I have gone long GBP vs JPY and NZD (half a position each). JPY should weaken as US bond yields rise and NZD’s uptrend has been broken by weak economic data, which has put back expectations for further rate hikes in New Zealand (and I have been thinking about a short for a while). But the trade is mainly about GBP, and recently I have decided to use more than one cross to express a currency view.

GBP broke out yesterday after Mervyn King’s letter to the Chancellor said that the Bank of England’s inflation forecast depended on interest rates rising in line with market expectations, which are for three rate hikes this year. This is a real turning point: it is the first time that the BoE has suggested that it might actually raise interest rates for a market age — so, crucially, there could be a change of trend. GBP is falling this morning after Mr. King struck a more doveish note in latest inflation report. He also said that no decision had yet been made on interest rate increases, but central bankers always say that. I think this morning’s sell-off is overdone and rate hikes are now on the agenda, and thus that the GBP should rise.

I have placed a stop at 1.5 ATR in GBPJPY and 1 ATR in GBPNZD based on what has worked better historically in these markets.

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