British Pound at the Mercy of Sentiment, Technicals Offer Little Guidance
Like most other currencies, the British pound has a clear connection to risk appetite trends. While the sterling is saddled with financial and economic difficulties, it nonetheless finds strength when risk appetite improves. A promising outlook for global growth adds creedence to the outlook that the United Kingdom itself can recover without having to face a double dip recession or the specter of a downgrade to the sovereign credit rating. However, just as surely as the pound appreciates when sentiment improves, the focus on weakened fundamentals will leverage its decline when optimism fails. Currently, the market is drifting higher without significant conviction while doubts over financial stability have developed in the background. There is considerable uncertainty as to the picture for risk appetite trends going forward and technical patterns for the sterling crosses offer little for appealing breakout or trend development opportunities.
For positioning, I have held back from trading the GBPUSD bullish breakout because EURUSD hasn't confirmed dollar selling with its own break and sentiment trends are otherwise light. Amongst the commodity crosses, fighting such a deeply engrained trend is foolhardy but jumping in on such a mature offers relatively little follow through. One interesting pair from this group is GBPNZD. A descending wedge pattern that sees a break to the upside has a wide range that could easily be covered (approximately 1700 points). I will keep an eye on this cross. In the meantime, the only pound-based pair that genuinely interests me is the one I'm already in: EURGBP. We have fallen three days from my entry around 0.9120 and I have taken half profit and move the stop up on the remainder of the position. This was a good reversal on a wide range; but I wouldn't get in now if not already in it.
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