Cable Continues to Rally, holding New Found Ground at 1.30 Handle

Cable finished last week above 1.3030 after touching a most recent high at 1.30475, levels not seen since September 2016. The week started on the same note with price opening below 1.30 handle to then rise 40pips to close the London session above 1.30100.

Trump’s trip to the Middle-East and Europe may have taken some of the heat off his administration. However, the markets are beginning to doubt just how quickly he’ll be able to implement his economic agenda. The slowdown in process, as Capitol Hill gets bogged down on other issues related to investigations on a Russian connection, may mean a slower schedule for rate hikes. Lower rates for longer are going to reduce the appeal of the US dollar.

The Sterling has been under pressure from fears of a hard Brexit and the consequences on the British economy. Recent economic data, on the contrary, has shown better than expected increases in retail sales, inflation and lower unemployment. All factors which have changed the wording of comments and speeches from BoE members, hinting that we may not be too far away from a hike in the UK.

More information on the health of the UK economy will be available Thursday at 09:30 am with the release of GDP Growth data. Consensus is for growth to continue at the same levels from last month, 0.3% and 2.1% for quarterly and yearly data respectively.

If you feel that Sterling will rise against the US dollar over the next week then all you need to do is Buy a Call option which gives you the right to buy GBP/USD at a given price (strike), on a specific day (expiry) and for an amount of your choice.

The screenshot below shows that a GBPUSD Call option with a 1.30109 strike, 7-day expiry and for £10,000 would cost $60.44, which would also be the maximum risk.

This screenshot shows the profit and loss profile of the above Call option, just click the Scenarios button.

On the other hand, if you feel that the Pound will fall against the dollar then all you need to do is buy a Put option, which gives you the right to sell GBPUSD at a set strike, expiry and amount.

This screenshot shows that a GBPUSD Put option with a 1.30104 strike, 7-day expiry and for £10,000 would cost $58.28, which would also be the maximum risk.

This screenshot shows the profit and loss profile of the above Put option.