THE BRITISH POUND

The pound sterling (GBP) is the third-largest reserve currency, after the US dollar and the euro. The  British pound  is the fourth-most-traded currency in the foreign exchange market after the US dollar, the euro, and the Japanese yen. The United Kingdom is a member of the European Union and  could adopt the euro as its currency. The euro and the pound are not fixed to one another but often they tend to move in the same direction. The Eur/Usd and Gbp/Usd are about 60% positively correlated for instance.

In 2001, the Gbp was reading at the low rate 0f 1.3771 vs the Usd but in the years that followed it climbed steadily reaching a high of 2.1161$. However in a little over a year later by early 2009 it fell to a 24 year low of 1.3503$ vs the Usd.  In 2009 the Gbp did retrace some of its losses  reaching over the 38% fibo retrace @1.6387 but it did not reach its 50% fibo retrace @1.7282. There is very little chance that it will  do so in the coming months given the quantitative easing methods  that were instituted this year.

The pound could not appreciate greatly against the weak Usd this year because The British economy is also quite weak. So it has been a casr of weak vs weak In addition, it has been a difficult year for those who traded the Gbp since it did not show the type of volatility we came to expect from it since last year. The reason for this is fairly simple. In March 2009, the BoE announced it would inject 75 billion pounds of new capital into the British economy, a process that is known as quantitative easing.The BoE created new money for itself, which it used to purchase assets such as government bonds, bank loans, or mortgages. Quantitative easing is not about printing money, the money is created electronically and is not circulated as cash. By November 2009, 175 billion pounds had been injected using quantitative easing. It is clear that these economic measures were meant to resolve the ever present problems of inflation, and to keep exports at competitive price. Bur it seemingly also kept the GBP from reaching record highs and record lows vs the Usd by keeping it in a fairly tight range throughout most of the year.

WHAT TO LOOK OUT FOR

Since May 2009 the Gbp/Usd had been ranging between the 38-50% fibo retrace . Only once did it break above the 50% fibo for a short unsustainable uptrend. The quantitative easing methods applied by the BoE did keep the Gbp within a fairly narrow range and we did not experience as much volatility as we had come to expect from the Gbp.

The above chart pretty nuch exemplifies the Gbp’s range since May 2009. At this point if yje Gbp breal under 1.60 Usd it will most likely signal the start of a bearish trend. For a bullish trend to be in full force the pound must break above 1.6850/ Otherwise we will be seeing the same movements within the same range we have been seeing since May 2009. At this point we have become, unwittingly, day traders. To make any kind of profits from the Gbp these days one has to resorts to indicators most often used by day traders. The trend overall seems to be rather bearish but a break under 1.60 would pretty much confirm it.

GBP/JPY