GBPUSD: Quick Thesis

2:05 AM


USD:

The USD has gotten a wacking from the global markets recently. I believe this is partially due to the funds flowing back into the EU and out of the US.

Hence the mediocre SP500 performance despite generally good earnings.

But the USD has not fundamentally weakened, so I think it will appreciate back to the upside.
  
GBP:

The UK announced the Flash Election despite many claims from PM May that this will not happen. It is an important lesson to understand what level of trust we should place in politicians.

This caused a rally in the pound.

However, does this make much sense? Yes it does, the pound has been undervalued. The positive PMI results, housing prices and inflation are all generally positive. A consolidation of power will allow PM May to negotiate a better Brexit, and the polls are in her favour.

Having said that, this move seems a bit too much too fast.
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Entry:

At the time I entered the position, the EURUSD and other crosses were strengthening but was not affecting the GBPUSD cross much. Hence I saw a potential pullback on the GBPUSD.

2nd Entry:

I was of course slightly wrong, going in at 1.2808. Luckily I only entered half a regular position for my system. This was so as the trading range is unusually tight and so I was not confident on fully committing.

The next logical and pretty strong resistance point is the 1.30 mark, once the price retraces the 10EMA with volume, I will enter the next half of the position with a SL to 1.30.

Levels:

TP 1 - 1.2734
TP 2 - 1.2596
SL - 1.3050

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Considerations:

I have two major concerns with regards to this entry. They are

French Elections:

As people know, I was really intent on trading the French Elections because I thought there was an underpricing for a potential Le Pen win.

I still think so.

But it might affect the GBP. My thought is it should affect the GBP negatively.

France remaining in the EU means the two largest players can negotiate Brexit. Of course, they would like to punish the UK as much as possible to deter any further leaving the EU.

But I will not know how the GBP will react till after the election. I would like to have closer stops to prevent this.

  
Extreme Long Term Bonds:

Treasury secretary Mnuchin announced that they are considering long-term bonds, beyond the current 30-year limit.

If this were to happen I expect the debt to increase in the US. I used to think the US economy was going to be in trouble due to the end of the long-term credit cycle.

This tenure means that the long-term credit cycle is likely to continue.

This is not shocking because Japan is going through this and has been for a while. But it does mean that the long-term view has to change.

I will write more in my SPX500 update.

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Right now, this is not looking in my favour. But I like the idea and I think this move is too much too fast, I suspect it will come down before going back up.


A potential Catalyst is the FOMC meeting later, while i do not think they will raise rates today. It is highly possible. 

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