How to trade GBP/USD?
Authored by Kira Iukhtenko
An unexpectedly dovish tone of the yesterday’s BoE inflation report and the overall USD strength pushed the cable down from the $1.7000 mark. The pair slipped to $1.6730 on Thursday – lowest level since mid-April. We see that the pair broke the March-May bullish channel to the downside, pulling down from the 100-month MA ($1.6970). The price moved below the $1.6800 support yesterday.
It is important to understand that the $1.7000 mark was actually the highest cable’s price since the year 2009. Is it comfortable for the Bank of England to live with such an expensive currency in a deflationary environment? Clearly not, and the market understands that. We wound expect this $1.7000 mark to act as a psychological resistance in the long run.
In the short term we recommend selling the cable from the current levels with an initial target of $1.6650 and a stop at $1.6830. This is the support of the September 2013 rising channel and the 200-month moving average.