Looking back at the British Pound and other currencies

I was flipping through previous blogs this morning and noticed the one I wrote on August 14 entitled “Fail Britannia!” where I noted how many of the top institutions on Wall Street (including the now defunct Lehman Brothers) said that shorting the British pound was the currency trade of the year. I haven't paid much attention to the currency markets for a while so I thought I'd follow-up and see if this prediction made by the big dogs actually panned out.

Below is a table of currency ETFs along with their associated gains or losses from August 14, 2007 to today. Note that the middle of August was the time when most of the major currencies had either broken overhead resistance (the USD) or had broken below major support (most other currencies except for Japan).



Observations
You can see that shorting the market would have produced a better return than shorting the pound, although shorting the pound would have produced a great return bested only by the Mexican peso, the Swedish krona, and the Australian dollar.

Future currency ETF forecasts
US Dollar: Most of the European currencies rallied last December in conjuction with the greenback's drop. However, the dollar is making a comeback. It's trading today near $26; it faces strong resistance at $27. If it breaks that, then the sky's the limit.
Japanese Yen: After its strong run-up, the yen has been challenging its all-time (ETF) high of $144.50. It has strong support at $105 and a break in either direction would be likely to continue.
British Pound: The pound is recovering from its all-time low set a week ago. It's challenging $114.50 resistance, and a break through that could send it marching right back up
Mexican Peso: Things are not looking good for the poor peso. It hit a new all-time low today and its chart is looking grim.
The Euro: After its December rally, the euro has been on the skids. A break of its previous $124.70 support level would signal further deterioration.

The charts for the rest of the currencies paint a similar picture; they are all heading back down and a break below the following support levels bodes ill:
Swedish Krona: $117.75
Swiss Franc: $81.50
Canadian Dollar: $77.25
Australian Dollar: $60.60

Strategies
Right now is a good time to just sit back and watch. I'd wait until a support or resistance level is taken out before jumping in. Note that all of these ETFs are optionable, but beware as some are very thinly traded.

So, I guess the big dogs were right afterall. They knew enough to stay away from the pound. (I couldn't resist that one.)