GBP/USD in no man´s land doesn´t mean you can´t trade it

After the flash crash earlier this onth the $GBPUSD has been trapped in a range
Extreme lows were set just above 1.2000
Bears are heavy above 1.23200

Orlando Gutierrez Learn 2 Trade

The Pound-Dollar is and has been a headache (not to say a pain in the a**) for most mid to long term FX traders and the main reason is that we´re getting mix messages from the UK and the exchange rate between the Sterling and the US Dollar is trapped inside a 220 pip range (hi to lo) but it´s rather a 160 pip range since the flash crash. You might think this is no problem at all, on a range you buy the lows and sell the highs. Yes in theory, but FX trading is much more than just trading levels, fundamentals influence tremendously the auction in the market.

When it comes to the pound we already know that Brexit dominates. This means that the Sterling is under a lot of bearish pressure due to the UK´s exit off the European Union but if we review this month´s economic data coming from the UK you might realize why we think we´re getting mixed signals here:

Better than expected Manufacturing PMI: 55.4 vs. 552.11 exp.
Better than expected CPI y/y: 1% vs. 0.9% exp.
Worse than expected retail sales: 0% vs. 0.3% exp.
Better than expected Prelim. GDP q/q: 0.5% vs. 0.3% exp.

Even after Brexit and after October 7th´s fat finger we are getting ok inflation and growth data which undermines the whole Pound under pressure because of Brexit dialogue. So we have decided to not overcomplicate this trade and look at a chart.

The actual flash crash lows differ from broker to broker.
Post flash crash lows come at 1.2090
Post flash crash highs: 1.2333 (previous weekly high btw)

We´ve notinced that bulls are protecting the 1.2270-1.2330 zone and bears are protecting the 1.2090-1.21600 zone. We really think that long term the pound should go lower and the more talks of article 50 start jumping around the more volatile this market will get. But for that to happen all thos buy orders below the range´s low and post flash crash high have to be absorbed and that is not going to happen until we start to see clear steps of the UK´s exit from the European Union. In the mean time we can expect the pound bouncing inside this range chopping short term and weak players out.

Beware of these levels and play them with caution.

Author

Orlando Gutierrez

Learn 2 Trade

Orlando has been involved in the financial markets for about 10 years. His focus is Global Macro and he is a strong believer that the best way to trade the currency markets is focusing on the big picture and holding on to big macro trends.

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