GBPUSD – Retail traders continue buying into British Pound weakness against the US Dollar (ticker: USDOLLAR) and Japanese Yen, but the dramatic reversal warns against going against the crowd.
Trade Implications – GBPUSD: Our purely sentiment-based Momentum2 strategy most recently sold GBP from $1.5142 and ¥142.41, while the more volatility-friendly Breakout2 system was short from $1.5081. Those positions looked good until we saw an astounding post-ECB reversal in the US Dollar, and in fact the systems are now flat until we see a more substantive breakout or breakdown.
As with the Euro, we would be careful of potential whipsaws here as we trade between key support and resistance—keep stops tight and leverage low.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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