In an interview with FXStreet, we talked about the crash in the pound, the strength of the US dollar, the direction of gold and what traders can do to protect themselves.
You can read the original here or below:
After Friday’s flash crash, where’s the GBPUSD headed in the upcoming weeks? What are the key levels for the pair?
The flash crash is a big event and the pound will need time to get used to the new levels. Volatility is expected to remain elevated for a few more weeks. The post-flash crash range of 1.2230 to 1.2485 is eyed. Further support below 1.2230 is at the round level of 1.20. On the topside, 1.26 should be eyed. All in all, the pressure remains to the downside. While the flash crash was related to a fat finger / low liquidity / cascading stop losses, the reasons for the fall are real.
How can individual traders protect themselves from this kind of brutal algo-triggered moves?
Low leverage is the key to safer trading. High leverage + high volatility = margin calls. Another tip is: trade with a trusted broker, regulated in a serious jurisdiction, that will make the best efforts to respect stop-loss points, even in extreme cases like the pound flash crash. Ones that chase their traders after negative equity are ones traders should stay away from.
And what is your take on FTSE strength? Is it all based on GBP weakness? Is it sustainable with all the Hard Brexit thoughts coming up?
There is a growing correlation between FTSE strength and the pound’s weakness. In the FTSE 100, most companies rely on exports and on activities outside the UK. The FTSE 250 is already a more domestic-oriented index. All in all, UK stocks are reacting more to economic reality, the present, rather than future expectations. This is different from the pound. If the UK economy deteriorates as prospects of a hard Brexit hit hard, stocks will fall as well.
What fundamental is the main driver behind USD strength?
Monetary policy divergence remains the main driver. While the Fed may move very slowly, it is still the only major central bank that sits on a tightening path. The ECB, BOE and BOJ are considering looser monetary policy. Further support comes from the semi-safe-haven status the greenback has developed lately. The yen is the ultimate safe haven, but the USD is on its wings.
Another asset that had a miserable week is Gold. Has it reversed its long-term upward trend?
Positive US data means that the FED is set to tighten and that weighs on Gold prices. I think we could see a period of consolidation before the precious metal chooses a new direction.
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