The Sterling Digest, 27 June 2014: poker face

So here we are with $GBPUSD back above 1.7000. It is the first time since 2008 since we’ve traded at these levels. To me, nothing is more bullish than $GBPUSD above 1.70, $EURGBP below 0.80, $GBPAUD above 1.80 and $GBPJPY above 170. But the bears are milling and are suspect of these rallies.

piptrain on stocktwits

I admit I’m wary too but for another reason. $GBPUSD hasn’t had a decent correction yet.

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This was Monday. Since then, $GBPUSD has staged a correction to 1.9950 support from the 1.7050 highs. $EURGBP retraced 38.2% to 0.8030 this week. And I think that’s all we will get. Another Friday close above 1.7000 in cable after more remarks from Carney this week is a bullish indication. The fundamental landscape clearly still supports a strong GBP. What can turn the sterling tide? Mark Carney, of course.

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Sterling Especially Strong Against the Euro

Sterling is on steroids right now. Carney’s comments late Thursday have resonated with the market with a continuation higher against all currencies. But the GBP strength is not anymore pronounced than it is against the euro with the $EURGBP at levels not seen in almost a year.

EURGBP WEEKLY CHART

This full on breakout is approaching a major zone that has acted as both support and resistance with this currency pair. With Carney and Draghi engaging down very different monetary policy roads remarks, the $EURGBP has the sweet advantage of price movement based on double whammy fundamentals. These are the sweet confluences that long-term trends are made of. It is also a good reason to watch the rhetoric because any change in tone from either Draghi or Carney can stop this current bear run dead in its tracks. But until then, expect this zone around 0.7950 to determine direction in the trading sessions ahead.

The Sterling Digest, 13 June 2014: SURPRISE!

Bank of England
BoE preps market for rate hikes

Bank of England Governor Carney has just shocked the market signaling that interest rate hikes could come sooner than the market expects. GBP has skyrocketed across the board on these comments and it should. I just sat in with FXStreet’s Dale Pinkert on Monday saying that UK fundamentals remain strong but I believed that sterling would take advantage of the low volatility and summer trading doldrums to consolidate further. I didn’t think Carney would rattle markets until the August Inflation Report. Instead, he is well ahead of schedule and has put sterling back on track to reach new highs across the board. Already, $GBPUSD has probed 1.7000 and $EURGBP has broken below 0.8000.

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The Cable Zones

After a short seasonal consolidation in May, $GBPUSD starts June very tentative and hesitant around 1.6750. Because of its year-long uptrend, any weakness of late has been met with bids and, subsequently, price moves higher. However, notice also that rallies continue to be met by sellers. So who will prevail: buyers or sellers? Watch these areas of support and resistance for the answer.

GBPUSD DAILY CHART

A close above 1.7000 will reconfirm the uptrend and invalidate my current bearish bias. On the other hand, as $GBPUSD weakens, price targets 1.6600-1.6500. In this zone of support, price will either bottom as buyers step in to push price to new highs above 1.7000 or weakness will continue pushing prices lower still. I am a fan of the former scenario because I believe to get above the huge psychological level at 1.7000, $GBPUSD needs to consolidate still to lower levels. Given the price action, this may take all summer.

Read also: Today’s Appearance on FXStreet’s Live Analysis Room (FMFX)

Today’s Appearance in FXStreet’s Live Analysis Room

It was great to be back in the #FXRoom today with Dale Pinkert. As always, we talked all things sterling including $GBPUSD, $EURGBP, $GBPCAD, $GBPAUD, $GBPNZD and $GBPJPY and the recent behavior in these low volatility markets.

As I told Dale, watch how sterling behaves this summer. I suspect we start to get more definitive moves after the summer doldrums.

Check out my previous appearances:

 

Is There Any Correlation

Forex traders love to compare the cross currency pairs to the major currency pairs. Even those of us who are firmly in the camp that you trade each chart in and of itself, also like to conspire every now and again. The $GBPUSD has been moving higher all year, closing last week again above 1.70. The $EURGBP, however, closed back above 0.80 after already retracing 38.2% last week. Up until this week, sterling had been trading with good strength in both pairs. Two weeks ago, both $GBPUSD and $EURGBP closed above/below their respective big fig levels. Was Friday’s divergent close a signal of a decline in sterling?

GBPUSD versus EURGBP
$GBPUSD in candles, $EURGBP orange line of close price

Looking at this $GBPUSD vs. $EURGBP comparison chart, we see that these pairs tend to move inversely to each other especially during bouts of GBP strength. This rally of the last several months is no exception. With $GBPUSD already poised at the beginnings of another leg higher, the close above previous its highs is really bullish. If we see new highs in cable this week, we should see $EURGBP move towards the lows again despite the close above 0.80. Likewise, if we see new lows in $GBPUSD on a hold of 1.7050 resistance, perhaps $EURGBP confirms the Friday close and does shoot higher. Mind the calendar and trade what you see.