Thursday, July 24, 2014

Sterling retraces | getting ready for another move up?

On July 14th last we had occasion to remark that the Euro against the pound, EURGBP, had reached the lower end of its trading channel, which is resolutely in the downward direction due to the sustained strength of the British unit (and weakness in EUR), and that taking further short trades in the dominant trend direction might be unwise for the time being.

In the event, the exchange rate has continued to track the lower end of that particular channel, with only a small retrace making itself felt. The pound against the US dollar, GBPUSD, on the other hand, has retraced nicely, as can be seen in the daily chart above. This move got a further impetus yesterday on the back of rather poor retail sales figures out of the UK. We will, of course, monitor this situation to be ready for a possible move back into GBPUSD when the rising channel bottom has been reached, provided always that our indicators, and the fundamental situation, do not indicate a trend change at that time.

Getting ready for another move up?

The UK retail sales figures yesterday represented only one reading. Policy is not made on this basis, as central banks across the world have consistently demonstrated. Whether it is employment figures in the US, or sales figures in the UK, it is the trend that makes itself apparent over time that really matters. The UK economy is showing its growing strength in many indicators, and the Bank of England is still on track to consider a rise in base interest rates before too long.

While there are no certainties in Foreign Exchange trading, the probabilities still favor the continuation of the rising trend in Sterling.

No comments:

Post a Comment