GBPUSD – Retail forex trading crowds have aggressively sold the British Pound against the US Dollar as UK GDP data sparked a substantial rally. Our forecasts tentatively point in the opposite direction.
Trade Implications – GBPUSD: The British Pound has remained in a tight and choppy trading range as of late, but today’s surge through key price resistance leaves our technical trading bias pointing higher. It’s obviously easy to point out in hindsight, but our purely sentiment-based Momentum2 presciently went long from $1.5277 ahead of the break. In the interests of full disclosure, said strategy has not done especially well in recent months—it tends to get chopped out of its trend-following trades in sideways markets.
But the beauty of Momentum2 and our SSI-based trading forecasts is that both can suffer a number of small losses in quiet market conditions, but said systems are often in the right place when price finally breaks. It’s difficult to call for aggressive follow-through when the price of volatility on GBPUSD options trades near its lowest since February. Yet we’d rather go against the crowd given the significant GBP rally.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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