Pound Noncommittal to Attempts at Reviving a Trend
Considering the fireworks from the dollar and the influence it has had on the euro; it would be reasonable to assume the same cross wind could drive a fundamentally weakened British pound. Indeed, the outlook for the sterling is as unfavorable as the euro's background. From an economic perspective, the United Kingdom is having difficulty establishing a recovery and the nation's fiscal health has deteriorated to the point that rating agencies feel it necessary to warn the market that the nation has moved closer to losing its top credit rating. To further dissuade traders from taking on this risk, the outlook for interest rates is severely stunted as policy makers focus on growth and market stability. Nonetheless, the pound has proven itself quite capable of holding up this past week as underlying risk appetite has held suspiciously resilient throughout. This is a condition that won't last for long however. Eventually, speculative-heavy markets will stall and unwind to work off excess premium; and when it does, the market-wide correlations will target a weakened sterling.
In the meantime, the pound crosses have already retraced significantly from their highs set three to four months ago. That limits the reasonable follow through that could be expected on a historical basis, which prevents me from jumping in early on possible trends. Looking for short-term setups, recent technical levels offer relatively little to work with as congestion has stalled intra range swings and pushed the boundaries of clear patterns. A few pairs that I am simply monitoring at the moment are GBPUSD (looking to see if there is a clear move below 1.4775) and EURGBP (waiting momentum to confirm a break of the 100-day SMA). Outside of sterling exposure, I will remain short EURUSD and AUDUSD. The former was triggered on yesterday's break; and the stop has been set just above the break level at 1.3450. I have been in the aussie pair for a little longer; and the stop is set just above 0.92. Other orders that I have include a USDJPY long closer to the long-term wedge break at 91.50; and a AUDCAD wedge-breakout position around 0.9240 and 0.9175.
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