The Pound extended its rally to a nine day high, just shy of $1.58 before the results of the ECB’s allotment were announced. The results were at the upper end of expectations and the Pound has since returned to session lows. A classic buy the rumor of a strong demand and sell the fact. Expectations seemed to have crept higher. The larger short squeeze in the Pound may not be over. The key seems to be $1.58 area. It should now be support for this corrective advance to remain intact.
Almost EUR490 billion Euros taken in 3-year money from the ECB by some 523 banks. The sheer number of banks ensures limited stigma. This is the upper end of the range that had been anticipated, which seems more important that a median guess. In addition, almost another EUR30 billion was taken in 3-month money. And on top of that, $33 billion was taken at 14-day auction compared with $5.1 billion of 7-day dollars that were expiring. There will be another 3-year LTRO auction in February after the new and lower reserve requirements are implemented.
The Pound is poised to test resistance and with the market short into the new year, there could be a re-test of these resistance levels. A break of 1.58, would lead to a test of 1.61.
The Trade: Purchase a daily binary option call on GBP/USD on a close above 1.58, with a cap at 1.5885.
Signal Summary
Asset : GBP/USD
The trade : Binary Call Option
Expiry time : End of day
When : On a daily close above 1.58, with a cap at 1.5885.
Update 01/31/12
Result : N/A
