GBP/USD Analysis 01/24/2011

GBP/USD Daily Chart Click-to-Enlarge

GBP/USD Hourly Chart Click-to-Enlarge

DXY Daily Chart 01/24/2011

The GBP daily chart (top picture) shows RSI near the top of its range potentially looking for another small sell-off. This sell off would be supported by the GBP hourly futures chart (middle picture) that has a triple top forming at the same area of resistance right around 1.60. The Dollar Index RSI is indicating it is oversold and could be poised for a little rally, further supporting a decline in GBP against the US Dollar(bottom picture) Monitoring these three charts would be essential to jumping back into GBP, we would want the RSI to fall back down somewhat and the hourly futures to come back down. We are looking to enter long on GBP/USD down around 1.5800-25, with a profit target around 1.60. We believe that GBP/USD is susceptible to a sell off given the indications from multiple time frame charts that GBP/USD is topping out at 1.60, the RSI is relatively overbought and the US dollar index appears to be poised for a rally. We will also be keeping an eye on other crosses such as EUR/USD and EUR/GBP due to the influences those particular crosses have on GBP/USD.

GBP/USD Trade Update on 01/18/2011

For those of you following our blog, we are posting an update on our GBP/USD trade. We have liquidated our trade at 1.60 earlier this morning for a gain of 248 pips.  We closed this trade out due to a strong bounce down from 1.6050 and we are now looking to re-buy on dips around the 1.5800 handle, possibly lower if Cable does not find support until 1.5700 where the 100 day moving average lies  on the daily chart.  We believe  macro economic forces will be supportive of GBP crosses over the coming months due to the historical performance of the GBP prior to the Global Financial Crisis, and that higher inflation will force the Bank of England to hike rates sooner then anticipated, which leads us to believe that GBP has room to appreciate given current levels.

GBP/USD Outlook for 2011

Before the Global Financial Crisis, EUR/GBP cross spent years trading between .65 and .70. Obviously much has changed since then but we at FXIB cannot see a good reason for the Euro, with all its Sovereign debt woes, to still be trading 20% higher against the GBP. In our opinion it’s only a matter of time before the cross falls to .75 at least. What does that mean for the other crosses? If EUR/USD falls to 1.20 and EUR/GBP falls to .75, then we are forecasting that cable will be trading at 1.60. If EUR/USD rises to 1.40 and the cross falls to .70, then we believe that GBP/USD will be trading at 2.00. These forecast are based on previous price action before the Great Financial Crisis hit.

01/13/2011 - Click-to-Enlarge

Taking  a look at the  GBP/USD Daily chart above, the white line is a 20 day Moving Average and is starting to turn up. The blue line is a 60 day Moving Average providing intermediate support.  The green line is the 100 day Moving Average providing strong support at 1.5716. And of course the 200 day Moving Average is the purple line at 1.5423. We are looking to buy GBP/USD on dips toward the 200 day Moving Average. We believe that the UK government austerity programs will increase confidence in the GBP as the budget deficits are reduced and the economy manages to sustain growth.  Only concern we have is that the Bank of England is not acting fast enough to control inflation right now, but as the BoE hikes interest rates to slow inflation this will support the GBP.  We firmly believe that this year will be the year that makes or breaks the EU, unfortunately the longer the structural problems of the EU sovereign debt crisis remain unfixed, the higher likelihood we will see the EU collapse.  Recent reports have indicated that if Spain needed to be bailed out that would be the catalyst for the EU breaking up.  Given this backdrop, we foresee the GBP strengthening against the Euro and consequently against the US dollar.