A Look at GBP

Lately the theme that I have seen in the market has been a mild willingness to take on risk, except when looking at GBPUSD. On a day chart the pair still remains in its down trend although it is currently off of its recent lows. It has found support near 1.4870, which had been acting as resistance about this time last year. The pair also received some support by 1.50 being a sentimental level.

If you believe that risk aversion is just around the corner and the market is just taking a breather, then GBPUSD offers a good opportunity to profit from this. If the pair were to break past the recent lows near 1.4815 there is little in the way of previous support until 1.4400 and then 1.4100 below that.

There a plenty of fundamental reasons that you would want to short GBPUSD as well, with the BoE’s continual quantitative easing efforts being the foremost reason. There is also the lack of a recovery in their housing market. Creeping inflation, which normally strengthens a currency is a hindrance in this situation, since there has been little growth to compensate, setting the stage for a stagflation scenario.

Fundamentally, you have to ask yourself the question: Is England better off than it was a year ago? If no, then there is good reason to short GBPUSD.

Alternatively, since both GBP and AUD are risk based currencies you can look to buy the fundamentally stronger one, AUD and sell the weaker one GBP. In a scenario of risk appetite the AUD would gain strength faster than the GBP and in risk aversion the GBP would fall faster than AUD. Remember that being a low liquidity pair gives GBPAUD a higher spread and more volatility, not for the faint of heart.