The GBP/USD pair rose strongly during the session on Wednesday as the bulls continue to take over. This market has been a favorite of ours, and we continue to hold long positions at it. It appears that we will run into a bit of resistance at 1.6150 or so, but quite frankly this will be minor in nature. With that being said, we believe that this is a long-term buy-and-hold type of opportunity, and in fact probably one of the few out there right now.
As long as the Bank of England is comfortable with keeping its monetary policy as it is, we will favor the British pound over the US dollar as the Federal Reserve continues to print more and more money, and buy more and more bonds from the US government. Inexorably this means that money will continue to flow from the United States into the United Kingdom as the yields on the British gilts will outstrip U.S. Treasuries over time. Also, the United Kingdom has the benefit of being just across the English Channel from continental Europe, which of course is seen quite a bit of money leave it shores. In a sense, the United Kingdom has become a bit of a safe haven play for continentals as the debt crisis continues to put a damper on all things European.
Our strategy for going forward in this pair would be to add to the long position on pullbacks that appear on shorter time frame charts showing significant support. We believe ultimately that this pair is going to the 1.70 level based upon longer-term analysis, but do recognize the fact that the 1.63 level that caused the pullback in the first place will be a challenge. However, when you look at the monthly charts you can see that 1.63 is only a minor resistance area in the big scheme of things, and should be over, eventually.
We also believe that the Federal Reserve may possibly extend its quantitative easing longer than most people recognize right now. That being said, this should continue to keep the US dollar on its back foot barring any financial shocks..
Written by FX Empire