The British Pound tumbled in European trading as stock prices raced lower and US equity index futures pushed deeper into negative territory. Risk appetite abated as traders braced for the release of the US Non Farm Payrolls report, dreading news that the unemployment rate will rise to 9.6% and sink spending in the world's largest consumer market, thereby delaying the onset of economic recovery worldwide. Will the sterling extend losses from here, or is this merely a temporary downturn? Our DailyFX analysts weigh in and offer their top trading ideas.
My picks: Flat GBP, Long USD, Short EUR, AUD, NZD, CAD, JPY Expertise: Global Macro Average Time Frame of Trades: 1 week
I don’t have any position in the British pound (today’s analyst pick) but I have been a dollar bull for some time, in particular against the yen and commodity currencies. Indeed, with investor’s sentiment shifting towards more risk taking, commodity currencies have been well bid as traders hunt for yield. For instance, in the last 5 months the NZD/JPY rallied more than 1500 pips or 30 percent. However, investor’s expectations that the world economy is decoupling and we will emerge from this recession in the second half of 2009 are somewhat too optimistic. So, I expect higher yielding commodity currencies to be vulnerable to profit-taking going forward because the current model of economic growth, which has been driven by stimulus plans and tax-payers money, is not sustainable.
My picks: flat, although watching GBPUSD for possible trade against 1.6230 Expertise: Technical Average Time Frame of Trades:
The rally from 1.6231 is in 3 waves but could be wave i of an ending diagonal in the wave v position. Staying above there keeps the trend pointed up. Although structure is bullish above the mentioned level, I prefer to wait until after the holiday weekend before moving forward with this idea.
My picks: Short GBP/CHF on Break Below 1.7650 Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1 Day - 1 Week
GBP/CHF has been holding above a rising trendline throughout May and June, and with the pair now trading close the line at 1.7650, this may provide an opportunity to buy. However, with risk aversion still a force to be reckoned with in the markets, I prefer to hold back and look for a break below the noted trendline. I'm looking toward the 200 SMA at 1.7334 as an initial target and 1.7000 as a secondary target (psychological support, the 100 SMA, and fibonacci support). Looking to my pick from yesterday, I said that I was looking for chances to sell the JPY crosses, and noted upside potential for AUD/JPY upon a break above 78.25/38. By the end of the day, we still hadn't seen such a move and the pair seemed to have lost steam, so I sold it around 17:20 ET and the increase in risk aversion this morning has obviously worked in my favor. I've closed half the position and moved the stop on the other half to breakeven, but overall my outlook on the JPY crosses remain bearish on a longer-term basis and I will still look to sell rallies.
My picks: Sell rallies in GBP/USD Expertise: System Trading Average Time Frame of Trades: 2-10 weeks
Well, I'm back to shorting the GBP/USD as the pair has finally started to show signs of reversal. I've previously argued that major sentiment extremes would lead to a substantial GBP/USD top. This time, though, I want the currency to substantially break its long-standing range before I enter into a short position. The key level remains multi-week lows at 1.6200. If it breaks below and trades there for at least 1 hour I will take a short position, targeting the 6000 mark and eventually monthly lows at 5800. Stops will need to be determined closer to time.
My picks: Remain Short GBPUSD Expertise: Global Macro, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months
The bottom line for GBPUSD has been little changed since I sold the pair at 1.6274. The pair has traded sideways in a narrowing range and a breakout seems imminent. I will continue to hold our short position, initially targeting 1.4990. A stop-loss will be activated on a daily close above the 06/03 wick high at 1.6667.
My picks:Short GBP/USD Pending Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 2-4 Days
My short GBPUSD trade last week was not profitable as Pound bulls ignored a growth downgrade from the OECD. The pair has remained supported by the 20-Day SMA which currently stand at 1.6383 but is being threatened today. A dismal US NFP report should weigh on risk appetite and a weaker UK construction PMI will cast doubt on a recovery. However, the BoE reported that credit to households increased in the first quarter which should aide domestic growth. Therefore, I will remain on the sidelines until I see a break below 1.6209-the 6/2 low before taking a short position.
My picks: Long GBP/CHF Expertise: Fundamentals and Technicals Average Time Frame of Trades: 2 - 10 Days
Following up with the long GBP/CHF recommendation from the previous week, the spike downturn during the overnight session opened the long entry I placed at 1.7652, but the pair pushed back to hold above the 20-Day moving average following the comments from the Swiss National Bank. As SNB board member Thomas Jordan pledges to stem the appreciation in the Swiss franc, and attempts to put a floor on the exchange rate, the pound-franc is likely to trend higher over the near-term, and may continue to retrace the sell-off from last October. As the GBP/CHF turns higher, I have tightened the stop to 1.7753, and have placed another long-entry at 1.7819, the 6/25 low, and set the target to 1.8117, the yearly high, with the stop at 1.7753, the 20-Day SMA.
My picks: Pending Buy USD/ZAR (Standing Aside on Sterling and Swissie) Expertise: Technical Analysis Average Time Frame of Trades: 1-3 Days
While we are not inclined to recommend any formal position in the pair, we are very attracted to the idea of establishing long positions at current levels, with a potential upside that looks extremely compelling. The market has been in a virtual free fall since early 2009, with the Rand gaining well over 20% against the USD to standout as the best performing currency on the year. However, the USD has now declined back to former longer-term resistance now turned support from August 2007, and with daily and weekly studies looking stretched, we see good reason for some fresh USD buying and Rand profit taking at current levels. Shorter-term price action shows an end to a sequence of 56 consecutive negative daily closes of lower highs and lower lows after the market failed to break lower on Wednesday and has just taken out Wednesday’s highs today. The Rand has also been highly correlated with price action in equities (0.64) and given our view that equities are likely to start to pull back, we see good reason for the Rand to sell-off as well. It seems as though officials have become less optimistic with the recovery prospects for the global economy, instead favoring more of a double dip recovery over a “V” shaped bottom, and any deterioration in investor sentiment resulting from this will ultimately weigh on the emerging market currency. Look for the market to start to carve out a bottom, with a minimum upside extension now seen back towards 8.28, above which should formally shift the overall structure and open a fresh wave of medium-term buying. Any dips back towards the recent 2009 lows at 7.66 and psychological support at 7.50 should be used as an opportunity to build on long positions.