Having remained short GBPUSD since the brexit vote June 24th (see linked), now could be the time to close shorts and consider a long position in the pound.
- Speculative positioning is extremely and has increased to record highs in recent weeks
- With sterling effectively pricing recession, rate cuts having already taken place, and rising inflationary pressures including house prices (notably for the UK economy), risk appears to be to the upside
- With year-end analyst estimates reflecting this with major downwards revisions, it will take a great deal of bad news to push the pound below 1.27
I personally have been a buyer the past two days at 1.2870 and 1.2912 respectively (1.2891 average). Targeting a retracement to 1.3640 (38.2% brexit move) once 1.3316 is held on a consecutive daily close basis.
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As time goes by, the unavoidable reality is that UK exports (a key input in the GDP equation) will be boosted a weaker currency. We can already see that change accelerating since we fell from 1.50
I would caution against listening to banks or analyst forecasts - not just in this instance but in general - and not become committed to your position if it turns south again. That is the biggest and deadliest mistake in trading (the endowment effect) and you must know your 'cut' where you accept that you are wrong and take a loss to preserve your ability to trade another day. For me that would be new lows below 1.2788, although my entry was only 100 pips higher so it would be easier for me to take.
Be careful with your long (assuming your price c. 1.3150) if you would run a loss down to say 1.2750 (-400 risk) for potential resistance around 1.3350 (+200 return) - the move could be over by then and a further correction may take place before/if ever we reach 1.3650 on the upside (+500 best case return in such scenario). The return/risk skew is awful, but I hope it works out for you. Let this be a lesson that you can have the right idea and be in the right trade, but with poor execution (often through haste) you can easily still lose money, and usually get not even half of what you should have with patience and an improved entry.
Feel free to message me on LinkedIn if you wish to discuss further.
Wish you all the best for your trade - however the decisions remain yours to make for yourself...
Have a good weekend.
It's important to have a view on rates (bond yields) when you're trading currencies, and whilst the pound is likely to bounce here US yields may well have bottomed which would support the dollar (USDJPY interesting).