My 2014 Outlook for Sterling

$GBPUSD will start 2014 at highs not seen in several years. Taking out the big psychological level at 1.65 is a big deal and it wouldn’t be surprising to see price move higher on spike rallies. Despite these levels, cable still remains in a range on the weekly chart. Also consider that $GBPUSD has always seen a turn in the long term trend at the new year. For the past 5 years, December has marked a new high or low and then January sees the beginning of a reversal. Seasonality would suggest that $GBPUSD starts to turn lower after the new year.

GBPUSD WEEKLY CHART

PREDICTION: $GBPUSD will fall to 1.5750 for the 1st half of the year and have a decision to make – either return to 1.65 or move lower to 1.50. This decision will largely be a function of the UK economy and Bank of England monetary policy. If the economic recovery continues into 2014, the BoE will not just consider a taper of its own but will actually move straight to the raising of interest rates. This will be extremely bullish for sterling as its central bank would be the 1st QE wielding central bank to raise interest rates since 2007. However, if the economy starts to waver GBP will come quickly undone as the driver of its 2013 rally starts to deteriorate.

As the Reserve Bank of Australia continues to intervene in the forex market, GBP continues to be a major beneficiary. Since the admission of RBA intervention, $GBPAUD has remained very strong. In fact, it seems to me that the RBA is actually weakening the AUD by buying GBP instead of USD to effectively lower the $AUDUSD exchange rate. It is very interesting that the RBA would choose to hold GBP rather than USD and perhaps a large reason why the USD has been unable to really rally since the December taper.

GBPAUD WEEKLY CHART

PREDICTION: $GBPAUD will move to 2.00 on continued RBA intervention.

While Germany remains robust, all other European countries are still struggling to find economic footing. So despite the global economy picking up steam, the European Central Bank will continue to be very accommodative to support the European economies in 2014. As the $GBPUSD enjoys a steep correction, those flows will rally the $EURGBP back to 0.8600. However a late year rate cut by the ECB along with USD strength will knock the luster off the EUR. Unable to make new highs, the surge in GBP will see $EURGBP to new lows at 0.8000.

EURGBP weekly chart

PREDICTION: The $EURGBP will fall below 0.8000 on a BoE rate hike and ECB rate cut combo.

While New Zealand enjoys economic growth and relatively high interest rates, the NZD has weakened substantially versus the GBP in 2013. The big reason for this is the Reserve Bank of New Zealand using monetary policy to cool the New Zealand housing sector and the $NZDUSD exchange rate. Back in October, the RBNZ admitted to intervening in the forex markets and that admission marked a bottom in the $GBPNZD. The currency pair went on to rally over 1400 pips. Additionally, as the USD strengthens, commodities stand to weaken which could also further rally the $GBPNZD.

 GBPNZD weekly chart

PREDICTION: The $GBPNZD will continue its rally and revisit the highs at 2.1000.

Since the dawn of Abenomics, the JPY has weakened as a matter of national policy. As such, the $GBPJPY has enjoyed a tremendous rally that was only fueled by the good turn in British fundamentals. The $GBPJPY rally of 2013 has begun to correct the 14,000 pip decline perpetuated by the financial crisis of 2008. Japanese officials are getting exactly what they want in a weak JPY and only have plans to keep that gravy train going.

GBPJPY monthly chart

PREDICATION: The $GBJPY continues its rally to 200.00.

The Bank of Canada began 2013 as one of the more hawkish central banks. However, in the 2nd half the year, the BoC turned more dovish citing concerns about economic growth and inflation. As a result, the $GBPCAD surged to levels not seen since 2010. With the $GBPCAD now above 1.7500, the technical picture points to more strength.

GBPCAD monthly chart

PREDICTION: The $GBPCAD continues higher to 1.8500 – 1.9000.

The Swiss National Bank put a cap on the $EURCHF back in 2012 and defended that exchange rate with unlimited currency interventions in the market. As such, the $GBPCHF has been rangebound between 1.4000 to the downside and 1.5000 to the upside for all of 2013.

GBPCHF weekly chart

PREDICTION: $GBPCHF remains rangebound between 1.4000 and 1.5000.

 

2013 has been a fantastic year for me both personally and professionally. My girls started new schools. My boy came into his own this year. I spoke on my 1st panel. I made multiple appearances on FXStreet’s Live Analysis Room (watch my latest). I appeared on BTFD.tv for the 1st time. (Catch our new year show this Friday, January 3 at 6:00am EST at BTFD.tv! It’ll be fun!) I launched, then shuttered, a forex service. I invested more and traded better. I had failure and success and learned tremendously from it all.

Happy New Year!

Sterling Digest, 27 December 2013: the Last Friday

the FED. Free money. Take some. | Gary Varvel cartoon
The reason why GBP continues to rally in some pairs and may correct in others for 2014

It has been an incredible 2013 for GBP sterling. It is only fitting that we see these breakouts only extend further on this last Friday session of 2013. The $GBPUSD, $GBPNZD, $GBPCAD, $GBPAUD, and $GBPJPY all hit multi-year highs today. Amongst these, $GBPUSD is the only seeing a correction off the highs. Others, like the $EURGBP and $GBPCHF,  actually saw sterling decline today though both recovered losses as trading wore on. In thin holiday markets, this last Friday saw volatile price action in contrast to very rangebound markets during the early half of this week. Given the year that was 2013 in sterling, what does 2014 hold in store for GBP trading? Instead of the uniform moves that we got for much of the 2nd half of 2013, it looks like sterling will be a mixed bag in 2014.

