Increased downside risks
Let us consider the GBP/USD pair on the daily timeframe. On June 3 the Bank ofEngland decided to keep the interest rate unchanged at 0.5% and to leave themonetary stimulus program unchanged at GBP 375 billion. June 30 final reportindicated the UK economy grew 0.4% in the first quarter due to growing domesticdemand as the current account deficit of 20.6 billion pounds, or 5.8% of GDP,subtracted 0.6 percentage point from growth. The economic outlook of UK isuncertain as the winning Conservative party plans to hold a referendum on Britain’smembership in European Union by the end of 2017 and possibly as early as 2016.The conservative party has also pledged to close the budget deficit in fiveyears and Chancellor George Osborne is going to announce the austerity measureson July 8 when he presents the government’s budget for the next four years. Thefiscal tightening will likely act as a drag on growth. The political andeconomic uncertainty from the possible Greek exit form euro-zone in turnincrease the downside risks for UK economy. On this backdrop US economy appearsto be on track of firm recovery, with solid June jobs report increasing thelikelihood of September rate hike. The British pound will likely weaken againstthe US dollar in near term given the divergent growth prospects and monetarypolicies of the Federal Reserve and Bank of England.
The GBP/USD has been tradingwith a downward bias since the Greek negotiators failed to reach an agreementon bailout extension with Eurogroup finance ministers on June 19. The Parabolicindicator gives a sell signal. The RSI-Bars oscillator moves in a downtrend channel. The Donchian channel isflat. The pair has crossed below the last fractal low at 1.56672 and is fallingtoward the 200-day moving average. We believe the bearish momentum will be confirmedafter the pair closes below the 200-day moving average at 1.55485. A pendingorder to sell can be placed below that level. The stop loss can be placed abovethe last fractal high at 1.57886. After placing the order, the stop loss is tobe moved every day to the next fractal high, following Parabolic signals. Thus,we are changing the probable profit/loss ratio to the breakeven point. If theprice meets the stop loss level without reaching the order, we recommendcancelling the position: the market sustains internal changes which were nottaken into account.
Position
Sell
Sell stop
below 1.55485
Stop loss
above 1.57886
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