What happens when 'everyone' thinks Sterling is going lower?

Somebody said to me recently "everyone knows that sterling is going lower". 

The statement got me a little bit excited... when in history has 'everyone' been right?  Did everyone see the top of the dot com boom or just in hindsight?  How about the banking collapse in 2008... did 'everyone' see it coming or did they just tell you about it and provide explanations after the fact? Did 'everyone' or for that matter 'anyone', see the bottom of the index and stock markets formed in March this year?  No. If anything 'everyone' thought it was doomsday and the markets were going lower. Many still do.

The point here? If 'everyone' thinks something is going to happen, usually its the end of the move.

Sterling has been in decline against many trading partners for the last few months. In fact its in the top two weakest currencies out there with only the US dollar looking worse.  But the decline may be coming to an end, at least temporarily.

GBP has already shown strength and a change of direction recently against the Euro, the Swiss Franc and the Japanese Yen. It is even looking slightly stronger against USD.  So if we see a Sterling rally in the coming months where is the most strength likely to be?  I think its a battle of the Pacific vs Europe and am looking for the GBP & EUR to strengthen vs the AUD & NZD.

Simple trend analysis will be my trigger into the trade. If lower lows and lower highs (a downtrend) change to higher lows and higher highs (an uptrend), I will be looking to enter the trade and ride the new move up.  We have already seen high lows on GBPAUD & GBPNZD with just higher highs needed to confirm the uptrend at around 1.8000 & 2.2120 respectively.  Lets see how it goes... EURAUD & EURNZD will not be too far behind if GBP can lead the way. 

Happy Trading!

Nick McDonald
 

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