The USD has threatened to rally for months now. But the $GBPUSD remains in its 300-pip range between 1.5500 and 1.5800. Every time traders, and I do mean ME, gets bullish or bearish due to price action, the USD finds a way to do just the opposite.
For example, despite completing the quarter to 1.5750 on USD ($DX_F) weakness this week, cable never broke above the level to challenge the highs at 1.5800 midterm support and resistance. I was bullish cable going into this trading session. I thought price would continue to rally into 1.5750 – 1.5800 zone and then experience a sharp selloff. The selloff came sooner than expected when risk aversion kicked in as Spanish bond yields and equities spooked the market
So what happens next week? With Spanish (and Italian) yields hitting these high rates at the end of the European session, we can expect the USD to continue to rally when the market opens in Monday trading causing this “Strong USD, Strong GBP” theme to play out once again. As such, this week’s GBP bears should enjoy some profits heading into the weekend. $GBPNZD and $GBPAUD short positions, in particular, paid out nicely this week with continuations in the weak sterling vs. commodities trend. However, do not underestimate this USD. It still rules capital flows and when it is strong on risk aversion fever, GBP will also benefit in the crosses. Most notably, the $EURGBP, $GBPNZD, and $GBPCAD are strong candidates into next week. Trade what YOU see!