DailyFX Tips & Picks: Analyst’s pick
CURRENCY STRATEGIST
CHRIS VECCHIO
My pick: Sterling-yen short invalidated; sterling-dollar hits key level
Expertise: Fundamental and technical analysis with risk management
Average time frame of trades: A few hours to a few weeks
Last week I suggested that a “close above ¥168.21 would portend to further strength in the near-term” for sterling-yen. Almost immediately our short bias that originated above ¥171 was eliminated. Instead, our focus turns to sterling-dollar, as it runs into $1.6748: the 61.8 per cent extension of the July-November bull flag; and the April 2011 high. Given the fact that the retail forex crowd remains heavily short sterling-dollar, sell-offs in the near term are likely to be supported by traders covering out of the money positions at first sight of a rebound. A weak inflation reading today could provide further ammunition for new shorts, but losses are expected to be limited as only a round of profit taking could occur.