Strategic trade
Trade view / 15 July 2016 at 11:18 GMT

Sterling bounce is just a short-term phenomenon

Managing Partner / Spotlight Group
United Kingdom
Instrument: GBPUSD
Price target:
Market price:

On July 6 I opened a short position in GBPUSD at 1.2967. (Click here to read.)

The next day the currency pair did decline to 1.2798, however, this was above the first target I set at 1.2513. Now sterling has enjoyed a short boost as the ruling conservative party was able to dismiss part of the uncertainty by filling the leadership vacuum – Theresa May became prime minister on Wednesday evening and has been swiftly appointing a new cabinet.

The bounce in sterling is hurting as this morning my trade is underwater by 3.40%, however, it was always established as a strategic play.

Source: Spotlight Ideas

I am not bailing out of my position as I am taking a longer-term perspective. Yesterday the Bank of England left the base rate unchanged at 0.5%. Do not forget that in July the bank had no effective government to turn to.

Minutes of the monetary policy committee's July meeting showed that most members expected fresh stimulus to be deployed at their August meeting. However, money markets are pricing the chances of a rate cut next by the end of next month at 52%. 

This is down, so pushing sterling, but the bank will not do nothing. I am looking for more quantitative easing. It is just three weeks until the central bank will have the August inflation report to work with.

It was felt that 0.5% was the floor for the base rate, however, post the referendum the economic aspect facing the UK, Eurozone and even the world has been altered. The new Theresa May administration appears to taking a softer tone toward fiscal discipline. This could be mistake if suddenly the treasury is allowed to pedal in tandem with other departments in boosting and directing state expenditure. Governments have a habit of wasting money and I fear that the fiscal discipline that has the UK on a good track may be diluted.

Investment reports suggest that the UK will slide into recession next year, contracting by 1.0% as the impact of Brexit is felt and consumer confidence is hit. The services sector could be singled out, particularly the financial industry and there are doubts as to how many small and medium sized companies have adequate Brexit contingency plans in place.

So I am ready to sell GBPUSD again, as I note that the time technicals are mixed with the very short and very long calling for a string sell and the intermediates saying it is a strong buy. The short view is looking for end of week profit taking. The middle view is giving Theresa May a short honeymoon, and then by mid-August I sense sterling will fall again.

Source: Spotlight Ideas

Management and risk:

Parameters: GBPUSD
Entry: Sell 1.3359 1009 GMT  
Average is 1.3163
Targets: 1.2513 ... 1.2234 ... 1.2008 ... 1.1782
Stop: 1.4000
Time horizon: Strategic trade

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
OrofitAccumulator OrofitAccumulator
Stephen don't you think the GBP may be forming a Bottom since Brexit with a much bigger retracement ahead ??
Krunil48 Krunil48
Thank you for the update as I was wondering how you viewed your previous trade and as the political situation had changed.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail