My GBPUSD forecast

First and foremost I want to apologize for the ugly and untidy looking charts I've pasted in my blog so far.

I'm not a naturally artistic person so I can't spruce up the charts well.

And I also can't explain concepts well using graphics and words that are slapped on them. But I guess, I might get better doing a little more of this.

Anyway this post is about a potential trade on the GBPUSD.

As we know the UK and the US are in official Quant Easing. And because the market hadn't expect the Fed to make this move last Wednesday, the market had a huge reaction and brought up the GBPUSD to break the 4 months old downward channel resistance line - see chart below.

I feel this is an over-reaction by the market (as it always does) and the pair would not have legs to carry on much further.

For a re-cap, the Bank of England announced a GBP 75 bn package whereas the US put up a USD 300 bn package of their own. A big difference eh?

Firstly, QE is not equal in the US and the UK. There was an Financial Times article Friday that says that for the US to implement a proportionally equivalent QE package, it will cost up to USD 900 bn! - GBP 75 bn is worth a fifth of the gilts market.

Further, Friday's Commodity Futures Trading Commission (CFTC) open positions report revealed that there was a net long position in the USD still, compared with the other majors. If I remember correctly, the shorts on GBP was quite substantial - now this also emphasizes the market's downward view on the sterling.

Besides, UK unemployment rate is declining drastically and home prices are still very weak. I don't see a good fundamental reason to long GBP.

Back to the chart above, the 3.5 months support turned resistance line will be a tough nut to crack. Hence, Friday's (20 Mar 09) close of 1.4444 sits just on the resistance line.

Perhaps, more upside momentum (MACD entering into +ve territory) might punch the pair high towards the 50% or even 61.8% retracement levels - see chart below.

As the GBPUSD is a notably high volatility pair, my call for the next 2 weeks (till 6 Apr) is to sell at closer to the 61.8% retracement.

My call: sell from 1.4850 - 1.4980

Stop loss: 1.5080

Take profit: 1.4080 (23.6% retracement)