Start of a bigger move for the Cable?
Has the cable finally seen its low this year?
Reaching a low of 1.2660 in mid-August, the cable has definitely seen a steep decline,free falling from 1.4375 in mid-April, declining a good 11.5% before reversing some of these losses and currently trading in a messy fashion, capped at a psychological 1.3300, and 1.3000 resistance and support level.
I am a believer in market cycles, and especially for matured economies, barring any major economic headwinds (eg. Brexit), currencies will somewhat have a reversion to a long term average, and looking at how battered the GBP has been this year, I would think that there is room for some medium term recovery especially since we have seen the momentum of its massive slide this year come to a halt.
Ignoring all the noise about economic indicators, the main driver of any strength in the GBP would come from the outcome of Brexit negotiations, as well as changes to the interest rate path markets are expecting. The BoE has indicated that it would follow its two rate hikes, as well as further increases in the coming years, if the economy continues to expand at its current rate.
Effectively, I am looking to bet on Britain negotiating a deal which would be positive for the GBP, and the market is definitely pricing in some of this expectation as well in my opinion.
Looking deeper into the 1hr chart, some levels of support has been identified where I would like to build some long exposure to the cable, and managing them with a short term target at the current resistance of 1.3275, and leaving some long exposure to capture further and bigger moves should the markets push the cable above 1.3300.
Alternatively, a buy stop order above 1.3300 would work equally well too.
One other major consideration that would affect the cable would be short term inflation figures and US treasury yields which has reach 3.20% recently. Employment and wage growth in the US has been firm for the past few months/quarters but recent numbers are starting to show some cracks and per my view on market cycles, how much more unexpected positives should we be expecting from the US?
Trump as well as some Fed members consistent calls for a scale back in the pace of policy tightening would also put the brakes on the US dollar strength which would help the cable higher.
#MarketCycles