Commodity Trader's Almanac 2O11

84

BRITISH POUND

AUTUMN RALLY

Great Brittan is a multi-trillion-dollar economy,

and its largest city, London, is considered the

world’s top financial trading center. Many

market factors can influence the floating value

of the pound versus other currencies such as the

euro. However, when we compare the pound in

terms of the U.S. dollar, we see several trading

opportunities throughout the year.

Here is an interesting, relatively short-term

trade, one that seems to have the same reaction

with the trade direction in the yen, Swiss franc,

and euro currencies during this time period. The

British pound has a seasonal tendency to decline

just ahead of the end of the third quarter and

reach a bottom near mid-September.

We typically see rallies in October through

the end of the calendar year. After that, the

market starts to fade against the dollar again,

before posting a bottom shortly before Britain’s

fiscal year begins in April. Seasonally speaking,

the pound tends to trade higher in value against

the U.S. dollar from about September 19 until

about November 3. In the last 35 years this trade

has worked 23 times, for a success rate of 65.7%.

The chart below shows the pound with the

exchange-traded fund, CurrencyShares British

Pound (FXB), overlaid to illustrate the close

correlation to price movement these two trading

vehicles have. Technical timing tools could have

improved the results from the last two years, ...