One swallow doth not a summer make but two gets the scribblers scribbling

The forecasts for the quid have been heavily tilted to the downside. Our friends at Efx News keep the score card for forecasts and here's the current averages;

GBPUSD forecasts

  • The highest forecast for Sep is BOAML at 1.3500 (given Jul 27th)

  • The lowest is Deutsche Bank at 1.2300 (Given Jul 14th)

Given that a lot of investors take what the banks say as gospel to make their trades, if they start to raise their forecasts, we're going to see more of those record shorts bailing out. It doesn't matter what you or I think about this data point or that data point, you can't ignore that there are a ton of shorts and that the main risk is skewed towards a squeeze.

Forget trying to guess where prices may or may not go but learn to feel the market and what it's thinking. Before the jobs data it was thinking that the UK is bearish. Now after that and the retail data it might not have such a bearish view. Does that mean the pound won't go down? Of course not but right in this moment (however long or fleeting that may be) shorts will be sweating more than longs and will remain sweating until something changes. That could be a comment from a central banker or US data point. That could be five minutes away, a day a week or a month. We just don't know but that's trading. One minute the shorts are sailing along merrily, the next they're in choppy seas while the buyers take the upper hand. Markets are always two-way but most of the time there's bias. That's what makes trends. If there's no bias and both sides are equally, we don't trend and go sideways. Trends are there on every chart. Whatever time frame you trade on, know your trend.

The problem we have is judging who's in charge at any one time and when they're not. Things like todays data make that distinction clear, at least in the very short term. Fill your boots with shorts if this move fits with your strategy but be a touch more cautious given today's sentiment.

Look to buy dips if that's your play but be wary about where you pick those dips and know the levels where you'll be called wrong. Define your risk so that if you are wrong, you're in control of what you may lose and not a deer in the headlights.

Finally, don't do what Credit Suisse did and chase a trade. On August 8th they put in an order to short at 1.3155 with a 1.2800 target and 1.3238 stop. On the 15th they moved the order to 1.3000, stop to 1.3102 and tp to 1.2752. On the 16th they got filled, and today....