I have been of the view for some time now that the GBP will strengthen appreciably across the board and I have been long of it against the AUD, USD and JPY. It is normal in big ‘cross’ moves, for one leg to move first before the other then accelerates; for instance if there is a big EUR/GBP move afoot, cable might rally strongly whilst the EUR/USD lags behind and when cable runs out of gas, then EUR/USD falls sharply. This is what is currently happening in my view so I’m booking my cable profits and will remain long of core trades in GBP/AUD and GBP/JPY.
- Important daily high in the cable at 1.6165
- AUD/USD feels like its unable to rally and therefore could be ripe for a sharp sell-off on or around the CPI time
- Short-term market is quite long of EUR/USD
- USD/JPY should be relatively bullish this week ahead of the BOJ
If the USD fails to rally this week and if cable can break cleanly above 1.6165, then I will revert to my buy-dip strategy there.
