Strong & Weak: Pound Sterling Continues to Shine

AppId is over the quota
AppId is over the quota

By Jeremy Wagner, Head Forex Trading Instructor 11 December 2013 04:18 GMT Talking Points:

-British Pound has been the best performer over the past 5 weeks

-GBP to USD pair showing an extreme SSI reading suggesting further gain for Pound

-Buy British Pound Currency Basket (enroll for demo account at the same link)

The British Pound has been in a broad based rally for more than 5 weeks now and is located near the top of this week’s strong and weak analysis. We first highlighted the Sterling strength 2 weeks ago as the British Pound Outperforms.

Forex Strategy: Matching Strong versus Weak

Chart created by DailyFX EDU Robert Warensjo

We will continue to hold the GBP Buy Basket trade open for another 1% gain (without leverage) or until Christmas. The reason for the time stop of December 25 is because December is generally a strong month for Sterling gains and January is one of the worst months. Since we have earned some nice gains so far and we don’t want to give them back. Therefore, if the basket doesn’t capture another 1% gain by Christmas, then we will close out the trade and move to a flat position over the holidays.

One factor behind the potential for additional gains in the Pound is FXCM’s Speculative Sentiment Index (SSI).

Forex Education: GBPUSD’s Sentiment Chart

Chart available inside DailyFX Plus and created by DailyFX’s David Rodriquez

The amount of sellers in the GBP to USD has steadily increased as the exchange rate increased from the 1.50 low in July. These sellers become a future supply of buyers when they decide to close out their trades. We will use this future supply of buyers as an opportunity to keep the Pound supported.

Executing the Trade

Since we anticipate the British Pound may continue its broad based rally we will take a diversified approach and buy the single currency against a basket of currencies. There are several advantages to trading a currency rather than a pair with the largest benefit being diversification.

You can try trading the GBP Basket BUY position in a Mirror account. You can even try this out in a practice account at the same link above.

Good luck with your trading!

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

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11 December 2013 04:18 GMT