Pound advanced in early European trading as stock makers moved into positive territory, boosted by news that Swiss banking giant UBS AG replaced its chief executive while the UK government announced a 325 billion pound asset insurance program to bolster the Royal Bank of Scotland after the firm posted the worst loss in the country's history. The British Pound has regained much of its closeness to risky assets, with the trade-weighted index of the currency's value now 85.7% correlated with the MSCI World Stock index (the correlation peaked at 86.2% in early December and fell as low as 81.6% by early January). Is the current rebound the start of a larger move or a temporary uptick? Our DailyFX analysts offer their thoughts on how to trade the British Pound in the days ahead.
My picks: Short EUR/GBP
Expertise: Global Macro
Average Time Frame of Trades: 1 month
During today's trading session, I will try to sell-short EUR/GBP with a limit order at 0.8950 and a stop in a daily close above 0.9050 for 200 pips in profit potential. Indeed, I expect the British pound to appreciate against the euro on speculation the European Central Bank will have to wake-up and cut is overnight rate by 50 bps during its next monetary policy meeting on March 5. In fact, recent data towards a sharp contraction in economic activity in the euro zone and lower interest rates could be needed to prevent the region from falling into a long-term recession. On the other hand, the Bank of England has been doing a much better job than the ECB by being more pro-active and not waiting for statistics to show that Europe could be in a big trouble. Recently, the Monetary Policy Committee of the Bank of England cut its benchmark interest rate to the lowest level in the bank's more than 300 years of history.
Senior Currency Strategist
My picks: Limit entery long GBPUSD at 1.43, against 1.4150, targeting a break above 1.50. Move to breakeven on a rally above 1.44
Average Time Frame of Trades:
The GBPUSD has held above 1.4150, barely. The count on the daily, which shows 5 waves down from the 2007 high, indicates that risk of a sharp advance is high. Coming under 1.4150 would likely give way to a break of 1.4090, which would expose measured support at 1.38. The idea is to enter long near 1.43, against 1.4150, targeting a break above 1.50. Move to breakeven on a rally above 1.44
long EURUSD: against 1.25, targets 1.33 and 1.37
long USDCAD: against 1.2278, target above 1.3025
My picks: Long GBPCHF
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
The pound may have exhausted its primary fundamental trend, leaving the currency to congestion for the past few weeks. For months, traders have weighed the sterling down against all of its major counterparts as the reality that Europe's second largest economy was on track to suffer the worst slump of the G10 passed from speculation to policy official consensus. However, currencies are not unlimited in their momentum or trajectory; and fundamental shifts will eventually be priced in. For my GBPCHF setup from last week, this general sentiment has been playing out for since the beginning of January; but for the more recent strategy, we have seen Swissie weakness give a different slant on direction. When European leaders met ealier this week to make a workable charter that could be developed into a coordinated approach towards stabalizing regional growth and financial markets, one of their points was to find tax shelters for large pools of money (like Swiss banks) and sanction them. Clearly, this threatened one of the primary benifits of the franc, and the initial concern led to a pop in GBPCHF that was worth a modest first target. However, the advance that occured over the past week did not represent a true shift in the market. I will stick with this position from last week with a sound strategy to limit risk.
For the setup, there is a clear ascending wedge that has developed over the past two months. Support is defined by the rising trend that begins from Feb 2nd (and subsequently has many intraday lows as testiment to its significance) as well as the less precise rise in lows beginning on Dec 29th. Add to this two notable 38.2% Fib retracements (at 1.6595 and 1.6500) and the 50-day SMA (at 1.6400) and there is more than enough technical presence to encourage the market to second guess any waves in bearish optimism. A stop should naturally be placed well-enough below the 1.65 general level of support to account for volatility. A first target should equal risk; but the second objective should be more aggressive with a hard or moving target depending on momentum and the time it takes for the position to unfold. The longer the position takes to develop bullish momentum, the longer margin has to be tied up to make a profit; so the target can be brought in. However, if momentum developes and the price action starts moving, a trailing stop is better than a hard objective.
My picks: Sell GBP/USD on Break Below 1.4150 or Buy on Break Above 1.4555
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 Day - 1 Week
I've been having pretty bad luck with the British pound lately, as my last trade didn't even have a chance. However, since there was no GBP/USD consolidation at my noted support level, there was no buy signal to be had. So in the end there was nothing lost nor gained. Now I'm taking into account bullish and bearish scenarios for GBP/USD.
I will look to sell GBP/USD on a break below trendline support near 1.4150, as the pair has held above the line since January, to target the January lows near 1.3500. On the flip side, a break above falling trendline resistance at 1.4555 could allow a push up to the January 16 and February 9 highs just below 1.5000. Stops should be placed according to preferred risk/reward ratios.
