Foreign Exchange Analyst Says The GBP/USD Rate May Have Peaked

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TorFX Senior Analyst warns that the US Dollar exchange rate could rapidly decline if history repeats itself again, as it did in the early nineties. The last time the exchange rate passed 2.0000, the market reversed sharply. In 1991 sterling touched this level and then fell to 1.6000 over the next few months. Again in 1992, only this time the rate touched a low of 1.41 within six months.

report from the Commodity Futures Trading Commission shows that small speculators are overwhelmingly betting on the dollar falling further against Sterling and the Euro. The ratio of bets by these speculators is now in excess of six to one in favour of further upside. That should set alarm bells ringing. Meanwhile,

Jon Beddell, technical analyst at TorFX has been calling for a 2 dollar pound since the exchange rate hit a low of 1.71 in late 2005. Since then the rate has rocketed, reaching the key psychological 2.0000 level this week for the first time in fifteen years. Wednesday saw the pound climb further still, making a 26 year intra-day high at 2.0130. However, the same analyst that called the market correctly back then is now warning that we could now see a reversal from these levels.

"The market has been ultra bullish over recent months, and strong inflation data in the UK has helped to push the pound over the 2.0000 mark for the first time in many years. What concerns me from here is the overwhelming bullish consensus in the market. Whenever you have a large crowd all expecting the same thing, the market is liable to reverse. The latest "commitments of traders" report from the Commodity Futures Trading Commission shows that small speculators are overwhelmingly betting on the dollar falling further against Sterling and the Euro. The ratio of bets by these speculators is now in excess of six to one in favour of further upside. That should set alarm bells ringing. Meanwhile, "commercial" players (institutional traders, generally seen as the "smart money") are net short of the Euro and Sterling, expecting exchange rates to fall back.

The fundamental picture is basically unchanged. The large US trade deficit needs correcting, the US economy has been slowing for some time, and strong data from the UK makes further interest rate hikes here inevitable, but the technical picture is telling a somewhat different story, suggesting that at least in the short term, we are due for a correction."

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Tel: 01736 752142

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Jon Beddell
TorFX
01736 752142
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