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Pound VS Dollar Currency Analysis

Currencies / British Pound May 29, 2007 - 06:47 PM GMT

By: Submissions

Currencies What happened ? We have had an interest rate rise and we have seen an increasing backing for another rise sometime soon.

I am surprised that this has not been bullish for the pound

We have also seen some really benign inflation data coming out in America which would be dollar-negative, so why hasn't there been more pressure on dollar

IG Index is offering a binary bet of the pound hitting the $2 mark again this year, with a spread of 80-85 points. In other words, the bookies think there is an 85 percent chance of it happening.

However, Hughes points out that the psychological element of the $2 pound has been and gone.

We have had the 15-year highs so what we are seeing now with the pound is a bit of profit-taking from our clients he adds.

According to Michael Wright, director of the fixed-odds bookies BetOnMarkets, a lot of ink was wasted covering the £/$ exchange rate (otherwise known as cable) when it ran past the $2 mark early in April.

Having two dollars to the pound is exciting for shoppers, but the level was more of a psychological barrier and had little if any technical resistance surrounding it he says.

Once the bulls got within a close enough distance, it is almost as though fundamental and technical analysis was thrown by the wayside, in exchange for the dash to the two-dollar-to-the-pound finish line

So what has cable done since breaching that mark? The pound has been in retrace mode, having given up a nice chunk of its run-up.


This is unlike its counterpart, the £/$ which is trading still within sight of it's all-time high.

Until fundamentals catch up with April's run up, it is likely that cable will remain in range mode for the time being Wright adds.

Also, with summer approaching, it is more likely that another push will not come for a couple of months.

An added bonus is that there are no US interest rate decisions for the next four weeks, which may take away some of the nasty surprises

So does no movement mean no profit? Not necessarily so, Wright explains.

BetOnMarkets is offering Barrier Range or Expiry Range trades to take advantage of the market not moving much.

With an expiry range trade, you can win if your trade is between pre-set triggers at that time of trade maturity.

It can trade anywhere before it, but as long as it's between two points you set on expiry, you win.

For example, you can set an expiry trade on the £/$ rate closing between $2.04 or $1.95 over the next 30 days. It might trade higher but as long as it closes below $2.04 and above $1.95, you win.

In a barrier range trade, you win if cable doesn't touch your levels at all during the term of trade.

It's somewhat more risky, because you need the cable rates to avoid touching both of your levels for you to win your bet and not merely close between them.

However, it returns are set higher for example you can set a trade on the £/$ rate not touching $2.05 or $1.91 over the next 30 days.

If the next few weeks are as dull as predicted, this could be profitable way to make things interesting Wright concludes.

By: Joanna Frendo

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