Thursday, April 17, 2014

Enter the Pound

by Greg Harmon

The focus in the equity world has been on the Dollar, Euro and Japanese Yen. Will the Dollar weaken? Will the ECB cut rates to weaken the Euro? Will Japan finally be able to create some inflation by weakening the Yen? What gets lost in this is that the winner of the currency wars has been the British Pound. A quick look at the chart of the currency measured in Dollars below shows a clear trend higher since July, nine months. It has leveled a bit recently but the most recent action shows that there may be an opportunity to put on a tending trade in Sterling. In technical terms it is testing resistance from a higher low and building an ascending triangle. A break of the triangle higher would target a move to 173.50. That is a big move for a currency.


This level has some additional significance. Looking on a wider view at the monthly chart shows that this is near the 50% retracement of the move lower in 2008 at 173.66. So with a move finally getting some space from the 38.2% retracement at 164.81 and the 200 month SMA at 166.38 as a natural stop level it is ready for a trade. For an equity player this move can be played with the ETF $FXB. Due to the fee structure a direct play should look for a move over 165.75 on the ETF as a trigger.

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