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The Pound is ignoring its news, here’s why!
By Sean Hyman | May 27, 2009
Today, all of the pound pairs lead the way on the “percentage gainers” list. However, the pound has been moving up for a while now especially in relation to the dollar (GBP/USD) and yen (GBP/JPY).
I learned a long time ago that when a currency “defies” its news and does otherwise, then go with what the currency IS doing and not theoretically what it SHOULD be doing.
Now, why in the world would it be rising when all of the news is so bad?
- The pound tends to do well when stock markets stabilize. For the past few months, that’s exactly what we’ve had. So that’s supportive of the pound.
- The pound gets “pushed up into the clouds” when times are good (ex. 2.11) and it gets “pushed into the ground” when times are bad (ex. 1.35). Both extremes are usually wrong.
- The worst case scenario has already been priced into the pound.
- Technically speaking, it’s broken a downtrend, sideways range…put in “higher lows and higher highs” and has held above its 200 SMA. So what more does a technical trader need to buy the pound? Nothing!
- The dollar is now in a downtrend (according to the daily chart of the U.S. Dollar Index). Therefore a “falling dollar” can make the pound rise too.
These are the reasons why I believe that the British pound is defying the news lately. Hope this is helpful to those traders out there who have been scratching their heads and wondering why.
Sean Hyman
www.forextradingblog.com
Tags: blog, currency, dollar, dow, downtrend, forex, forextrading, gbp, index, jpy, market, news, pair, pound, Sean Hyman, stock, technical, time, trade, trader, U.S., USD, Yen
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