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GBP/USD - The Pair to Short-Term Range Trade

Friday, 15 June 2007 21:37:07 GMT  |  John Kicklighter and Terri Belkas, Currency Analysts

The US dollar has been bound in a general rising trend for the past two months. However, after this past week’s economic calendar failed to support the growing speculation surrounding a neutral Fed for the rest of year, the trend likely ran out of steam. Furthermore, with a virtually empty docket for the coming week, there seems little impetus for any big moves in either direction. With the majors looking to track out ranges, we browse the charts to find the best range situation.

Trading Tip – The US dollar has been bound in a general rising trend for the past two months. However, after this past week’s economic calendar failed to support the growing speculation surrounding a neutral Fed for the rest of year, the trend likely ran out of steam. Furthermore, with a virtually empty docket for the coming week, there seems little impetus for any big moves in either direction. With the majors looking to track out ranges, we browse the charts to find the best range situation. GBPUSD is currently confronting two conflicting trend channels and is tucked in between major fibs. While either side of the suggested range offers an appealing trade, the long is the preferred position. Support comes on a major trendline which, barring a considerable dollar-positive external event, has a high probability of surviving next week’s light calendar.  The usual volatility this pair possesses could trigger an entry on a spike lower, though the stop is wide enough to withstand a test of the rising trendline. The suggested short is a strong trade itself; but if a new trend leg is formed during the week, it would likely be a break to the upside as the dollar gives back some of its fundamentally unwarranted gains.

Event Risk UK and US

UK – With the exception of the Bank of England minutes next Wednesday, the British pound faces very mild event risk over the course of the next week. The danger in the release of the minutes lies in how the central bankers voted in the most recent meeting, as just a few votes for a rate hike in June could lead to speculation of policy action in July. But first, the Rightmove house price index announcement on Sunday night isn’t likely to spark much volatility, as it will likely show much of the same information that we’ve already seen over the past two months – price growth is slowing, but still remains very elevated. Finally, on Thursday, the CBI industrial trends survey should continue to reflect confidence amongst manufacturers, but price expectations will likely be the factor to drive price action.

US – The US calendar tapers off significantly this week now that CPI is out of the way. However, the NAHB housing index and May housing starts indicator present a problem for calm seas, as both are anticipated to show weaker results, reaffirming the overwhelmingly bearish sentiment on the sector. Also, leading indicators are anticipated to rebound in May after faltering the month prior, as the stock market’s performance and bond yields should help lead the index higher. Furthermore, with FedSpeak from Bernanke and Yellen scattered throughout the week, the US dollar could be subject to any hawkish or dovish commentary.

   Data for June 18 – June 25                                       Data for June 18 – June 25
Date       UK Economic Data                                      Date        US Economic Data
Jun 17  Rightmove House Prices (JUN)                       Jun 18  NAHB Housing Market Index (JUN)
Jun 20  Bank of England Minutes                                Jun 19  Housing Starts (MAY)
Jun 21  CBI Industrial Trends (JUN)                            Jun 21  Leading Indicators (MAY)

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