[B]Monday, 01 December 2008 17:52:00 GMT
Written by John Kicklighter, Currency Strategist
Full Article[/B]
When looking for range trades, it is always wise to position yourself with any dominant trends. There is a clearly a greater, bear trend holding over GBPUSD, which makes our suggested more risky.
[B]Why Would GBPUSD Stay in a Range?[/B]
[B][I]Levels to Watch:[/I][/B]
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[li]Range Top: 1.5535 (Pivot, Fibs)
[/li][li]Range Bottom: 1.4810 (Trend)
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GBPUSD is already one of the most volatile dollar-backed majors; but it has been especially volatile through throughout the past few months (and past few days). However, both economies seem to be on an even footing in their malaise. Authorities from both have confirmed their respected economies have entered recessions and the financial crisis is particularly prominent with each. The true balance for this pair is the demand for a safe haven.
The technical precedence set in GBPUSD price action is modest at best � making this a relatively risky setup. Support is our primary interest, but only a short-term rising trendline from the Nov 16th low is seen as a genuine foundation for this pair. Resistance, on the other hand, is more noteworthy with a significant pivot at the rounded 1.55 figure.
[B][I]Suggested Strategy[/I][/B]
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[li]Long: Half-size orders at 1.4835 near today�s intraday lows, but necessary for volatility.
[/li][li]Stop: An initial stop at 1.4755 is only wide enough to cover the short-term rising trendline. To secure profit, move the stop on the second lot to breakeven when the first target hits.
[/li][li]Target: The first objective equals risk (80) at 1.4915. The second target will be 1.5100.
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[B]Trading Tip �[/B] When looking for range trades, it is always wise to position yourself with any dominant trends. There is a clearly a greater, bear trend holding over GBPUSD, which makes our suggested more risky. However, opportunities that counter a larger trends should not be totally avoided; therefore, we are cutting our position size to half the normal size. This should relieve excess concern on our part over volatility. Instead, we can look to the short-term trendline that has held price action up for the for the past two weeks, while our first target can be hit on a reversal of the incredible selling momentum over the past 20 hours of trading so far this week. To reduce the risks of a breakout against our position, we will cancel any open orders before Thursday�s BoE rate decision.
[B]Event Risk UK And US[/B]
[B]UK [/B]� According to officials� reports last week, the United Kingdom is officially in a recession. This surprised few pound traders. However, this official consensus adjusts the starting point for UK fundamental speculation much lower. Now, we are looking forward to a busy week of scheduled event risk and threat of spontaneous shifts in risk appetite altering the path of the sensitive pound. Preparing for what we can, the UK docket steadily intensifies over the next few sessions. Tuesday evening, the consumer will come into view with the leading Nationwide Consumer Confidence reading for November. With the economy �officially� in recession, it will be interesting to see how the market reacts to signs that consumer spending is slowing further. The following day, the services PMI reading will follow up on today�s 16-year low in the manufacturing sector. Top event risk will be Thursday�s BoE rate decision. With economists pricing in 100 basis points of easing (and traders cautiously prepared for more), the potential for surprises is substantial.
[B]US [/B]� Like the UK economic calendar, the US docket grows more intense as the week matures. However, the next piece of significant event risk is not due until Wednesday (potentially clearing the way for lower volatility until we are entered on our position). The combination of the ISM service sector report and the Fed�s Beige Book will give a good leading/lagging gauge on the US economies health. Market participants will be more interested in speculating on the eventual turn in the economy rather than interest rates at this point with the benchmark yielding only 100 basis points. Friday is key to the fundamental week. The non-farm payroll report is expected to report a massive loss of jobs through the past month (325,000 according to the Bloomberg consensus). This would be a discouraging number even if the market is pricing in a particularly harsh recession going forward.
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