I’ve made my views fairly clear on the cable over the last few weeks in that I think the cable will soon turn aggressively higher. That said, I expect that we will see some very serious volatility over the next few trading days so keep positions small and manageable.
My short term view is that both EUR/USD and EUR/GBP are in set trading ranges and we can probably estimate the edges of any potential cable trading ranges from these pairs.
EUR/USD should trade broadly between 1.3730/1.4080 and what we are hearing from the market especially with regard to option-related activity would seem to back this up. EUR/GBP should trade broadly between .8700/.8830. If you were to look at a worst case scenario of the low in EUR/USD equating to the high in EUR/GBP then that would see cable trading at 1.5550. On the opposite side, if we saw the EUR/USD high and the EUR/GBP low simultaneously then cable would trade at 1.6180.
This is obviously a very wide range and the actual truth sits somewhere in the middle but I’d be looking to trade the edges of a 1.56/1.61 range and avoid the middle as always.