Using the Pound as a Hedge

NEW YORK (TheStreet) -- Want some 24-hour insurance against a falling portfolio, or need to know the best way to track the long-dollar moves when your regional market is closed? If equity markets drop in value, a Gbp/Usd put may be the vehicle. Here's why.

S&P 500 futures fell almost 25 points overnight and in the closed Thanksgiving session after traders were unable to break through the 1112 resistance level. In response, the dollar has made some recovery moves in the wake of Wednesday's selloff and has moved the most against the pound and Australian dollar.

TheLFB Charting: Euro-Aussie-Pound intraday view

On the chart referenced above we can see that aussie (Aud/Usd) and pound (Gbp/Usd) are looking extremely weak against the euro. That means that traders who want to be in long-dollar positions to hedge weakening stocks and commodities will benefit more by betting against the pound or Australian dollar than by betting against the euro.

TheLFB Elliott Wave team is looking for a mid-term Gbp/Usd short move after the long corrective pullback was completed around the 1.6720 zone.

TheLFB Charting: Pound-Dollar Four-Hour Elliott Wave view

On the four-hour Gbp/Usd chart referenced above, traders may notice that prices found the top at the 61.8% retracement area of the wave i/a distance. This is a typical level for a wave ii/b pullback before the larger trend can easily continue. In our case, this larger, medium-term trend, is short with an expected decline in the wave iii/c leg. We are loooking for that leg to fall toward the 1.6250 zone over the coming days if the 1.6875 critical long-term resistance area can stay in place.

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