The GBP/USD pair struggled during the session on Monday, but did bounce in order to form a little bit of a hammer. We have seen the 1.60 handle offer quite a bit of support, and this would have been expected as the number is such a “large, round, psychological number.” Cousin this, we are more than willing to start buying this pair, especially considering the fact that the British pound is stronger than most of the other major currencies in general.
The Federal Reserve continues to ease its monetary policy, and this of course will work against the value of the US dollar against other currencies that don’t. Namely, we believe that the British pound is poised to take advantage of this dynamic as the bank of England is by far the largest central bank that is not easing its monetary policy in any form.
This allows us to go long and collect positive swap in this pair over the longer-term. In fact, we think this is more of a longer-term buy-and-hold type of situation, as we see the 1.70 level eventually being attempted.
There are several ways you can take advantage of this trend. You can start selling puts below the 1.60 handle as it does look like we’re not going to go below that anytime soon. Also, you can buy calls, or even get involved in ETFs that follow the British pound. All of these ways are an excellent opportunity to be involved in what looks to be like a bounce waiting to happen, without being so over leveraged.
However, as you know the spot market can provide us with funding opportunities, and we think we will see this once we clear the 1.6100 level. This level should continue to be resistance, but eventually over, as the trend upwards is so strong. The pullback that we’ve seen here recently is roughly 50% of the length of the breakout, the scene buyers stepped into this market at this point time is no surprise. We like buying the British pound, not selling it and in fact have no plans to do so.
Written by FX Empire