Seeking Alpha
, One-Twenty Two (221 clicks)
Long/short equity, event-driven, homebuilders, currencies
Profile| Send Message|
( followers)  

In "British Pound Surges Into Resistance - Buy Dips As Government and Bank of England Try To Ease Credit Crunch" on June 15th I argued that it is time to buy the dips in the British pound versus the U.S. dollar (NYSEARCA:FXB) with a sell target just under the 200DMA resistance. So far, so good on this strategy. The 30-minute chart below shows the buyable dips and the selling point at resistance for the GBP/USD currency pair.

(click to enlarge)The erratic movement of the British pound provides good volatility for intraday trading

The erratic movement of the British pound provides good volatility for intraday trading

The daily chart shows how the 200DMA is providing effective resistance for the third straight day. I continue to think this critical level will serve as a magnet for the currency pair as the U.S. dollar index (NYSEARCA:UUP) slowly but surely weakens from its QE2 reference price.

(click to enlarge)The British pound wavers under 200DMA resistance but hangs close

The British pound wavers under 200DMA resistance but hangs close.

(click to enlarge)The dollar index continues to fade away from its QE2 reference price

The dollar index continues to fade away from its QE2 reference price.

Source: FreeStockCharts.com.

The dollar index continues a slow and orderly decline from its QE2 reference price ahead of Wednesday's monetary policy statement from the U.S. Federal Reserve. Clearly, the market is expecting some kind of statement that is more dovish and accommodative than the recent string of pronouncements (as I am). If the Fed disappoints, the dollar should surge in strength across the board for a brief spurt. It might take a day or two, but eventually I expect currency markets to return to dovish expectations for the next round. Such a move will provide a particularly attractive short-term buying opportunity for the British pound.

Source: So Far So Good On Buying Dips In British Pound

Additional disclosure: In forex, I am long GBP/USD