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 bearish 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.
For further insight and discussion please contact me via Tradingview or LinkedIn, on Twitter @James_LVDTA, and visit lexvandam.com to become a member of the Trading Club.
Hi James, with regards to the above trade I went long in mid July aiming for the 1.36. This was based on the initial shock passing, and the strength the weaker pound brought to the FTSE. I clearly timed this one wrong as the trade has just been ranging so it was a welcomed relief to see a professional take the trade! I feel this move up to 1.36 has to be a corrective move as we seem to be too oversold. I was just wondering if there was other fundamental data you looked at to come up with this trade? The expected dip in future dollar strength? I only ask as many of the big banks are targeting 1.20, I heard HSBC were targeting 1.10 by 2017 Q4? Upon reading that I must admit I thought I had completely read the fundamentals wrong for this one.
Regards
Joe
JamesHelliwell
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Keep an eye on the yield differential between US and UK rates (government bonds). That may cap any move to the upside at around the 1.33 level until/unless that shifts sufficiently. Ultimately it's all data dependent, which is the rationale for the trade (fundamentals, not just technicals) although expectations (sentiment) weigh heavily in my decision to be long.
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...
JoeDH
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Thanks James, I didn't look at the yield differentials, that's an area I need to look into further. I have been in this trade for a while now and currently in the green by a small amount. Regarding your risk reward I agree with you, not a great execution by me, I think I am going to close on Monday and use this as a learning point!
Have a good weekend.
Joe
JamesHelliwell
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Keep an eye on the DXY. As you're trading it against the dollar, a likely bounce from oversold conditions in the coming days could contain the move higher in GBP. EURGBP may be a different story, but the broader Trade Weighted (TWI) Euro index is displaying relative strength.
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).
JamesHelliwell
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GBPUSD held below 1.3059 resistance ahead of UK unemployment. A break and hourly close above --> 1.3178 --> 1.3640
EricBuss
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i'm with u, man!!! Go cable..
JamesHelliwell
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It felt a little uncomfortable buying red yesterday at 1.2870 and the Dudley selloff today (having added this morning), but now needs time to play out. 1.3640 next seems as likely as seeing new lows, but the return/risk skew more than compensates. Remain flexible and dont be committed to your long.
Regards
Joe