BAFI1002 Financial Markets: USD/GBP Currency Trend Analysis Report

This report provides an in-depth analysis of the USD/GBP currency pair, evaluating its current valuation and potential future trajectory. It examines key economic indicators such as relative inflation, economic growth rates, and relative interest rates to assess the currency's performance. The rep...Read More

Running head: FINANCIAL MARKETS
Financial Markets
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Table of Contents
Introduction:...............................................................................................................................2
Discussing about the economic indicators used for evaluating both the currencies:.................2
Indicating the strategies used for detecting future trend of the currencies:...............................4
Conclusion:................................................................................................................................5
References and Bibliography:....................................................................................................7

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Introduction:
The assessment aims in evaluating the current trajectory of USD/GBP for determining
the current valuation of the currency. In addition, relevant discussion on the current trading
strategies, which can be used by investors on the currency market is also depicted.
Furthermore, adequate economic indicators are used for identifying the growth and
investment opportunity, which is detected in USD/GBP. Further analysis on 3 to 6 months of
the currency price movement is conducted for identifying the trajectory of USD/GBP. The
declaration regarding the strategies used for detecting the investment opportunity in two
currency are also depicted, which can allow investors to increase returns from forex trading.
Discussing about the economic indicators used for evaluating both the currencies:
There are relevantly three different economic factors, which can be taken into
consideration for identifying the valuation of the currencies. Factors such as relative Inflation
factors, Economic Growth rates and Relative Interest rates.

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Figure 1: Depicting currency graph of USD/GBP
(Source: Tradingview.com 2018)
The figure indicates the change in current trend of USD/GBP, where the pattern
indicates the change in the current valuation of the currency. The pattern indicates that
relevant change in the current pattern can be seen where the values are at long-term support
line. This directly indicates that the short reduction in values of USD/GBP will mainly alter
and the long term uptrend will continue. In this context, Monfort (2018) stated that investors
by using the harmonic patterns are able to detect the current trend reversal conditions, which
helps them to increase the level of income from investment. Therefore, the currency
trajectory of GBP is mainly considered to be sluggish, as the economic decision of Brexit has
been considered in question.
There was relevant news regarding the GBP, where it claims that Pound May Slump
10% if there is no Brexit deal. The evaluation of was based on the notion that there may be
higher chance of no Brexit deal happening in near future, which was mentioned by
International Trade Secretary Liam Fox. The secretary indicated that there was 60% chance
for a no deal, which will leave Britain vulnerable and hamper its overall GBP value. The
news is mainly considered to be leading the market, which is why the GBP value is decaying
in comparison to USD (Debnath and Howcroft 2018). The news mainly highlighted that the
deadline was in March 2019, where there is a probability of no deal within the time sphere.
Further, elaboration on the disorderly divorce of Britain from Euro is directly affecting its
GBP values and reducing its current valuation in the international market. The news also
discussed on the implied volatility on the deal, which has jumped the highest, due to the sour
negations that is been conducted between UK and EU. Chaboud et al. (2014) stated that with
the sluggish negotiations conducted by UK and EU, there are high chances that no deal will

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be struck before the deadline, which will eventually hamper the activities of UK and devalue
its currency in comparison to other countries.
On the other news, US has been making adequate change to their policies, which was
fuelling their economy and providing full thrust to the businesses. This has helped the US
economy to improve its current currency valuation in comparison to other countries. The
implementation of different polices has mainly helped in improving currency position of US
in comparison to other countries. In addition, the overall trade dispute that has been going on
with China has allowed US to implement different tariffs, which is valued to be at the levels
of $200 Billion (Monfort 2018). Furthermore, the claims made by Donal Trump in improving
the US economy has mainly increased the level of business and valuation of USD, which can
been seen from the above graph. Therefore, it can be assumed that the total position of USD
is higher in comparison to GBP, which will eventually increase the USD/GBP value in future.
Costantini et al. (2016) indicated that investors are ignoring the Emerging markets due to the
slushing returns and investing in US market, as the economy is promising higher returns from
investment.

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Indicating the strategies used for detecting future trend of the currencies:
Figure 2: Depicting currency graph of USD/GBP strategy
(Source: Tradingview.com 2018)
The figure depicted above mainly represents the investment strategies, which can be
used for investment purposes. The use of harmonic patterns and Fibonacci value has helped
in detecting the future trend of the stock. The strategy depicts that current valuation of the
USD/GBP, which will eventually increase over time, as it supports the harmonic pattern
requirements. The identified harmonic pattern mainly indicates that the USD/GBP currency
value will eventually increase, as the overall long-term trend of the current has changed to
upwards. On the other hand, Narayan, Ahmed and Narayan (2015) criticises that harmonic
patterns are an advanced level investment strategy, which needs different indicators such as
relative strength index to support its deductions on trend reversals. Therefore, buying
USD/GBP will eventually allow the investors to generate higher income from trade. The
above graph also represents the investment opportunity, which can be taken into
consideration by forex investors, while conducting investments. There are two different

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investment options, which can be seen in the above graph, where the USD/ GBP can be
bought and GBP/USD can be sold for increasing the level of return from investment.
Conclusion:
From the overall evaluation it could be identified that the current valuation of
USD/GBP is relatively at the levels of an adequate support line, which directly indicates that
investors need to get long position. Hence, it could be understood that the overall valuation of
USD/GBP will eventually increase in value over the period of next few months. The analysis
directly evaluates news and articles that directly to pick the strengthening value of USD
against the GBP. Therefore, Forex investors can quantify the relevant events and generate
adequate returns from investment in the currency market. Henceforth, the current USD/GBP
would eventually allow investors to maximize the returns from investment, as the values are
close to support line.

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References and Bibliography:
Bloomberg.com. (2018). Terms of Service Violation. [online] Available at:
https://www.bloomberg.com/quote/USDGBP:CUR [Accessed 6 Sep. 2018].
Bloomberg.com. (2018). Terms of Service Violation. [online] Available at:
https://www.bloomberg.com/news/audio/2018-09-05/somel-em-selloff-driven-by-u-s-trade-
policy-and-rising-rates [Accessed 6 Sep. 2018].
Chaboud, A.P., Chiquoine, B., Hjalmarsson, E. and Vega, C., 2014. Rise of the machines:
Algorithmic trading in the foreign exchange market. The Journal of Finance, 69(5), pp.2045-
2084.
Costantini, M., Cuaresma, J.C. and Hlouskova, J., 2016. Forecasting errors, directional
accuracy and profitability of currency trading: The case of EUR/USD exchange rate. Journal
of Forecasting, 35(7), pp.652-668.
Debnath, A. and Howcroft, E. (2018). Pound May Slump 10% on No-Deal Brexit. [online]
Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2018-08-07/pound-
held-hostage-by-politics-may-slump-10-on-no-deal-brexit [Accessed 6 Sep. 2018].
Monfort, J. (2018). The US Dollar is Back in Command: Two Reasons Why. [online] The
Pound Sterling Live - Today's Rolling Coverage of the British Pound Sterling. Available at:
https://www.poundsterlinglive.com/usd/9837-dollar-strength-is-back-in-vogue [Accessed 6
Sep. 2018].
Narayan, P.K., Ahmed, H.A. and Narayan, S., 2015. Do momentum‐based trading strategies
work in the commodity futures markets?. Journal of Futures Markets, 35(9), pp.868-891.

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TradingView. (2018). [online] Available at: https://in.tradingview.com/chart/5pkNT7VA/
[Accessed 6 Sep. 2018].