Futures Outlook: 06/27/13
The Great British Pound’s Comfort Zone-Long Term Potential
Today I would like to spend some time on a currency that has always been a heavy hitter so-to-speak, but has seemed a bit range bound for those that like to watch it longer term. The Great British Pound, even while somewhat stagnant in the big picture, always has a great deal of volume/open interest. I believe that the Great British Pound has a great deal of potential.
Great British Pound
When discussing the Great British Pound, I believe that it is extremely important to look at its history as well as it’s current condition. Living abroad, when I was much younger, I remember the Pound being in the 1.50’s and 1.60’s. The funny thing is that now, a ballpark 20 years later, the Pound is there again and has been for a while. I tend to liken this to a home base for the Pound. These levels tend to be the comfort zone for this currency.
Per the chart above, which shows the range on the Pound from around 1971 through to present times, you can see that we have used the 1.50 territory as a baseline many times. The broad spectrum for its comfort zone over the last 45 years or so is between the 1.50 and 2.00. Now that’s a little broad for our scope, so we’ll bring it in a little tighter than that, but I really want you to be attentive to and note the 1.50 as a psychological level as well as for its inherent support level value.
On today’s Daily chart for the Great British Pound, I have highlighted in blue, the ascending lows that may assist us in forming a bullish trend. In addition, I have added a bold black line across our 1.50 territory. For those of you who like to trade the channels, you might look at a shorter term bullish opportunity off of the numerous days of failure that just preceded. Over the next number of days, I would be watching to see if the Pound can rally a bit from where it stands currently.
Per the Weekly chart, you can see once again the 1.50 area highlighted in bold black. In addition, I have marked an ascending channel that we have been building for the bulk of this year. Note that if we are able to find support here again after a few weeks of failure, you would have a nice bit of rally potential. If you are looking for a position that lasts for months, you would need to be a little bit attentive if you jump in bullish in nature, simply because channels at some point always break. For the near term, short term perspective, I expect a bit of a rally. The ascending channel supports that direction, but I raise a caution flag on this for the mid-term simply because this pattern is already well-built and duration without interruption could be questionable.
Now, we come to the Monthly chart which illustrates just how “comfortable” the Pound has been over the last 4 years give or take. What used to appear on this chart as a potential for an inverted pennant formation has now seemingly lost some of its edge. The terrible hit that the Pound suffered between 2008 and 2009 has been just slightly mitigated by the return to its comfort zone. Narrowing the broad 1.50-2.00 range here, the monthly focus for me is between the 1.50/1.51 area and the 1.64/1.65 territory. This is the real range to beat. Now, as we linger closer to the 1.50 than the 1.65, we may find ourselves with the opportunity to watch this over the next number of years with the opportunity to pull itself up by its boot straps and really make some progress. The caveat of course, would be the potential for the 1.50 to be broken down, if the Pound is a bear in hibernation.
I tend to be bullish the Great British Pound for duration over the long term. I view the next number of days as a good short term bullish opportunity that might fit nicely into the potential development of what could become a longer term bullish trend. The levels that I have given you are extremely important to watch, but your first priority on the long term of course will be to respect the 1.50 and aim for 1.65. The duration of the Pound’s recent stay within these levels is a bit long in the tooth for me. I believe that this range needs to break and I would love to see it become bullish for the next number of years. If however, I am wrong, then those of you that are bearish only need to sit tight and watch for a significant break of 1.50 to evaluate your play.
We have strategies that allow you to add the Great British Pound to your portfolio via options spreads with fixed risk and a lower capital outlay than many other investment vehicles for this currency. If you would like to prepare yourself for the Pound’s next move, then please contact us directly.
For more information or for daily assistance with the Options market on Commodities and Futures, visit www.rmbgroup.com or click here to get started today.
This material has been prepared by a sales or trading employee or agent of R.J. O’Brien and is, or is not in the nature of, a solicitation. This material is not a research report prepared by R.J. O’Brien’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that R.J. O’Brien believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.