For all those trading fundamental news last couple of days must have been eventful. I’m referring to the British Pound mostly. Yesterday GBP got hammered on the news that the government is going to sell some of the assets it holds. What a difference one day makes. Today Pound recovered smartly and broadly. The statistics office said that inflation rate dropped to 1.1 percent in September, the lowest in five years. Strangely, this proved to be a catalyst for Pound rally. I say “strangely” because lately currencies have been gaining on evidence of increased inflation, not receding. Australian Dollar, anyone?

In another interesting bit of info, British Chambers of Commerce called on the Bank of  England to expand its quantitative easing program,  through buying additional 25 billion Pounds of bonds. This is supposed to improve economic recovery. While initial reaction to this report was the slide of GBP, currency recovered shortly after and spent the rest of the day pushing higher. This also flies in face of recent trends, which have been supportive of central banks slowing down with with stimulus packages, not expending them. BoE has not released any official statement regarding this report, but we know from previous remarks by Mr. King and others that farther action is possible. At any rate, we had two pieces of fundamental news, which “should” depress the Pound more. Exactly opposite happened. I bow to those who trade short term fundamentals and make money doing so.

Not that I complain about today’s development, only point out the incongruity of it. Market reaction was more than welcome by me. I was looking for GBP appreciation and had a plan. One of the crosses of interest was Pound-Kiwi, which yesterday cost me a loosing trade. It was reversed today.

Intentions were to go long on any move above minor highs as formed on 1H chart of this pair.This finally happened at 2.1453. Strong move, with the price stalling around 100SMA. Rally resumed and I closed this trade at 2.1622 for 169 pips gain. It will be interesting to see if the move extends to about 2.1800 area, previous resistance. Should advance stop there, this could eventually become a new buy area. Currently it is only speculation and too early to decide, but I will follow up on the idea as price develops.

Other Pound crosses also showed good gains. On EUR-GBP hourly chart price fell below most recent low, which is first step to reversal. It is possible that it will just keep falling , maybe to 0.9275. In this case it is probably to late to enter. However, very often price pauses, even bounces a little bit at about this phase of reversal. If this indeed happens, 0.9375 level would be ideal to go short, providing great risk-reward. Obviously there is no guarantee this will happen the way it is sketched out. In reality, if price bounces by any meaningful margin, development of strong reversal candlestick pattern could be a signal sell EUR-GBP.  BTW, almost exactly opposite situation exists in Pound-Swissy pair. IMHO, all of this is worth watching now.

Mike K.