Sunday, 22 April 2012

Pound on the pounce upward?

To whom that are trading the cable,

After last week of good news from the UK, especially mid week BoE (Bank of England) minutes, stating the less dovish and more hawkish stance, cable had rallied significantly pass the 1.6000 level and end the week at 1.61176. Observing from the strong bullish move upward, one could tell you that the next thing traders will look at will be an intention of hiking rates in near future by the BoE, and this will lead to an increase interest in the cable as the economy stablise.

However, i bet to differ on that.

Why?

Very simple reasons. If they risk hiking rates so early with their neighbour now facing long term debt problem that will cost alot of money and time to fix, plus a sign of slowdown coming up in the Asia region, deleveraging is the main theme for most Central Banks who are looking to reduce or stop their easing circle, etc. Yes, i can name you a number of reasons and arguments that support the idea of cable may not be charging higher and outperform the rest. But i got one reason that say it all; Sentiment.

Yes, most of you traders may think that cable will rise after last week performance. However, when i take a look on the sentiment for cable, i got a shock to see that there is over 80% of the crowd shorting the cable, which shows an extreme activities which will cause the currency pair to move in one desired zone; UPWARD.

Puzzled? Wondering why suddenly now my stance shifted to say cable to continue be moving upward? Past experience has shown clearly that when sentiment reaches the extreme, it can only mean one possible outcome; REVERSAL may be coming soon.

I know why many will short the cable. Its simple, because most of you traders think that the cable is overbought. But i tell you, cable will move higher to a technical point and price zone which may start to kick most of the short out with a short stop, and support the stand for a reversal when most short are stop.

Believe it or not? However, this is our view and its not a prediction of the future. Since its a view, take it as a reference but not a guide in your trading.

Good luck to cable traders!

Cheers,

Renomic

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