Sterling Digest: March 14, 2012

Coinage
Despite the bears, sterling won't fade easily

No real surprises from the $FED or the BoJ yesterday as both left interest rates unchanged. With equities higher still after the FOMC statement, it is hard to see risk currencies fall more from here. While the USD seems to be trading on fundamentals (rising on good US news after both US NFP and somewhat hawkish Fed statement), it remains to be seen if that is a new shift in the market or if risk still rules investor sentiment.

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Sterling Digest: March 12, 2012

Lots of big talk made for lots of nice moves in the forex markets today. These central banks are only warming up with comments from Japan today ahead of their official interest rate decision tomorrow. But the $FED has taken to jawboning too. They also release a decision tomorrow but have been in the press for weeks. Lots of focus has been on the $USDJPY with its recent moves higher which should make the conspiracy theorists among us very anxious for Tuesday trading. At any rate, sterling flows were liquid in both directions today depending on your currency pair.

Sterling Digest: March 11, 2012

World Money Expo
An ironic find on Flickr: the World Money Expo. In China

This week rounds out the major central bank announcements for the month of March. Three central banks are on tap to release decisions on monetary policy: the Bank of Japan, the Federal Reserve, and the Swiss National Bank. Of course, the Fed is the highlight. But with the Fed in the news so much last week, one has to wonder what more the Fed can give the markets.

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What To Celebrate

If you started this week with a trading plan on a currency pair, good for you. That’s just the first hump. Get a plan. Write it down. Yes, typing counts. Write down what you see the currency pair doing. Write down the key levels. Write down what you will do if it gets to those key levels. So if you managed to get that done between Saturday and Sunday afternoon, I say KUDOS to you! Celebrate.

The second half of the battle is simply trading the plan. Think about your week. Those of you who had the plan, think about your week trading that currency pair for which the plan was written. Did you trade your plan? Did you understand the plan you didn’t write and trade that plan? Did you have to trade your original plan anyway by the end of the week? Was any that successful? Good for you, fellow traders! Some among us had a flawless week. Most of us had mistakes. And yet we all have something to learn and take with us back into the markets on Monday. Celebrate.

My lesson this week is: Trade your plan because nothing beats experience. When the market is bouncing around, it’s easy to loose your way. Go back to the plan.

Sound simple. It’s not. Sound daunting. It doesn’t have to be. Start with a plan. No new words of wisdom today. Just a real profound feeling of pride one gets when you finish a good week of good trading. When you start to execute on that plan with the confidence of experience, you start to become a different trader. Every single time you execute. Get to that point in your trading. Don’t celebrate the money. But by all mean, celebrate a well-executed plan!

Celebrate by Furryscaly, on Flickr

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Sterling Digest: March 8, 2012

kal cartoon of sarkozy, merkel, and cameron
The market is way ahead of their rhetoric

With 4 central banks making statements in the past 24 hours, I’d say it’s been a tame session. It’s amazing (to the point of amusement) how much the market pauses and takes a step back for US NFP. Big guns are positioning. If you were around since Asia, you saw $GBPUSD quietly rally to open London at 1.5750. She now sits at 1.5820. You do the math. So the BoE did what was expected. And the market reacted as expected. Weird. And tomorrow is Friday. Trader be aware.

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Sterling Digest: March 7, 2012

I hate election years
Seasonally, election years are good for markets

Very muted price action this trading session leaves sterling still weak after yesterday’s pullbacks. The market has entered its wait-and-see mode as we await the RBNZ later tonight and BoE, ECB, and BoC on Thursday morning. As boring as today may be, it gets just as interesting in the next 24 hours.

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Sterling Digest: March 6, 2012

Australia. The Golden State. The Economist (cover)
Screw the headlines. Markets fell today on a neutral RBA.

What a difference a day makes. Profits were quickly taken this morning as sterling falls back across the board. The stark contrast to yesterday’s bullishness is what markets are made of. FIVE central bank decisions in a week will do that. RBA killed the AUD to kick off this Tuesday trading session. A neutral RBA acknowledged a slower economy yet still left a small signal for further monetary easing. Investors sought out USD and JPY sending $GBPUSD and $GBPJPY to new lows. Risk aversion dragged sterling down against everything else with $GBPCAD, $GBPNZD, $GBPAUD, $GBPCHF all down on the day.

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Is There Something to Month End Flows

During the last days of February last week, sterling strengthened across the board. I noticed it because it was very strange to see the $GBPUSD and the $GBPAUD rise together when these GBP pairs usually diverge. $GBPUSD and $AUDUSD typically rise together on risk and a weak USD resulting in a weak $GBPAUD. Looking at the rest of the GBP pairs, sterling was being bought versus all the major currencies. As companies and investors alike exit positions and/or repatriate profits, capital flows can be even more exaggerated at the end of the month. And it seems investors are positioning with sterling.

But why would sterling go up when the United Kingdom is the only G10 country to fall into recession at the end of last year. The BoE has launched QE3 for the UK. Inflation is quite high even if the central bank chooses to ignore it until it comes back down to acceptable levels. An interesting monetary policy angle that is but that’s for another musing.

So why would sterling go up? Because of China? In yesterday’s digest, a very interesting article suggested that sterling is catching bid as a preferred funding currency to unwind long AUD positions. With China’s economy slowing down, analysts believe that Australia’s economy will suffer due to the declining demand from their large trading partner. A slowdown in the economy the main reason why the Reserve Bank of Australia is signaling a more dovish monetary policy. WSJ‘s Kemble-Diaz argues that the undervalued GBP has more value than other major currencies at such low levels.

Another reason may be seasonality.

seasonality in GBPUSD daily chart
March was a good time of year last year

In $GBPUSD this time last year, March 2011 marked the beginning of a push higher after the rally in January 2011. Cable is certainly well-posied for consolidation after its monster rally higher earlier this year. Another push higher is supported technically as long as price remains above 1.55.

Since seasonality is the buzzword on the financial circuit so far this year, let’s take it a little further. The end of the month into the beginning of the next tends to be a good time for cable. The $GBPUSD has rallied higher in the last months during this time period.

 

seasonality in GBPUSD 8 hour chart
The end/beginning of the month is a good time for cable

 

No matter how you reason it, sterling continues to confound the bears with its strength. Against the USD, maybe $GBPUSD becomes an easy buy. But when supported with a rise in $GBPCAD, $GBPAUD, and $GBPNZD, one need only concentrates on riding this new trend while the opportunity is here and getting off where appropriate. Trade what you see.

Sterling Digest: March 5, 2012

Twenty pound bill by Images_of_Money, on Flickr
Sterling on the rise

Sterling is strong across the board this morning. Despite less-than-expected UK Services PMI, sterling has managed to catch a bid versus many of the major currency pairs this trading session. The only exception at the moment is the $EURGBP, as euro strength battles sterling strength making for a very small range in the pair today.

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Sterling Digest: March 4, 2012

Currency wars The Economist
Pretty much akin to 5 central bank decisions in 1 week

This week is packed with event risk as market participants get ready for interest rate decisions from 5 major central banks this week, including the Bank of England, as well as the US NFP. Traders should be ready for what will no doubt be a very volatile trading week.

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