My picks: Flat the GBP/USD
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
Effectively rangebound price action in the GBP/USD has made it impossible to latch on to any worthwhile trends. It is subsequently unsurprising to note that I remain flat the pair; I have not done well with range trading, and there is no sense in exiting my comfort zone just for the sake of trading. All else remaining equal, I would like to eventually go short the GBP/USD--in line with my Top Trades for 2009. I will watch for a better entry point and for price action to show clearer bias. Today's Forex Speculative Sentiment Index gives us a weakly bearish bias for the GBP, but the SSI tends to underpreform through times of range trading.
My picks: Flat GBPUSD, Short EURGBP
Expertise: Global Macro, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
As was the case last week, GBPUSD traded up for another test of resistance at a falling trend line connecting major swing highs from late October. The pair showed a Star candlestick hinting at a bearish reversal, but the magnitude of the confirmation bearish candle turned risk/reward against entering the position. I will continue to watch price action from the sidelines waiting for a viable opportunity to enter short.
I entered short EURGBP at 0.8983 as prices signalled a double top below 0.9080 with a Hanging Man candlestick. Prices have been range-bound of late but the bias remains bearish since the pair broke past support at a rising trend line established from the lows in late October. Remain short, initially targeting 0.8678 near the previous swing low.
My picks:Long GBP/USD Pending
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 4-8 Days
My Long GBP/USD trade last week would have been profitable if you were patient and endured a 200 pip draw down to ultimately gain 200 pips. The pair would break above 1.4500 but failed to hold in the 1.4500 - 1.5000 range that I had called for. The 50-Day SMA has provided formidable resistance and until I see a break above that level it will be hard for me to become bullish on the pair. The technical level now stands at 1.4496 and we may see continued range bound price action between there and 1.4100 which has held as support. A break below support would lead me to consider a short position, but with the U.K. taking more measures to shore up the banking system we could see Sterling shoot higher. A looming BoE rate cut may see a sell off into the policy decision, but as it may be viewed as the end of the easing cycle as the central bank is expected to bring rates down to 0.5%, which could spark a bullish reaction.
My picks: Flat GBP/JPY
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2 - 10 Days
The recent upturn in the Japanese yen crosses has led me to close my short position on the GBPJPY from earlier in the month however, the pair looks to be finding short-term resistance at 141.90-142.00 (50.0% Fib) and may hold within a broad range over the near-term as investors remain risk adverse. As a result, if the pound-yen fails to break above the 50.0% Fib by the end of the session, I will look to short the pair, with my target at 132.23, the 50-Day SMA.
Joel S. Kruger
My picks: Pending Buy GBP/CHF @1.6365 for 1.7040 Objective, Stop @1.6190
Expertise: Technical Analysis
Average Time Frame of Trades: 1-3 Days
The market has been trending higher since basing by the historic 1.5125 lows back in late December (29De low). We have already seen once confirmed higher low by 1.5650 (21Jan low) after the price rallied to fresh multi day highs by 1.7490 (10Feb high), and a fresh higher low is now sought out above 1.5650 ahead of the next bounce and bull trend resumption. The market has been pulling back over the past several days in search of this higher low and looks to be eying a major confluence of technical support to establish this low. A closer look at the chart below shows a combination of a rising trend-line, 50-Day SMA, Lower Bollinger, 61.8% fib retracement, and ATR projected low, all coming in within pips of one another. As such, we will use this highly compelling confluence as an entry level for fresh longs if tested today. Stops will be placed below the 50% fib retrace of the entire move, which comes in by 1.6300. Stops to be trailed to cost on a break back above 1.6500. Trade recommendation to be removed if not triggered by NY close (5pm EST) on Thursday.
Fundamental Catalyst - Data and news out of the UK overnight has been less than encouraging following the weaker Nationwide house prices and disclosure of RBS losses which were the largest corporate losses in UK history. That being said, both events can easily be discounted, as the Nationwide was only one release of many, while the RBS losses were hardly that shocking considering the state of the global economy and financial sector. Data out of the UK has on the whole over the past several weeks exceeded expectations and points to a potential bottoming in the economy. Additionally, the UK government is expected to unveil further details to its UK bank rescue plan today, which should helped to find some renewed optimism after investors were skeptical with the initial vagueness of the plan. Meanwhile in Switzerland, we continue to see deterioration within the local economy, which has accelerated of late, as fears escalate over the soundness and safety of the local banking system. This has detracted from the flight to safety lure of the Swissy, with this familiar correlation starting to break down. While we can not say that SNB intervention is imminent, there has also been plenty of talk amongst the locals about such intervention.
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