Image credit

 

The FED Takes Markets Back To The Old Normal

In an unexpected move yesterday, the $FED began the taper by reducing quantitative easing by $10 billion dollars. It was Bernanke’s last meeting and he couldn’t go out a liar. He said he would taper and he did. The caveat, however, is that forward guidance got stronger by upping the ante on unemployment. Conveniently, it set the unemployment threshold at 6.5% which is the level Janet Yellen stated during her confirmation hearing a couple months ago.

Prior to the $FED’s announcement, the GBP was seeing a pullback pretty much across the board. That dynamic has changed. USD strength can now build as the $FED is the 1st QE-wielding central bank to reduce such operations. We see this central bank divergence playing out already in the $EURUSD and the $GBPUSD. Additionally, this USD strength will weaken commodities and we can see that playing out as $GBPNZD resumes its rally.

As such my outlook has changed in the $GBPNZD while I still remain bearish GBP near term in the $GBPUSD and $EURGBP. Yesterday’s pop in sterling has allowed for good opportunity to short GBP while hovering around the 2.00 level remains a great buy opportunity in $GBPNZD. $GBPAUD remains on my no-trade list (see why).

$GBPUSD

GBPUSD DAILY CHART

$EURGBP

EURGBP DAILY CHART

$GBPNZD

GBPNZD DAILY CHART

 

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Central Bank Tailspin

Like I said this morning, I don’t trade with central banks. When a central bank is actively manipulating their currency, that is a currency that I will not trade. As of last week, the Australian dollar was officially listed on my no-trade list.

And you can see from price action. Of the 4 GBP pairs I actively trade, $GBPAUD is the only one that has remained buoyant. It has even hit the long-term bull target I pointed out weeks ago at 1.8250. Last week, RBA Governor Stevens openly admitted to intervening in the forex markets to deliberately weaken the AUD. He even went as far as to tell markets that his preferred level in $AUDUSD is 0.85. That’s 500 pips away so you can imagine what has to happen to the AUD from current levels. Though technicals had pointed to a significant dip in the $GBPAUD below the big 1.80 psychological level, I suspect that the $GBPAUD remains bullish as dips will be aggressively bought in anticipation of RBA intervention.

Despite the tinkering in the AUD markets, GBP remains on the back foot as this new trading week opens. Even as a general GBP bull, I still remain bearish sterling near term as I believe these monster rallies are also deserving of some monster corrections. After last week’s action, the weekly chart is now my chart in play.

Mentioned above: BTFDtv.com Fx Update Desk interview

$GBPUSD

$gbpusd_12_17_13_5_38_AM

$EURGBP

EURGBP WEEKLY CHART

$GBPNZD

GBPNZD WEEKLY CHART

$GBPAUD

GBPAUD WEEKLY CHART

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Sterling Begins To Unwinds

At the beginning of the week, I put out some charts that I was watching on a correction. Corrections of last week’s rallies materialized and sterling put in even higher highs across the board: $EURGBP hit 0.8250, $GBPUSD hit 1.6450, $GBPAUD hit 1.8190, $GBPJPY hit 169.17, and $GBPNZD hit new highs last week at 2.0238. These are major levels not seen in 3+ years for some of these pairs. It seemed as if nothing could stop GBP bulls.

Today, however, after monster rallies not just last week but for much of the 2nd half of 2013, it looks like sterling may be in for some major profit-taking. The Bank of England staying put on monetary policy again today gave buyers reason enough to begin booking profits. In fact, it would not surprise me if we saw these rallies start to put in major corrections in this last month of 2013.

If levels on the daily chart are broken, look to the weekly chart retracement levels. If we see price start to break the 61.8% Fibonacci level on the weekly charts, sterling could be looking at a reversal in 2014.

$GBPUSD

 gbpusd daily chart

gbpusd weekly chart

$EURGBP

eurgbp daily chart

eurgbp weekly chart

$GBPAUD

GBPAUD DAILY CHART

GBPAUD WEEKLY CHART

$GBPNZD

GBPNZD DAILY CHART

GBPNZD WEEKLY CHART

New Week Possibilities

After a strong week, it is not surprising to find sterling spending another Monday consolidating gains and pulling back off fresh new highs. If the trend continues in this new 1st week of a new month of trading, a correction of mostly last week’s rallies could provide opportunity for bulls. However, it also gives us levels to watch if the correction decides to turn into a deeper reversal.

$GBPUSD

GBPUSD 4 HOUR CHART

$GBPAUD

GBPAUD 4 HOUR CHART

$GBPNZD

GBPNZD 4 HOUR CHART

$EURGBP

EURGBP 4 HOUR CHART