Perhaps the most aggressive monetary policy group of the west slowed its pace this morning when the Bank of England decided to lower the nation's benchmark lending rate by only 50 basis points. For some pairs this half percent reduction was seen as a boon against pairs that were considered over extended. However, for others, the the lack of surprise and a rise in risk aversion has leveraged pressure on the British currency. Is there an ultimate direction for the pound across the markets? Where are the individual opportunities in the crosses? Our DailyFX Analysts weigh in.
Currency Strategist - John Kicklighter
My picks: Short GBPJPY
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
Looking for a short GBPJPY sets up leads to exposure issues with a few of my previous picks - most recently the pending EURJPY breakout from yesterday. However, I will treat this as a stand alone event for the sake of being objective. Fundamentally, the this pair is tied up into two swells right now. The first is the Bank of England's rate decision this morning. A 50 basis point rate cut is far more reserved than previous reductions. This effectively slows the MPC's pace and makes less likely that the central bank reaches a zero interest rate policy before global growth and rate policy turn. Countering this bullishness, however, we have seen risk trends maintain their rebound. And, compared to an expected event like the rate cut, the influence of risk sentiment is likely more influential as the momentum behind such issues is certainly more pervasive in the broader market.
Looking at a setup for this pair, we have seen that after breaking from a medium-term downtrend, the GBPJPY's rebound has already shown signs of running out of steam. This rise has in fact stalled at a 61.8 percent Fib retracement, 50-day SMA and very notable pivot level at 141.35. At the time of this writing, a sharp drop through the morning was retraced and spot now hovers very close to this technical level. This provides good potential for entry; yet this very volatile pair (one that is prone to an unfavorable breakout considering the level of volatility and maturity of the long-term trend) so it must be approached cautiously. A far reduced position size will allow for wider, hard stops that won't ramp up risk too high. Initial targets should be held reasonable (optimally equal to risk), but a second objective with a trailing stop could look for new recent record lows. A confirmed break above 141.35 (daily close for example) would negate my bias.
Currency Strategist - Terri Belkas
My picks: Long GBP/CHF (pick from Tuesday)
Expertise: Fundamentals combined with technicals
Average Time Frame of Trades: 1 - 3 days
GBP/CHF has yet to hit my bullish target of 1.6926 (the 50% fib of 1.8725-1.5124) from Tuesday, and despite the Bank of England's 50bp rate cut this morning, I think the pair could continue to work its way higher. Meanwhile, if needed, stops may be moved higher as a break below intraday trendline support at 1.6548 would suggest that further declines are in store.
Currency Analyst - David Rodriguez
My picks: Look to go long the GBP/USD on dips
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
The British Pound's impressive break to the topside gives me reason to believe that the GBP/USD may continue to rally through the medium term, and as such, I will look to go long the pair on pullbacks. I do not want to chase very recent strength, so I will avoid buying at this point. But I will continue to monitor buying opportunities and update this space accordingly.
Currency Analyst - John Rivera
My picks:Long GBP/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1-2 Days
The Pound has soared since the BoE announced a 50 bps cut as many were hoping for 100 bps. Despite showing concern over inflation undershooting their 2% target and output slowing through the first half of 2009, the central bank believed that the pound's weakness and lower inflation would provide stimulus to the economy. The somewhat hawkish comments left doubt that further cuts may be ahead which could send the Sterling to test resistance at 1.5725 the 12/17 high.
Currency Analyst - David Song
My picks: 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 slipped to a low of 1.5124 on 12/29, but has pared losses throughout the week to push above 1.6480-90 ( 38.2% Fib). Despite the sharp retracement, the dour outlook for the U.K. continues to favor a bearish outlook for the British pound, and as risk sentiment continues to drive price action in the forex market, we may see the Swiss franc benefit as investors remain risk adverse. As the pair holds below 1.6910-20 (50.0% Fib), I expect the pound-franc to hold its bearish trend, and we may see the pair work its way lower over the near-term. Over the following week, I anticipate the pair to fall lower, and a break below 1.6480-90 ( 38.2% Fib) could lead the pair towards 1.6250 - the 20 Day SMA.