GBPUSD 23.01.2013 Outlook

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Like the US and its European counterpart, the British economy is in a mess. If the government’s finances is like a maxed out credit card and applying for another credit card and transferring the old debt over to the new card. For the whole of last year 2012, the GBPUSD has been stuck in a 1034 pip range where the bottom at 1.5267 and the top at 1.6301. In terms of the box however, it would be the 1.5321 – 1.6112 box.



Fundamental Point of View:

There are a lot of games being played in the world of exchange rates at the moment. The US started the ball rolling with its Quantitative Easing practices. This was followed by the European Union and lately the Japanese government joined the party announcing its unlimited printing money activities. This is because a lot of countries want a weak exchange rate right now. To survive, struggling countries hope to export their way back to prosperity. One way they hope to do this is by devaluing their currencies. This will make their exports cheaper in foreign markets. The trouble with this policy is that if everyone devalues at the same time, nothing really happens. The relative exchange rates don’t change that much and no-one ends up better off. And that’s exactly what’s been happening.

Strange as it seems, UK has somewhat acquired the safe haven status. Countries are using the pound to reduce their exposure to Euro. This has helped prop up the pound.

The UK is stuck in a debt trap. A large chunk of growth in the boom years was phony. It was created by excess credit, and borrowing by governments and households. This borrowed money was spent on increasing the size of the state and trading overpriced houses with one another. The money was consumed – it’s gone. But the debt has not. I recently spoke to a friend who leaves in London and she said London is getting too expensive and its citizens are getting out of UK to find more affordable places to stay. She said there is no way a person can afford to buy properties after only a few years in the workforce.

The only thing that has stopped the UK economy from collapsing is the Bank of England’s  (BOE)printing money practices. So far the BOE has created 375 Billion Pounds out of thin air. The BOE is expected to go on printing pounds.

Compared to 5 years ago, the pound is a good deal weaker. However the UK continues to have more imports than exports. It has not had a trade surplus since 1983. These persistent trade deficits mean that we have to keep on selling pounds in order to get our hands on the foreign currencies to buy other people’s goods. This puts downwards pressure on the pound in the long run.

Technical Point of View:

Daily Chart

Currently the GBPUSD is trading in the 1.5481 – 1.5802 box range. GBPUSD sell pressure has somewhat abated and I would be looking for some bullish price action and buy the GBPUSD. My buy view on the GBPUSD will be nullified if price manage to close below the 1.5802.


H1 Chart

The H1 boxes are aplenty. The 1.5802 – 1.5829 box has just been filled. Now prices are testing the 1.5859 – 1.5876 box and if price manages to break higher, the next box would be 1.5892 – 1.5934. A sign that GBPUSD bull might fail is that price trades back into the 1.5802 – 1.5859 box. So get ready for the ride.