British Pound Caught In Strong Trading Range

By: Richard_Cox

Currency markets have had some difficulty in establishing trends for most of the year, and this has made it harder for traders to establish a strong stance when dealing with the majors.  The Euro, US Dollar, and the Japanese Yen have all shown themselves to be clear examples of this but when we look at recent activity in the British Pound it is looking as though some different conclusions can be drawn.

Since we are still relatively early in the year, it is important for investors to be aware of these trends, as they are likely to influence activity in peripheral assets like the FTSE 100 as well.  So even if you are not interested in currency trading exclusively, it will be essential to have an understanding of where the Pound is trading relative to the rest of the majors.

Sideways Activity In The GBP/USD

In the last 90 days, the GBP/USD has been caught in a very strong trading range that is going to be difficult to break unless we start to see some changes in the underlying fundamentals.  Currently, the range can be defined within the 1.3850 support zone and the 1.46 resistance zone that has started to develop itself.  For investors with a shorter term outlook, this creates the potential for gains of roughly 1,000 pips if the range is traded correctly.

Whether or not this trading range is ready to break is ultimately going to depend on whether or not the Bank of England (BoE) is sufficiently ready to start raising interest rates.  The BoE tends to be more focused on inflation than most of the other central banks, so data reports like the CPI and PPI should be monitored in order to get a better sense of how they are likely to proceed.

Potential Trading Strategies

Until that occurs, the best approach will be to play the strength of the recent range.  Scenarios like these tend to be best suited for investors that use an automated forex trading system to determine trading stances, as we are in relatively objective price scenarios in pairs like the GBP/USD.  Stop losses and be placed just outside of this trading range, as any violations of support or resistance will indicate that the paradigm has shifted and that a new assessment will need to be undertaken.

By Richard Cox

© 2016 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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