I see no clear fundamental reason why Sterling has fallen as much as it has over the past couple of weeks, and with a clear engulfing bar on the daily I would expect some upward momentum on this pair.
Cable is, in my opinion, a difficult pair to trade based on Fundamentals at the minute. One of two scenarios I'll be trading. If we get a break of this medium-term bullish channel, then I'm eyeing 1.52 area as a short target. If we get a bounce that, at the time of writing, is looking more likely, then I'll be long looking at a target of 1.615 area, confluence...
The Dollar was lifted again on Friday after a very good NFP reading. This, coupled with some expected strong data this week, should contunue to support the U.S. Dollar into next week. Investors are looking to that first rate hike.
I'll be looking to sell Dollar Yen ahead of this week's upcoming data which is mostly forecast to be worse than previous, including Retail Sales and PPI. Japanese Yen is likely to carry on having safe haven flows.
One of my ideas for the week is to short the Euro against the Japanese Yen ahead of German GDP figures due to be released on Wednesday. This is forecast to come in worse than previously, and I believe we will still have a lot of risk flows to the Japanese Yen after the UK election, as well as problems in the Euro with Greece and an uncertain U.S. Dollar future.
We're expecting a lot of weakness in the U.S. Dollar because of the Fed's upcoming meeting on Wednesday where we're not expecting them to be hawkish, or as hawkish as they have been.
We have two huge risk events coming from the U.S. this week, both on Wednesday. GDP is expected to fall massively from the last reading, and with the recent string of bad data from the U.S., we're expecting some more dovish comments from the Fed on Wednesday. Short the Dollar.
I'm looking to short Cable at around the 1.4690 level. Reasons: we have some strong US data expected on Tuesday which should create some positive sentiment around the Dollar, and we also have CPI coming from the UK which is expected to be flat. This coupled with the UK elections creates uncertainty in Sterling, and should give some negative sentiment.
We're expecting Dollar Yen to reach back up to the 120.60's area, hopefully with a pullback to the 120 / 119.90 area to get in long. This is due to some strong Dollar news expected on Tuesday so sentiment for the Dollar will be very positive.
We've got some weak news forecast all week for the Aussie Dollar, a fundamentally strong currency is the Dollar so matching strong with weak, this should provide more downside towards the fair price of this pair.