I'm still flat after covering last night. I can't really justify getting short at these levels as a pop to 214.00 could easily happen. I'll be sitting on the sidelines until it's more clear. But it's been a great week and I don't need to trade
Absolute text book price action on the chart and tape @ 213.5 at the moment. It's a very interesting study for those interested.
If I wasn't already in short I'd probably be chillin like bob dylan too. maybe buy and sell orders in at 214.39 & 212.61.
St hit. Out at break even. No more trades this week. GBP/JPY. Been consolidating. Just not getting yen strength & gbp weakness to pull it down. Should of taken easy profits this am. Oh well thats the risk in a range v trend environment.
IMO the pound is in for a bad 2008. It is overvalued on a PPP and historical basis, and there are serious issues with the underlying economy that are just going to get worse - housing boom turning into a bear market, interest rates getting slashed, and the likelihood of a sharp slowdown which will exposed the heavily indebted UK consumer. Furthermore, there is little problem with inflation. All this points to significant cuts in interest rates - and given that high yield was an important driver of capital flows into the UK, this is pretty bearish. Over the last decade sterling has had a lengthy bull market which is now getting very long in the tooth. A lot of the issues affecting the dollar in the last year are going to start affecting the pound in 2008. I think it makes sense to short the pound against a basket of non-dollar currencies. Any rallies should be shorted into, or just load up on puts and take advantage of the low implied vol of forex options. This will be a long-term trade - I could see the Euro achieving parity vs the pound within say 3-4 years. Sterling is likely to underperform even the dollar - $1.80 would still be "expensive" in economic and historical terms.
The £ will fall lower. Inevitably the UK housing market will weaken, consumer will slowdown, the UK will stupidly nationalise northern rock. I'm not sure on parity with euro though as the eur will collapse later in the year when the ECB have to start cutting rates, when the eurozone gets affected by the same contagion as that sweeping the US/UK economies. I agree on shorting the £ versus non-dollar assets. Maybe GBP/Aud or GBP/PlN are the best shorts.
Relative to past forex vol, they are higher than the norm, yes. But relative to the size of long-term forex moves, they are fairly low. If you are trading pure direction, it's the premium as a % of the expected move that determines how cheap the option is.