December British Pound Futures Hit 13-Week High as Pressure on the Dollar Builds
Key Takeaways
- •December British pound futures have risen to a 13-week high and are in an uptrend on the daily chart.
- •The MACD indicator is bullish, with both lines moving higher and the MACD line above the trigger line.
- •Wyckoff says a move above 1.3568 would create a buying opportunity, with an upside target of 1.3900 or higher.
- •Technical support is at 1.3425, where a protective sell stop could be placed on a long position.
- •The outlook is supported by a relatively solid U.K. economy, tight Bank of England policy, and recent weak U.S. data that has pressured the dollar.
December British pound (B6Z26) futures present a buying opportunity on further price strength, according to veteran markets analyst Jim Wyckoff, Barchart's senior market analyst, as pressure on the U.S. dollar continues to build. For context on the ticker, the "Z" is the exchange month code for December; the contract trades on CME Group, is priced in U.S. dollars per pound on the same scale as the spot exchange rate, and each contract covers £62,500 of sterling. The underlying pair is the one traders nickname "cable," a label dating to the transatlantic telegraph line that once carried quotes between London and New York. In the latest quotes, GBP=X was down 0.20%, while the U.S. Dollar Index (DX-Y.NYB) was up 0.01%. The two readings are linked by construction: sterling is one of the six currencies in the Dollar Index basket, with a weight of roughly 11.9%.
Technical picture
On the daily bar chart for December British pound futures, prices are in an uptrend and have just hit a 13-week high. At the bottom of the chart, the moving average convergence divergence (MACD) indicator — a momentum gauge that measures the gap between two moving averages of price — is in a bullish posture: the blue MACD line is above the red trigger line, and both lines are trending up, a configuration chartists read as building upward momentum. On this basis, Wyckoff writes, sterling bulls hold the overall near-term technical advantage.
Fundamental backdrop
The U.K. economy is on mostly solid footing, and the Bank of England has kept its monetary policy tight. Meanwhile, recent downbeat U.S. economic data has pressured the U.S. dollar ($DXY). That mix speaks directly to this contract: exchange rates are sensitive to interest-rate differentials, and the relative stance of the Federal Reserve versus the Bank of England is a core driver of cable. Because sterling strength and dollar weakness are two sides of the same price, solid U.K. conditions alongside softening U.S. data reinforce the same move the chart is tracing.
Levels to watch
A move in December British pound futures above chart resistance at this week's high of 1.3568 would become a buying opportunity, Wyckoff says. The upside price objective would be 1.3900, or above. Technical support, below which a protective sell stop could be placed, is located at 1.3425. Those two prices define the risk in the setup: a protective sell stop is a standing order to exit a long position if support gives way, capping the loss on the hypothetical trade. And because the thesis rests on continued dollar pressure and a firm Bank of England, incoming U.S. economic releases and BoE policy meetings are the scheduled events to watch next, since either could shift the backdrop the chart is built on.
Author's disclaimer
Wyckoff notes that he is not a futures broker and does not manage any trading accounts other than his own personal account. "It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any trades and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature," he writes.
He adds the following guidance from the Commodity Futures Trading Commission (CFTC), the U.S. regulator of the futures and options markets, with which he says he agrees "100%": "Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you."
Disclosure
On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in the article is solely for informational purposes. This article was originally published on Barchart.com.
