Sterling Falls As Bank Of England Lowers Growth Forecast

Stock market indexes took another leg down with FTSE (^FTSE) breaking the shackles of 4400 and the S&P 500 (^GSPC) dropping back below 900. Sterling saw yesterday’s (Tuesday) gains reversed as the Bank of England lowered its growth forecasts.

As a rule I don’t like trading against the trend, but I tend to make an exception when it comes to central bank meetings. Quite often some new policy initiative, or forecast, will cause a move in the currency and that move will stay consistent in direction.

This morning the Bank of England’s Quarterly Inflation Report downgraded its expectations for future growth and suggested that, despite raising its inflation forecast, it would maintain its ‘loose money’ policy for longer than first thought.

5-minute chart

Forex traders didn’t hang around for the Q&A session; they went straight for the sell button on Sterling. Once GBPUSD passed through the 21-period moving average on my 5-minute chart I joined in, hitting the $1.5266 bid. This move was still against a daily uptrend so I erred on the side of caution, taking some profits at $1.5234 and bringing my stop loss down to break even.

As the price continued to fall I took further profits at $1.5185 and $1.5165, trailing my stop with a 40-pip breathing space. Check out the hammer candle on the chart; I took this as a warning to tighten my stop and was closed out at $1.5180 for a very worthwhile gain.

Looking at the chart now, my profit would have been even more if I’d ridden out the rally, but then trading with hindsight has always been easier.

I closed out yesterday’s FTSE short at the previous support levels, content to trade the range for small, regular profits. Not long after that the index dropped below the previous lows, which was mildly irritating but no more than that. I’ve got options coming into play on the downside and reasonable short bets in Barclays (BARC.L) and Lloyds (LLOY.L) so I’m happy as Larry at the moment.

At the moment the US indexes have just broken support on the back of very weak US retail sales numbers. Given the overall mood of optimism (and Friday’s option expiry) I’d like to see the FTSE fail a re-test of 4400 before getting too excited. Then I can target support at 4310 (ish) and after that the 21-day moving average at 4220.

At this rate the question might be whether to brave a small long at 4310 today, as this sell-off ought to be punctuated with ‘buying on dips’ for a while.

There’re a couple of markets I’m happy to be staying clear of at the moment; gold and the EUR/GBP have been a nightmare, both throwing out bullish signals before selling off again. Gold’s starting to look like a ‘buy on dips’, but I’ve enough irons in the fire to watch at the moment.

“If only, if only, if only,” that well-known traders’ cry. The FTSE 250 Index that I was mulling over yesterday has tanked today. The price yesterday was 7600; now it’s below 7400. Incidentally, it’s now fallen to just above its 21-day moving average at 7377.

Subscribe by RSS Subscribe by Email